Niveshaay’s Take On ‘Union Budget 2025’

February 05, 2025 | Deep Dives

The Union Budget 2025 reflects the government’s commitment to balancing fiscal discipline with growth-oriented reforms to support India’s economic development amid global uncertainties. With a projected GDP growth of 6.3– 6.8% for FY26 and a fiscal deficit target of 4.4% (down from 4.8%), the budget strikes a prudent balance between fiscal consolidation and economic expansion.

The budget strongly emphasizes boosting domestic consumption through targeted measures aimed at enhancing disposable income, stimulating demand, and driving economic activity. This is evident through income tax relief for the middle class, encouraging higher spending, and initiatives like the modified UDAN scheme to improve regional connectivity and tourism.

The government plans to forgo Rs. 1 lakh crore in direct taxes and Rs. 2,600 crores in indirect taxes due to various tax breaks. Despite this, the finance minister expects the fiscal deficit to decrease from 4.8% to 4.4% of GDP in FY26. This is possible because the government is relying on non-tax revenue from increased dividends from public sector companies and banks, which are expected to rise by 10%. Additionally, even with lower direct taxes, increased consumer spending will likely boost GST collections. Since companies are not receiving tax relief but are expected to benefit from higher demand, corporate tax revenue is projected to grow by 10%, reaching Rs. 10.8 lakh crore for FY26.

Key Budget Announcements Across Sectors

In the current budget, the government’s capital expenditure (capex) for FY 2024- 25 was initially targeted at Rs. 11.11 lakh crore, but the actual capex stands at Rs.10.18 lakh crore, reflecting a more conservative spending approach amid fiscal constraints. This shortfall highlights cautious expenditure driven by revenue pressures from lower tax collections and non-tax receipts. As a result of these fiscal pressures, the capex for the next fiscal year (FY 2025-26) is projected at Rs. 11.21 lakh crore, indicating moderate growth with a continued focus on fiscal prudence. To maintain fiscal discipline while supporting growth, the government is prioritizing investments in critical sectors like infrastructure, energy, and healthcare.

Key allocations in the budget highlight the government's focus on critical sectors:

• Defence spending saw an 8.1% increase, rising from Rs. 4.55 to Rs. 4.91 lakhs crore, driven by modernization efforts and strengthening border security amid rising geopolitical tensions.
• The budgetary allocation for Indian Railways has remained stagnant at Rs. 2.55 lakh crore mirroring the allocation from the previous fiscal year (FY25), against expectations that the sector would get an investment boost in Union Budget 2025-26.
• The major announcement in the water sector is the extension of the Jal Jeevan Mission (JJM) till 2028. Originally set to be completed by 2024, the mission has been extended as around 20% of rural households still lack tap water connections. This aligns with the government’s goal of achieving 100% tap water coverage for all rural households, ensuring safe and reliable drinking water for every home.
• The government has introduced mining reforms to improve production efficiency, encourage private sector participation, and develop critical mineral resources vital for the green economy.
• This budget emphasizes leveraging advanced technologies for economic growth and modernization. A National Geospatial Mission will build foundational geospatial infrastructure and data, improving governance and planning. For the first time, AI is highlighted, with a Centre of Excellence in AI for Education receiving Rs. 500 crore to advance AI-driven learning and research.

Power and Renewable

Energy: Green Growth Strategy

While higher solar cell duties may affect module makers' margins, it aims to reduce imports and strengthen local manufacturing.

The budget aims to develop atleast 100 GW of nuclear energy by 2047, allocating Rs. 20,000 crore for a new Nuclear Energy Mission focused on small modular reactors, marking a key step in advancing India’s nuclear energy capabilities and supporting the energy transition.

Minerals Development

In a significant move to boost the availability of critical minerals essential for India’s clean energy transition, the finance minister eliminated customs duties—previously at 10%, 5%, and 2.5%—on waste and scrap of key minerals like antimony, beryllium, bismuth, cobalt, cadmium, molybdenum, rhenium, tantalum, tin, tungsten, zirconium, and copper.

Waste and scrap of lithium-ion batteries, cobalt powder, lead, and zinc, which were previously subject to a 5% duty, have also been fully exempted.

