Indian Finance Minister Nirmala Sitharaman released the Union Budget 2025-26, under the government of Prime Minister Narendra Modi to provide relief for middle class taxpayers while expanding infrastructure development while practicing fiscal discipline because economic growth is slowing down, and inflation is increasing. The federal budget maintains financial responsibility while supporting economic growth because analysts project GDP growth to reduce to 6.3-6.8% in the next fiscal year.
Income Tax Slabs Revised for Middle-Class Relief
One of the primary features of this budget includes the adjustment of income tax brackets that provides important tax breaks to middle-class citizens. Under the new system:
- A new tax-free threshold applies to all income amounts below ₹1.2 million ($13,841; £11,165) except special-rate income and capital gains kind of revenue.
- Another adjustment involving income tax brackets focuses on providing consumers additional funds which promotes the increased demand for urban goods.
Although the tax cut implementation is underway, the number of direct payers remains small because only 1.6% of Indians (22.4 million people) currently report direct income taxes. The financial market showed positive reactions by increasing the stock prices in consumer goods companies and automobile manufacturers alongside e-commerce businesses.
Infrastructure Investment to Drive Growth
- The government allocated higher industrial investment of ₹11.2 trillion through an increase from ₹11.1 trillion while maintaining its priority on road development and port and rail infrastructure expansion.
- The government plans to offer no-interest state government loans as an incentive to develop national infrastructure which stands as a primary economic growth factor since 2020.
Nuclear Power sector received support with changes in Insurance regulations
- The new Nuclear Energy Mission aims at developing 100GW nuclear power capacity by 2047 through an initial funding of ₹200 billion ($2.3bn; £1.86bn).
- FDI regulations in insurance were revised to enable global investors to participate fully in the Indian insurance market thus boosting its international appeal.
Support for Small-Scale Industries and Manufacturing
- The government invested ₹1.5 trillion into small and micro industries throughout five years as they generate 35% of manufacturing production while employing many people.
- The government decreased import tariffs on textiles together with mobile phones and electronics in order to develop local manufacturing.
- A special high-level committee established its mission to ease business regulations with an ultimate goal of easing business compliance requirements.
Balancing Growth with Fiscal Responsibility
- The government has established a target to reduce fiscal deficit to 4.4% by 2026 starting from the current year’s 4.8% because this will help preserve both India’s credit ratings and its borrowing expenses.
- The Reserve Bank of India (RBI) plans to decrease interest rates following its recent $18bn banking system liquidity boost aimed at adopting more relaxed monetary policy framework.
The Indian Union Budget for 2025 targets increased consumer spending alongside attraction of capital investments and continued financial stability preservation. The economic activity stands to benefit from income tax slab changes and infrastructure spending but faces hurdles due to high inflation together with a slowing growth rate. Monetary policy choices made by the RBI during the upcoming months will determine how the Indian economy develops.
