Decoding the Budget
Termed pro-growth, middle class and development, what’s in this budget different from what we’ve seen before? And who does it impact?
( Suchitra Padmanabhan, Policy Research Associate, Synergia Foundation, She holds a Post Graduate Degree in Social Policy & Planning from London School of Economics and Political Science (LSE).)
The Honourable Finance Minister, Nirmala Sitharaman, presented the inaugural comprehensive Budget of the Modi 3.0 government, with a strategic focus on delivering tax relief to the middle class. A key policy reform introduced in the Budget is the provision of full income tax exemption for annual incomes up to ₹12 lakh, aimed at increasing disposable income and stimulating economic engagement.
In her Budget speech, the Finance Minister highlighted the government’s dedication to fostering the welfare of marginalised and pivotal segments of society through the GYAN initiative, which encompasses Garib (the underprivileged), Yuva (youth), Annadata (farmers), and Nari Shakti (women). This initiative reflects the government’s broader commitment to driving inclusive growth and social equity.
Furthermore, the Finance Minister unveiled targeted measures for Bihar, a state where legislative assembly elections are due later this year, underscoring the government’s attention to region-specific development priorities.
A balancing act.
The Union Budget 2025 presents a comprehensive roadmap for transformative reforms across six critical sectors: taxation, power, urban development, finance, mining, and regulatory processes. The government’s strategic emphasis is on fostering inclusive development, enhancing the purchasing power of the middle class, and leveraging the next five years as a pivotal period for driving widespread economic growth. A New Income Tax Bill is set to be introduced, proposing a simplified tax structure designed to alleviate the burden on taxpayers across all income brackets.
Key highlights include:
• Full tax exemption for annual incomes up to ₹12 lakh, with nil tax on income up to ₹12.75 lakh for salaried individuals, incorporating a ₹75,000 standard deduction.
• Doubling the tax deduction limit for senior citizens.
• Elimination of Tax Collected at Source on education-related remittances.
The Budget also introduces strategic tax measures to bolster key industries and promote sustainable growth. Factors include:
• Duty-free status for 36 life-saving drugs.
• Reduction of customs duty on lithium batteries and various essential goods.
• An asset monetisation plan targeting ₹10 lakh crore in revenue.
• Expansion of Foreign Direct Investment (FDI) limits in the insurance sector to 100%.
Economic Outlook and Fiscal Management
• The fiscal deficit for FY25 is projected at 4.8% of GDP.
• Capital expenditure is revised to ₹10.18 lakh crore.
• Total receipts and expenditures for FY26 are estimated at ₹34.96 lakh crore and ₹50.65 lakh crore, respectively.
Agricultural and Rural Development Initiatives
The Budget prioritises agricultural resilience and rural development through several targeted measures:
• Establishment of a new urea plant in Assam.
• Launch of a National Mission on High-Yielding Seeds.
• A five-year mission to enhance cotton productivity.
• Expansion of the Modified Interest Subvention Scheme to increase loan limits for farmers.
• Introduction of the PM Dhan Dhanya Krishi Yojana to uplift low-yield districts.
Regulatory and Industrial Reforms
• Development of a national asset monetisation strategy.
• Formation of a High-Level Committee to drive regulatory reforms.
• Launch of a National Manufacturing Mission to strengthen production capacity and promote domestic industries.
Infrastructure and Public-Private Partnerships (PPP)
• All ministries will draft a three-year project pipeline to facilitate efficient PPP implementation.
• States will receive ₹1.5 lakh crore in interest-free loans to accelerate infrastructure development.
Education and Skill Development
The Budget proposes significant investments to strengthen the education sector:
• Establishment of 50,000 Tinkering Labs in schools to foster innovation.
• Expansion of broadband connectivity in rural educational and healthcare institutions.
Tourism and Export Promotion
• Development support for the top 50 tourist destinations.
• Creation of a digital trade documentation platform to streamline export processes.
Aviation and Regional Connectivity
• Expansion of the UDAN scheme to connect 120 new destinations over the next decade.
Healthcare and Public Health Infrastructure
• Increased allocation for expanding medical college seats.
• Establishment of day-care cancer centres in district hospitals to improve accessibility to cancer care.
Support for Micro, Small, and Medium Enterprises (MSMEs)
• Revised MSME classification limits to facilitate business growth.
• Enhanced credit guarantee coverage to improve access to credit.
India Post Revitalisation
• Transformation of India Post into a public logistics organisation to support rural economies and small businesses.
This Budget reflects the government’s commitment to fostering sustainable growth, enhancing infrastructure, and addressing the needs of key sectors to drive India’s economic progress.
Impact on Key Sectors
The Union Budget 2025 elicited a mixed response in the stock market, with sector-specific reactions reflecting the diverse policy measures introduced. While the Budget aimed to stimulate consumption and strengthen the “Make in India” initiative, these strategic shifts prompted distinct movements across key industries. The following section offers a detailed sector-wise analysis of the Budget’s immediate impact on the market.
Stock Market Overview
The stock market displayed significant volatility on the day of the Budget announcement, ultimately closing flat. Broader market indices showed mixed performance: one index rose by 0.41%, while another declined by 0.42%. The market experienced sharp fluctuations, with initial declines followed by a recovery, reflecting investor uncertainty regarding the Budget’s implications.
Fast-Moving Consumer Goods (FMCG) Sector
The FMCG sector is expected to benefit considerably from the Budget provisions. The reduction in income tax, with no tax payable for individuals earning up to ₹12 lakh (₹12.75 lakh for salaried individuals after standard deductions), is likely to increase disposable income and drive consumer demand. Government initiatives such as the Dhan Dhanya Krishi Yojana and a focus on high-yield seeds are anticipated to enhance farmer incomes, thereby boosting rural consumption. FMCG stocks recorded notable gains, with one index rising by 4.86% following the announcement of agricultural reforms. Beneficiary companies include Hindustan Unilever, ITC, Dabur, and Nestle, along with their suppliers such as Polyplex and Uflex.
