03 February 2025 : The Hindu Editorial Analysis

1. Beyond tax cuts, a closer read of the Union Budget

(Source – The Hindu, International Edition – Page No. – 8)

Backdrop of the Budget

• Key issues include high taxes, unemployment, slow private investment, external vulnerabilities, and fiscal concerns.
• The Budget focuses on Viksit Bharat, with policies spanning agriculture, manufacturing, MSMEs, social welfare, and infrastructure.

Fiscal Targets and Concerns

• The Budget aims for a fiscal deficit of 4.4% of GDP in FY26, relying on 11.2% growth in total tax revenues and 14.4% growth in income tax revenues.
• These projections seem overly optimistic due to tax cuts and slowing economic conditions.
• The second asset monetisation plan (2025-30) is expected to generate funds, but past failures raise doubts.
• The estimated ₹11.54 lakh crore in net market borrowings may crowd out private investments at a time when credit demand is weak.
• Achieving these targets will require higher tax efficiency and better asset monetisation strategies.

Tax Reforms and Revenue Losses

• The Budget revises personal income-tax slabs, exempting incomes up to ₹12 lakh (after rebate).
• While this provides relief to the middle class, it results in a ₹1 lakh crore revenue loss, potentially affecting government funding for development projects.
• Household savings have declined to 18.4% of GDP in FY23, raising concerns about long-term economic stability.
• The sustainability of these tax cuts is questionable when public investments in infrastructure and social welfare are crucial.

Manufacturing and MSME Sector

• The Budget aims to boost India’s manufacturing sector, which contributes only 17% to GDP.
• Production-Linked Incentives (PLIs) have shown moderate success but need further support.
• Enhanced credit facilities for MSMEs and a National Manufacturing Mission are welcome steps.
• Changes in MSME classification—2.5x increase in investment limits and doubling of turnover thresholds—may help businesses scale up.
• However, deeper issues such as regulatory inefficiencies, infrastructure gaps, and low innovation spending (0.64% of GDP) remain unaddressed.
• The lack of focus on industrial research and development limits India’s competitiveness against economies like China and Germany.

Agriculture Sector Initiatives

• The Budget introduces Prime Minister Dhan-Dhaanya Krishi Yojana and National Mission on High-Yielding Seeds to improve productivity and climate resilience.
• The Kisan Credit Card (KCC) loan limit is raised from ₹3 lakh to ₹5 lakh, supporting farmers financially.
• Focus on 100 low-productivity districts indicates a shift towards precision support instead of blanket subsidies.
• However, the Budget fails to address inefficiencies in agricultural markets, price volatility, and export growth.
• Lack of measures to boost millet and organic farming exports is a missed opportunity.

Challenges in External Trade

• IT and business process outsourcing (BPO) exports continue to grow at 10.5% CAGR, but diversification remains limited.
• Bharat Trade Net (BTN) and export credit support for MSMEs are positive steps but lack the scale needed to reduce trade deficits.
• The falling rupee and declining forex reserves require a stronger export strategy.
• A push toward value-added sectors like pharmaceuticals, electronics, and renewable energy could improve global competitiveness.

Climate and Clean Energy Measures

• The Budget supports supply-chain resilience through incentives for lithium-ion battery recycling, duty exemptions on critical minerals, and domestic solar PV and battery manufacturing.
• However, grid modernization, energy storage, and industrial decarbonization are not adequately addressed.
• Without these measures, India’s transition to a low-carbon economy may remain fragmented.

Conclusion: Trade-offs in Growth Strategy

• The Budget attempts to balance private enterprise growth and inclusive development.
• It seeks to boost consumption while maintaining savings and macroeconomic stability.
• Success will depend on effective execution and the government’s ability to adjust policies when necessary.

2. A Budget that is forward-looking and growth-oriented

(Source – The Hindu, International Edition – Page No. – 8)

Impact of Personal Income Tax Cuts

• A major highlight is the complete exemption from personal income tax for individuals earning up to ₹12 lakh annually.
• For salaried taxpayers, the exemption is extended to ₹12.75 lakh, including a ₹75,000 standard deduction.
• This move increases disposable income, boosting consumption and economic activity.
• The expected outcome is higher demand, improved business performance, and increased indirect tax collections.
• Key industries such as retail, real estate, and automobile manufacturing will benefit, leading to more employment opportunities.

Capital Expenditure Increase

• The Budget allocates ₹11.2 lakh crore for capital expenditure in 2025-26, a 10% increase from the previous year.
• This will enhance infrastructure development, generate employment, and stimulate economic activity.
• Investments in logistics and industrial sectors will contribute to long-term, sustainable growth.

National Manufacturing Mission

• A new National Manufacturing Mission aims to support the ‘Make in India’ initiative.
• It will focus on small, medium, and large industries through policy support, execution road maps, and governance frameworks.
• Objectives include enhancing domestic manufacturing capabilities, reducing import dependency, and attracting foreign investment.
• By streamlining regulations and offering incentives, the mission aims to establish India as a global manufacturing hub.

Support for Labour-Intensive Sectors

• The Budget prioritizes job creation in tourism, food processing, and leather industries.
• These sectors contribute significantly to India’s export earnings and employment generation.
• Targeted incentives and regulatory reforms will improve productivity, competitiveness, and job opportunities.

Maritime and Aviation Development

• A Maritime Development Fund has been announced to boost the marine economy, benefiting coastal states.
• The UDAN scheme is being expanded to provide flight connectivity to 120 new destinations.
• These measures will create economic opportunities in emerging growth centers across the country.

Prime Minister Dhan-Dhaanya Krishi Yojana

• This initiative aims to enhance agricultural productivity and improve rural livelihoods.
• It will cover 100 districts with low productivity and limited access to credit, in partnership with state governments.
• Key focus areas include crop diversification, sustainable farming, improved irrigation, post-harvest storage, and credit access.
• With an estimated 1.7 crore farmer beneficiaries, this scheme will boost rural purchasing power and benefit related industries.

Fiscal Deficit Reduction

• The government plans to lower the fiscal deficit from 4.8% in 2024-25 to 4.4% in 2025-26.
• A reduced deficit will help stabilize inflation, increase investor confidence, and strengthen the macroeconomic environment.

Ease of Doing Business Reforms

• The Budget simplifies the tariff structure by removing seven tariff rates.
• It ensures that no more than one cess or surcharge is levied, making taxation fairer and more predictable.
• The issue of inverted duty structures has been addressed to enhance trade competitiveness and encourage domestic firms’ participation in global supply chains.

Conclusion

• The Budget’s focus on capital expenditure, manufacturing, and labour-intensive sectors, along with fiscal discipline and tax relief, sets a foundation for economic growth.
• While detailed implementation of schemes remains to be seen, the overall approach is proactive and growth-oriented.
• Businesses and stakeholders will assess and adapt to these measures, with the full impact unfolding over time.