Some of the major issues confronting the country are hunger, health, unemployment and poverty. India ranks 105th out of 127 countries in the Global Hunger Index (GHI) 2024, highlighting a serious hunger crisis driven by ongoing challenges of food insecurity and malnutrition. Similarly out of 143 countries, India ranks 126 while many other Asian counties are better placed – China ranks 60th, Nepal 93rd, Pakistan 108th, Myanmar 118th – in the World Happiness Index. India. Also with a score of 42.8 (out of 100), India has slipped by 0.8 points since 2019 in the Global Health Index of 2021 whereas, neighbouring countries like Bangladesh, Sri Lanka and Maldives have improved their score by 1-1.2 points. Budget 2025 has not reflected on these major issues.
Economic Survey 2024-25 has noted that India will need to improve its global competitiveness through grassroots level structural reforms and deregulation to reinforce its medium-term growth potential. The survey also has strongly pitched for less state control and easier rules, stating that lowering the cost of business through deregulation will make a significant contribution to accelerating economic growth and employment amidst unprecedented global challenges. But the budget has not reflected on these crucial issues.
The chief economic adviser V. Anantha Nageswaran’s suggestion to the government to “Get out of the way” and allowing businesses to focus on their core mission is a significant contribution that governments around the country can make to foster innovation and enhance competitiveness. It is the most prudent and bold piece of advice. It also noted that the next round of ease of doing business initiatives should be led by state rather than the Centre, in order to attract more investment.
Structural reforms and governance reforms form the base for creating wealth for the poor. The budget presented by finance minister Nirmala Sitharaman has not addressed the structural challenges that the Indian economy faces. The economy would continue to hold out to old path, yielding only 6% growth in 2025-26, far from the 8% growth rate needed for development. These have not been addressed in the budget of 2025-26. Any superficial structural reforms will not suffice. The advanced estimates of GDP has already projected a decline of real GDP growth rate to 6.4% in 2024-25 from 8.2% last year.
Consumption is the primary lever for the economy given uncertainty over exports and muted corporate investments even as government capex continues to do the heavy lifting. The country’s narrow taxpayer base raises questions about the extent to which household consumption or savings will be impacted.
Even on the external front, the country is on more shaky ground. With Donald Trump in the White House, US is turning far more protectionist and Indian exports are bound to be impacted with his weird policies from trade tariffs on BRICS grouping, of which India is a founding member, immigrant issues, inflation to a stronger dollar. Trump’s influence on Indian economy will remain a big challenge. Budget 2025-26 is totally blind on India-US relations on these crucial issues.
The International Labour Organisation (ILO) in its ‘India Employment Report 2024’ examined trends for youth employment, education, and skills and found that the youth unemployment rate has increased with the level of education, with the highest rates among those with a graduate degree or higher, and higher among women than men.
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The 2024 budget presented just after the Lok Sabha elections had prioritised employment and skill development. The finance minister had announced five schemes and initiatives to facilitate job and internship opportunities for 4.1 crore youth over a five-year period with a central outlay of Rs 2 lakh crore. A pilot project of the scheme was launched in October last year, targeted at providing 1.25 lakh internship opportunities.
The figures reveal that the government spent only Rs 380 crore out of the Rs 2,000 crore it had budgeted for this “flagship” programme. Why didn’t the Union budget make any mention of what progress have been made in its ambitious internship scheme. There is not a single mention of the above scheme in the finance minister’s 2025-26 budget speech.
Public expenditure on rural and urban development, agriculture, education, food subsidy, energy, transport, and health has been axed. Among centrally sponsored schemes, the Revised Estimates (RE) for the Jal Jeevan Mission and Pradhan Mantri Awas Yojana (both rural and urban) show decline of Rs 47,469 crore and Rs 38,575 crore, respectively, from their Budget Estimates (BE).
The expenditure on MGNREGA was cut in the BE itself by Rs 3,654 crore from the previous year. Such deep cuts in budgeted capital and welfare expenditures would have a dampening effect on investment and consumption, especially in rural areas. Until the consumer base is strengthened all other exercise will be futile. The budget also fell short on government spending in key sectors, leading to a decline in stocks related to capital goods, engineering, and infrastructure.
Budget 2025 lacks strong policy initiatives for manufacturing and MSMEs. Structural issues like high compliance burdens, competition from global markets, and supply chain disruptions remain unaddressed. The National Manufacturing Mission lacks clarity on execution frameworks and direct incentives for increasing India’s global competitiveness.
More than 800 million people i.e. about 60% of India receive free food grain under the Pradhan Mantri Garib Kalyan Anna Yojana. It’s hard to see this 60% as being middle class; and so we have an upper limit for the middle class at 40% of the country: 600 million people, fewer than 120 million households.
A question posed here is who constitute the middle class?
When the finance minister announces a change in income tax slabs, it begs the question – whom does this impact? Strictly speaking, the census is the only tool in understanding how many Indians are excluded from welfare schemes when they are in need of it, whether resource allocation is happening efficiently, and because the census lends vital insight into other metrics of economic data, inflation and jobs estimates. In the absence of such a vital data, and who this change in tax slabs will benefit is a real question.
Hence, we should not get carried away and assume that “middle class” tax cuts are what is delivered. The budget 2025-26 proposed income tax cuts, but the government is also to come out with the new income tax Bill shortly. The country will have to wait and watch the outcome.
Rural distress and rising unemployment have not been properly addressed. For example, the agriculture sector gets Rs. 1,27,290.16 crore, allocation for crop insurance scheme (Pradhan Mantri Fasal Bima Yojana) down by Rs 3621.73 crore, cut in fertilisers will also hit subsidy.
The budget announced a resilience scheme aimed at skilling rural youth and reduce distress migration, but kept the funding for MGNREGS unchanged at Rs 86,000 crore. Additional allocation in the MGNREGA wages in the Union budget alongside an increase in rural development outlays would have led to increased consumption demand in the rural areas.
When GDP is not expected to grow beyond 6.8%, the decision to keep allocations to MNREGA the same as the last two years despite rising inflation could have a limiting impact on intended job creation.
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Social sector spending is equally frustrating with numbers for health and education looking woefully inadequate. The increase of 9.53% hike in the defence budget might not be enough to meet the needs of the defence forces and for indigenisation. The share is too low for a country that faces two nuclear rivals across its borders.
The challenges posed by the depreciation of the rupee and declining forex reserves require a more ambitious export strategy. A physical push to value-added sectors such as pharmaceuticals, electronics, renewable energy, and high-value agricultural products could have strengthened India’s position in global supply chains and enhanced export competitiveness.
The budget’s fiscal outlays will be eventually judged by how effectively they address the fundamental trade-offs of Indian growth; how to unleash private enterprise while ensuring inclusive development; how to boost consumption without compromising savings, and how to accelerate growth while maintaining macroeconomic stability. Ultimately, the credibility of execution and the government’s willingness to course-correction where necessary will matter.
Gross fixed capital formation by the private sector fell from 31% of nominal GDP during UPA 1 to 19.7% during Modi 2.0. The lack of enthusiasm by the private sector to invest has forced the government to spend generously to stimulate the economy over the last decade, which is unsustainable. This is where Manmohan Singh and his brand of policies and persona will be missed by the country. Singh opened the door because he had an openness of thought, driven by his commitment to change.
The Economic Survey has given a clear picture. The budget has not reflected on the issues raised and hence the pulse of the economy is not reflected in the budget nor any lessons learnt from the past.
M. Veerappa Moily is a former Union Minister of petroleum, law, power, corporate affairs and former chief minister of Karnataka.