Real Estate Sector
The real estate sector is poised for positive developments, driven by government initiatives to promote affordable housing, including the Pradhan Mantri Awas Yojana. The income tax reductions are expected to further enhance disposable income, benefiting both affordable and mid-income housing segments. The introduction of a second tranche of the Special Window for Affordable and Mid-Income Housing Fund will provide critical liquidity to distressed residential projects, supporting the completion of approximately 40,000 additional housing units.
Gold and Precious Metals
The gold sector witnessed mixed reactions, with prices reaching a record high of ₹82,750 following the Budget announcement.
Automobile Sector
The automobile sector is likely to be influenced by several Budget proposals, particularly those focused on electric vehicles (EVs). The reduction in customs duties on 25 critical minerals, including lithium, along with the exemption of basic customs duties on EV batteries, is expected to stimulate domestic EV battery manufacturing and potentially reduce EV prices.
This sector-wise analysis underscores the Budget’s varied impact on different industries, reflecting the government’s strategic focus on driving economic growth and addressing sector-specific challenges.
Other Key Sectors
Defense: Stocks declined by up to 8% despite a budget allocation of ₹4,91,732 crore.
Railways: Stocks fell by over 6% due to the absence of significant announcements.
Telecom: Companies are set to benefit from the push for broadband connectivity in schools.
Manufacturing: Firms are expected to gain from policies aimed at boosting domestic production.
Banking: Institutions, particularly those linked to the Kisan Credit Card scheme, may see increased credit adoption, although rising yields could exert pressure on the sector.
Microfinance: Companies are in focus due to enhanced credit guarantees for MSMEs.
Aviation: Stocks gained following the announcement of a modified UDAN scheme.
The Naysayers.
In a democracy, the role of the opposition is to critique, and in India, they have fulfilled this role relentlessly.
The Union Budget 2025 has been labelled by some as a missed opportunity for achieving the vision of a ‘Viksit Bharat’ (Developed India). The budget has drawn mixed reactions, offering significant tax relief for the middle class but falling short in addressing critical structural challenges such as unemployment, MSME growth, and social welfare. While the Budget aims to stimulate consumption and sustain capital expenditure, several key sectors remain inadequately addressed.
Employment and Welfare Gaps
Despite rising unemployment rates, the Budget reduced the allocation for the Employment Linked Incentive scheme from ₹10,000 crore to ₹6,799 crore.
Funding for the Mahatma Gandhi National Rural Employment Guarantee Act remains stagnant at ₹86,000 crore, failing to meet the growing demand for rural employment. Skill development initiatives lack robust private-sector participation, and job creation continues to rely heavily on government-led schemes, raising concerns about sustainable employment generation.
Neglected MSMEs and Industry Support
While the Budget supports broader manufacturing aspirations, certain sectors, such as toys and leather, received a mere ₹0.01 crore under the Production Linked Incentive scheme. MSMEs, which form the backbone of India’s entrepreneurial ecosystem, continue to face challenges in accessing credit. The absence of bold fiscal interventions to unlock their growth potential remains a significant oversight.
Fiscal Deficit and Investment Concerns
The fiscal deficit target of 4.4% for FY26 reflects a cautious approach to fiscal consolidation. However, the foregone tax revenue of ₹1 lakh crore raises questions about the government’s capacity to fund essential welfare programmes. Meanwhile, FDI inflows plummeted to just $0.48 billion in FY25, underscoring persistent structural issues that regulatory reforms have yet to resolve.
Healthcare and Regional Connectivity
Despite rising healthcare costs, the “missing middle” —those who are neither poor nor affluent—remains uninsured, and efforts to expand healthcare access have stalled. The UDAN scheme’s ambitious expansion plans contrast sharply with declining budget allocations, jeopardising its long-term viability and failing to address critical regional connectivity gaps.
Political Priorities and Regional Disparities
The Budget’s disproportionate focus on Bihar, with limited provisions for states like Kerala despite their pressing development needs, highlights the politicisation of fiscal planning. Strategic infrastructure projects, such as the Vizhinjam Port, and vulnerable communities, including fishermen, remain overlooked, raising concerns about equitable development.
A Cautious Path Amid Structural Reforms
While the Budget seeks to boost middle-class consumption through direct tax relief and sustain capital expenditure momentum, it falls short of addressing deeper economic vulnerabilities.
The structural reform agenda, including MSME reforms, agricultural modernisation, and export ecosystem enhancements, shows promise but requires greater fiscal support to achieve meaningful impact.
Conclusion.
Budget 2025 walks a tightrope between fiscal prudence and growth imperatives. While it takes steps in the right direction, the vision of a “Viksit Bharat” demands bolder policy measures.
Bridging the gap between aspiration and execution is essential to ensure inclusive, long-term progress for all segments of society.
Synergia Takeaways:
• The Union Budget 2025 strives to strike a delicate balance between fiscal prudence and economic growth imperatives. It is set to reshape market dynamics, benefiting consumption-driven sectors while industries dependent on capital expenditure may face short-term adjustments.
• A key highlight of the budget is its focus on providing fiscal relief to the middle-income segment. A significant policy reform grants full income tax exemption to individuals earning up to ₹12 lakh annually. This initiative aims to boost disposable income, enhance consumer spending, and drive broader economic participation.
• The budget introduces a comprehensive set of measures spanning multiple sectors, prioritising domestic manufacturing, rural consumption, and growth in emerging industries like electric vehicles. While some sectors may experience short-term volatility, the overall policy direction supports long-term structural growth through strategic interventions.
