A lot was being expected from the Union government and the finance minister in their first full year budget in the third term.
This was broadly because there was hope that a roadmap would be proposed for structural change and boosting growth, through consumption and private investment – which has been all weakening over the last eight years, particularly since the demonetisation days of 2016.
The offered fiscal vision in this budget fails in addressing that.
With public debt at nearly 80% of GDP and interest payments eating up a quarter of government revenue, the government stuck to a fiscally cautious script. This is a fiscally tight budget, with an aiming of hitting a fiscal deficit target of below 4.5% by 2026-27. No surprises there – since the finance minister has stuck to the old tune of keeping to fiscal consolidation targets. This time though, it comes at the cost of boosting growth.
In remaining fiscally conservative, the budget missed the opportunity to make bold bets for the short term while delving too much either into the past or the future. Agriculture sector simply got a headline push, with the Prime Minister Dhan-Dhaanya Krishi Yojana targeting 100 underperforming districts.
Taxpayers saw some relief, with those earning up to Rs 12 lakh now exempt from income tax under the new tax regime. Note that the Rs 12-lakh limit is not an exempt limit but simply a rebate, requiring all to file income tax regardless of how much they earn. A person earning even one rupee over the Rs 12 lakh rebate would be required to pay the complete tax levied on other lower slabs as well. There isn’t much for the higher upper-middle income group, who, combining all surcharge, would still have an effective tax rate of roughly 39% on earning more than Rs 30 lakhs per annum.
Moreover, any multiplier effect of a marginally higher disposable income for less than 30-31 million of the overall workforce is a drop in the bucket. Its macro-growth impact may hardly be realised in any noticeable margins and despite much brouhaha in the mainstream media, the “middle class tax break” further depends on where any disposable income is saved.
As per the Economic Survey, if 77% of those receiving direct transfers are spending 44% of that on food and more than 31% on loan repayments and essential services, the actual growth dividend of this “saving” from changed tax slabs (with effective rates almost the same) will be very limited, combined with a higher inflationary tax and GST-imposed burden which has been gripping the liquidity landscape for middle-income groups.
On trade policy and combating excessive government regulation on trade, the government offered a rationalisation of the custom duties and import restrictions, with tariff cuts announced on products like synthetic flavours, solar panels, and certain vehicles. These hint at external pressures. These steps are very well being viewed as a move to appease global partners before the prime minister’s upcoming state visits, especially to the US.
We also need to closely assess whether the Union government has genuinely addressed the needs of marginalised communities, particularly the poor, youth, farmers, and women, who were central to the ruling Bharatiya Janata Party’s electoral messaging.
The short answer to this is: to a very limited, marginal extent.
Overall, nothing substantive comes out of the budget for these respective communities who have been reduced to electorally critical groups for a government which is known for using the Budget as a medium to appeal to voters for upcoming state and union elections. This budget’s overt focus on Bihar remains a case in point.
In appearing to sound comprehensive, the 2025-26 budget speech also outlined 10 key areas to drive these objectives, including enhancing agriculture, MSMEs, employment, and innovation. The budget claims to empower the poor, youth, farmers, and women while promoting balanced regional growth. But it does not deliver on this.
This government celebrates a dip in urban unemployment to 6.4%, but – let’s be honest – this is barely movement from 6.6% in the last quarter. More troubling is the kind of jobs being created, as economists like Arvind Subramanian have recently pointed out.
Most of the new employment is in low-wage and informal sectors which offers little security or upward mobility. The economy needs 78.5 lakh new non-farm jobs every year to keep up with the workforce, yet there’s no clear roadmap to get there.
MSMEs which are undisputed backbone of employment with over 23.24 crore workers should be thriving. Instead, they are drowning in delayed payments and credit shortages. Despite all the talk of supporting small businesses, fundamental issues remain unsolved.
The government’s focus on gig work and entrepreneurship as employment solutions by giving them health insurance and ID cards, though important, feels more like a way to dodge real labour market reform than a serious job creation strategy.
Source: Union Budget 2025-2026.
Empowering the poor: Credit and livelihoods
A key highlight of the budget is the expanded credit access in form of guarantees for the micro and small enterprises (MSMEs). The government has increased the credit guarantee cover from Rs 5 crore to Rs 10 crore, unlocking an additional Rs 1.5 lakh crore in credit over the next five years. This move is expected to empower small businesses, promoting entrepreneurship and job creation at the grassroots level.
