Union Budget 2025-26: Growth, Reforms and Fiscal Prudence

The budget focuses on sustainable and inclusive growth and emphasises on investment, private sector participation and rural consumption. Fiscal consolidation is on priority to ensure that deficit targets align with long-term stability. Beyond short-term economic management, the budget reinforces India\'s long-term vision of \'Viksit Bharat,\' promoting reforms in agriculture, MSMEs, infrastructure and innovation to drive sustained economic growth. The budget introduces transformative reforms in six domains: taxation, power sector, urban development, mining, financial sector and in designing regulatory frameworks.

Growth Projections for India

Growth estimates for FY 2025-26 are between 6.5 percent and 7 percent. The Asian Development Bank provides the highest projection at 7 percent. The Organisation for Economic Cooperation and Development (OECD) forecasts a steady 6.8 percent. Both, the World Bank and the Reserve Bank of India (RBI) predict a moderate 6.7 percent growth. The International Monetary Fund (IMF) presents the most conservative estimate at 6.5 percent, reflecting a slightly cautious stance. Overall, these projections suggest a positive growth outlook for India.

Financial Aspects of the Budget for 2025-26

The budget relies on borrowings, corporation tax, income tax, and goods and services tax as key revenue sources. Non-tax receipts, excise duty, and customs duty play relatively smaller roles while non-debt capital receipts remain minimal.

There is a gradual increase in the gross tax revenue of the union government, rising from 10 percent of GDP in 2014-15 to a projected 11.9 percent in 2025-26. Direct tax receipts have steadily grown, while indirect tax receipts have remained relatively stable. The trend indicates a broadening tax base and enhanced revenue mobilization leading to fiscal stability.

Regarding expenditure, the budget sets aside the largest share to meet states\' share in taxes and duties, reflecting constitutional obligation for vertical devolution. Interest payments account for 20 percent highlighting significant debt servicing obligations of the government. Four items (Defence, Finance Commission Transfers, Other Expenditure and Centrally Sponsored Schemes) receive 8 percent each. Economic Subsidies are set at 6 percent, indicating controlled spending.

Trends in three major budgetary subsidies show that the food subsidy has declined from 7.61 percent in 2021-22 to 4.02 percent in 2025-26. Fertilizer subsidies showed fluctuation and a declining trend while petroleum subsidies remain minimal, increasing slightly in 2024-25 due to LPG subsidisation. Trends in expenditure on subsidy reflect government efforts towards rationalisation of subsidies while maintaining essential support.

Total expenditure as a percentage of GDP peaked in 2020-21 to 17.7 percent, primarily due to increased government spending during the COVID-19 pandemic. Since then, it has been on a steady decline and projected to be 14.2 percent in 2025-26. Revenue expenditure rose to 14.4 percent of GDP in 2020-21 before gradually decreasing to 9.8 percent in 2025-26, reflecting fiscal prudence and adherence to fiscal discipline as mandated in the revised FRBM Act. Meanwhile, effective capital expenditure has shown a steady increase, growing from 2.6 percent of GDP in 2019-20 to a projected 4.3 percent in 2025-26.

A Progressive Budget Shaping the Path to Viksit Bharat

The budget reiterates government\'s commitment for accelerating growth, ensuring inclusive development and strengthening the private sector, while enhancing the spending power of the middle income class. The vision of \'Viksit Bharat\' envisages zero-poverty, quality education, affordable healthcare, skilled labor with meaningful employment, increased women\'s economic participation and positioning India as the world\'s food basket. The development journey is driven by four engines: agriculture, MSMEs, investment and exports; powered by reforms and guided by inclusivity towards the destination of Viksit Bharat.

