Context

• The Union Budget 2025-26 is a continuation of the Indian government’s sustained efforts to strengthen economic growth and development.
• Through strategic measures such as income tax cuts, increased capital expenditure, and a focus on manufacturing and labour-intensive sectors, the budget aims to stimulate economic activity, generate employment, and enhance ease of doing business.
• While its full impact will unfold over time, the budget’s framework suggests a proactive, forward-looking approach to national economic planning.

Union Budget FY26 Notable Announcements

• IT Cuts and Its Multiplier Effects
  • One of the most notable announcements in the budget is the reduction in personal income tax, which provides complete exemption for individuals earning up to ₹12 lakh annually, with an additional benefit for salaried taxpayers due to the standard deduction.
  • This is a significant relief for the middle class and is expected to create a multiplier effect on the economy.
  • Higher disposable income will likely increase consumer spending, leading to greater demand across various industries such as retail, real estate, and automobiles.
  • This surge in consumption will, in turn, boost business performance, create employment opportunities, and increase indirect tax collections, further strengthening economic expansion.
• Capital Expenditure and Infrastructure Development
  • Another crucial aspect of the budget is the allocation of ₹11.2 lakh crore for capital expenditure, reflecting a nearly 10% increase from the previous year.
  • This investment is expected to accelerate infrastructure development, creating employment and strengthening the country’s logistical and industrial foundations.
  • Enhanced infrastructure will improve transportation efficiency, reduce business costs, and attract private investment, contributing to sustainable economic growth.
• Manufacturing and the National Manufacturing Mission
  • A significant push has been given to the manufacturing sector through the launch of the National Manufacturing Mission.
  • This initiative aligns with the ‘Make in India’ campaign and aims to support small, medium, and large industries by offering policy support, execution roadmaps, and governance frameworks in collaboration with central ministries and state governments.
  • By reducing import dependency and encouraging foreign investment, this mission could establish India as a global manufacturing hub.
  • The initiative’s success will depend on the effectiveness of its regulatory reforms, incentives, and implementation strategies.

Targeted Initiatives for Key Sectors

• Focus on Labor-Intensive Sectors
  • Recognising the importance of employment generation, the budget prioritises labour-intensive industries such as tourism, food processing, and leather.
  • These sectors have historically been major contributors to both employment and export earnings.
  • By offering targeted incentives and streamlining regulations, the government aims to enhance productivity and global competitiveness while creating new job opportunities.
• Focus on Maritime and Aviation Sector
  • Additionally, the maritime sector has been given a boost through the establishment of a Maritime Development Fund, which is expected to benefit coastal states and support the growth of the marine economy.
  • The expansion of flight connectivity to 120 new destinations under the modified UDAN scheme is another significant measure that will help unlock economic opportunities in previously underserved regions, focusing regional development.
• Agricultural Reforms and Rural Development
  • The budget introduces the Prime Minister Dhan-Dhaanya Krishi Yojana, a targeted initiative designed to improve agricultural productivity and rural livelihoods.
  • Covering 100 districts with low productivity and limited credit access, this scheme will focus on crop diversification, post-harvest infrastructure, irrigation improvements, and credit facilitation.
  • With an estimated 1.7 crore farmer-beneficiaries, this initiative has the potential to transform India’s agricultural sector by increasing rural incomes and driving economic activity in the hinterlands.
  • A rise in rural purchasing power will indirectly benefit industries related to consumer goods and agricultural supply chains. 

The Strategic Announcements of FY26 Budget

• Fiscal Prudence and Economic Stability
  • A commendable aspect of the budget is the government’s commitment to reducing the fiscal deficit from 4.8% in 2024-25 to 4.4% in 2025-26.
  • A lower fiscal deficit is crucial for maintaining macroeconomic stability, controlling inflation, and enhancing investor confidence.
  • By maintaining fiscal discipline, the government is ensuring a strong foundation for long-term economic sustainability.
• Ease of Doing Business and Trade Competitiveness
  • The budget emphasises improving the ease of doing business by rationalising the duty structure and simplifying the tariff framework.
  • The removal of additional tariff rates and the limitation of cess or surcharges to a single instance per product are steps toward creating a more predictable taxation system.
  • Additionally, addressing the inverted duty structure for certain products is expected to enhance trade competitiveness and encourage greater participation of domestic firms in global supply chains.

Conclusion

• The Union Budget 2025-26 presents a well-structured approach to economic growth by focusing on capital expenditure, manufacturing, labour-intensive industries, and rural development, while maintaining fiscal prudence.
• The significant tax relief for the middle class, infrastructure investments, and business-friendly policies set the stage for robust economic progress.
• While the success of various initiatives will depend on their implementation, the overall direction of the budget signals a strategic and growth-oriented vision for India’s future.