Another development is the introduction of customised credit cards with a Rs 5-lakh limit for micro-enterprises registered on the Udyam portal, which, only if effectively implemented, could significantly enhance financial inclusion for small entrepreneurs who often face challenges in accessing formal credit.
Additionally, the extension of the PM Garib Kalyan Anna Yojana may help ensure the continued provision of free food grains to over 80 crore people for another five years. The budget seeks to also allocate financial assistance for education, offering loans up to Rs 10 lakh with interest subvention for students from low-income families. The actual disbursement process of funds for these and the implementation timeline of this remains a big question, as seen for other rural and low-income welfare schemes too.
On agriculture: Do farmers benefit?
The budget falls short of addressing the need for higher Minimum Support Prices (MSP) and additional procurement mechanisms, which are crucial for ensuring farmers’ income security.
The government’s broader strategy focuses on enhancing agricultural productivity through advanced farming techniques, fostering sustainable practices, and expanding irrigation infrastructure to reduce crop wastage and increase output.
It introduced the Pradhan Mantri Dhan Dhanya Krishi Yojana, aimed at boosting productivity, promoting crop diversification, and enhancing post-harvest storage at the panchayat and block levels. The programme shall target 100 districts with low agricultural productivity, aiming to improve infrastructure and provide better access to resources in struggling regions. While these efforts reflect a long-term vision for agricultural sustainability, concerns persist regarding immediate financial relief for farmers.
Moreover, facilitating access to both long-term and short-term credit for farmers is a key component to ensure their financial well-being. The rural prosperity initiative is also introduced to further support these efforts, aiming to uplift rural communities and stimulate overall agricultural development.
Women: Access to credit versus systemic barriers
A significant announcement is the Rs 2 crore term loan scheme for five lakh first-time entrepreneurs who are women, or from the Scheduled Castes or Scheduled Tribes. This initiative aligns with efforts to bridge gender or societal disparities in financial access. According to an IFC report (2022), 90% of female entrepreneurs in India have never borrowed from formal financial institutions, highlighting the need for such targeted interventions.
Additionally, the expansion of Saksham Anganwadi and Poshan 2.0 to cover eight crore children, one crore pregnant mothers, and 20 lakh adolescent girls reflects a marginally targeted approach to improving women’s and children’s health. By ensuring sustained nutritional support, particularly for lactating mothers and adolescent girls, this initiative has the potential to drive long-term improvements in community health outcomes. This comes at a time when India performs at the worst possible level on various nutritional access pillars and indices.
While increasing access to agri-credit is a positive step, addressing systemic barriers within the announced and existing schemes, and on issues such as workplace inclusion, safety, and labour force participation remains crucial. India’s ranking in the Global Gender Gap Index suggests that economic empowerment for women requires a multifaceted approach beyond just financial support.
Social sector spending
The government talks a big game on social welfare – education, healthcare, rural development – but does the budget back it up?
On paper, social sector spending has increased, but when measured against inflation, population growth, and the actual needs of citizens, the numbers start to look less generous.
Total net receipts for the centre are estimated at Rs 28.37 lakh crore, while total expenditure stands at Rs 50.65 lakh crore, signalling continued fiscal constraints. The government may boast about keeping the fiscal deficit at 4.4% of GDP, but at what cost? When interest payments alone swallow nearly a quarter of total revenue, what’s left for genuine welfare spending?
Take education – an area where India desperately needs improvement. The budget allocations suggest a push, but in real terms, funding struggles to keep pace with rising student numbers and the infrastructure deficit in government schools.
Healthcare tells a similar story: expanding medical education and cancer care centres are welcome moves, but public health funding as a percentage of GDP remains abysmally low. Rural development programmes see a modest uptick, yet high unemployment and rural distress raise questions about whether these schemes are enough to move the needle.
Meanwhile, the government continues its big-ticket capital expenditure spree, pouring money into infrastructure while social spending remains a fraction of its overall expenditure. The balance between long-term economic growth and immediate welfare needs is crucial – but is this government tilting too far toward optics-driven mega-projects while leaving social security an afterthought?
It would appear so – reflecting a confused and politically motivated economic ideology that lacks a clear vision for securing growth and development for all.