Agriculture as the First Engine

• Prime Minister Dhan-Dhaanya Krishi Yojana: Targets 100 districts with low productivity, focusing on enhancing yields, sustainable agriculture, irrigation and credit availability, benefiting 1.7 crore farmers.
• Rural Prosperity and Resilience: Multi-sectoral program covering 100 agri-districts in Phase-1 to address rural underemployment through skill development, investment and technology.
• Mission for Aatmanirbharta in Pulses: A six-year mission focusing on Tur, Urad and Masoor to ensure procurement support for farmers.
• Other agricultural initiatives: Comprehensive program for fruits and vegetables, special Makhana Board in Bihar, National Mission on High Yielding Seeds, marine fisheries framework for Andaman & Nicobar and Lakshadweep, Mission for Cotton Productivity, Kisan Credit Card loan limit enhancement from Rs. 3 lakh to Rs. 5 lakh, and a new urea plant in Assam.

MSMEs as the Second Engine

The budget proposes to revise classification criteria of MSMEs by increasing investment and turnover limits. Credit guarantee cover will increase from Rs. 5 crore to Rs. 10 crore and for startups from Rs. 10 crore to Rs. 20 crore, boosting total credit for MSMEs by Rs. 1.5 lakh crore over five years. Micro enterprises will benefit from customized credit cards with a Rs. 5 lakh limit. A new Fund of Funds with a government contribution of Rs. 10,000 crore will support startups, alongside a scheme supporting 5 lakh first-time entrepreneurs from women, SC, and ST communities. A National Manufacturing Mission will drive Make in India and promote clean tech manufacturing.

Investment as the Third Engine

The budget upholds the uptrend in capital expenditure, with infrastructure ministries presenting a three-year Public Private Partnership (PPP) pipeline and Rs. 1.5 lakh crore allocated for state capital expenditure incentives. A second Asset Monetization Plan (2025-30) will generate Rs. 10 lakh crore for new projects. Key missions include the Nuclear Energy Mission (targeting 100 GW by 2047, with Rs. 20,000 crore for Small Modular Reactors), revamping shipbuilding policies with a Rs. 25,000 crore Maritime Development Fund, expanding the UDAN Regional Connectivity Scheme, SWAMIH Fund 2 worth Rs. 15,000 crore for stressed housing units, and tourism development.

Export as the Fourth Engine

Proposes an Export Promotion Mission jointly operationalised by Ministries of Commerce, MSME and Finance to facilitate export credit and cross-border factoring support. Bharat TradeNet (BTN) will create a digital platform for trade documentation. A national framework for Global Capability Centres (GCCs) will guide state policies.

Education, Skill and Social Sector

Enhanced nutrition support under Saksham Anganwadi and Poshan 2.0, setting up 50,000 Atal Tinkering Labs, broadband connectivity via BharatNet, Bharatiya Bhasha Pustak Scheme, five National Centres of Excellence for skilling, infrastructure expansion in IITs, a Centre of Excellence in AI for education, and adding 10,000 medical UG/PG seats. Extension of Jal Jeevan Mission to 2028, Urban Challenge Fund of Rs. 1 lakh crore, revamping PM SVANidhi, and providing identity cards and healthcare to gig workers.

Proposed Reforms in the Budget

Proposed regulatory reforms ensure business ease through trust-based governance, including a High-Level Committee for Regulatory Reforms and Jan Vishwas Bill 2.0 (decriminalizing over 100 legal provisions). Financial sector reforms include raising FDI limit in insurance from 74% to 100% for companies investing entirely in India. Customs reforms focus on tariff rationalization and exemptions for lifesaving drugs and critical minerals. Taxation reforms raise the personal income tax exemption threshold to Rs. 12 lakh (Rs. 12.75 lakh for salaried taxpayers) and rationalize TDS and TCS threshold limits.

Fiscal Outlook

A clear fiscal consolidation trend is visible, with the fiscal deficit projected to decline steadily from 9.2 percent in 2020-21 to 4.4 percent by 2025-26, aligning with the FRBM Act. The primary deficit is estimated to decline from 6.2 percent in 2020-21 to 0.8 percent in 2025-26, reflecting reduced borrowings.

Conclusion

The Union Budget 2025-26 lays a strong foundation for India\'s economic growth by balancing fiscal prudence with strategic investments in agriculture, MSMEs, infrastructure and exports. With a clear vision and structured reforms, the budget paves the way for India\'s transformation into a global economic powerhouse.