This follows Sitharaman’s July 2024 Budget announcement to exempt basic customs duty on 25 critical minerals unavailable domestically and to reduce duties on two others, aimed at encouraging their processing, particularly by micro, small, and medium enterprises. These measures would secure raw material availability for domestic manufacturing and create employment opportunities for Indian youth.

Consumption and Economic Revival

The Union Budget 2025 marks a pivotal shift in India’s economic policy, with more focus on a consumption-driven growth model. Instead of relying solely on capital-intensive investments, the government is channeling resources toward stimulating domestic demand and consumer spending. A landmark move in this direction is the extension of the tax-free threshold to Rs 12.75 lakh for individual salaried taxpayers under the new tax regime, injecting Rs 1 trillion into middle-class households and significantly boosting disposable income to invigorate the marketplace.

Supporting this consumption-led growth, the modified UDAN scheme aims to connect 120 new destinations and carry 4 crore passengers over the next decade, enhancing regional connectivity and indirectly stimulating sectors like hospitality, retail, and local businesses. Additionally, the development of 50 key tourist destinations is set to drive domestic tourism, creating employment opportunities and fostering economic activity in related sectors.

The budget promotes consumerism while encouraging responsible financial behavior. Rising per capita income is set to drive India’s consumption growth, while also fostering a culture of savings and investments. This balanced approach will benefit the wealth management sector, poised for growth with an expanding retail investor base and high-net-worth individuals, helping maximize financial potential in India’s evolving economy.

Manufacturing Renaissance & Export focus

This budget demonstrates a strong government focus on boosting exports. A multi-pronged approach aims to streamline export processes and enhance competitiveness. The Export Promotion Mission, with sectoral targets, will facilitate easier access to export credit, cross-border factoring support, and assistance for MSMEs navigating overseas market challenges.

'BharatTradeNet' (BTN), a new digital platform, will unify trade documentation and financing solutions, supporting integration with global supply chains. A National Framework for GCCs (Global Capability Centres) will guide states in promoting these centers in tier 2 cities, potentially creating new export opportunities. Finally, upgraded air cargo warehousing, especially for perishable goods, will address logistical bottlenecks and facilitate their export.

Electronics Industry

Further, it was also announced that the government will support the domestic electronic equipment industry in leveraging the opportunities related to Industry 4.0.

Crucially, substantial funding increases for the Ministry of Electronics and Information Technology (MeitY), including a near doubling of the allocation for semiconductor development, and a 55% rise in overall PLI scheme funding to Rs 9,000 crore, directly support and strengthen domestic electronics and semiconductor manufacturing.

Textiles, Pharma and Others

The duty on shuttle-less looms has been eliminated, promoting domestic production of geotextiles, Agro-textiles, and medical textiles, reflecting the government's goal to enhance technical textile output.

Similarly, the reduction in duties on pharmaceutical ingredients aims to boost domestic manufacturing in the pharma sector. Beyond these, the budget also promotes local toy manufacturing and includes various other announcements aimed at bolstering the manufacturing sector, collectively aiming to enhance India's manufacturing capabilities and self- reliance.  

Part B- Direct Tax

The Union Budget 2025 takes a significant step toward tax simplification and easing the financial burden on taxpayers. By increasing the income tax exemption limit to Rs. 12 lakh, the government is providing substantial relief to the middle class, which will not only boost savings and investments but also lead to higher disposable income, driving increased consumer spending.

• Nil tax slab will apply for annual income up to Rs 12 lakh (Rs 12.75 lakh for salaried tax payers with standard deduction of Rs 75,000) under the new tax regime.
• There are no changes in Old Tax Regime
• Income liable to Special Rates of Tax would be taxable even if Total Income is below RS. 12 Lacs.
• Rebate U/s. 87A is allowed only on Normal Income and not Special Income like STCG/LTCG etc.

New Income Tax Bill would be tabled in Parliament in this Budget Session. This is proposed to replace existing Income Tax Act, 1961.

Conclusion: Strategic Growth with Fiscal Prudence

The Union Budget 2025-26 strikes a balance between growth aspirations and fiscal discipline. For investors, the focus on capex, renewable energy, domestic manufacturing, and tax reforms creates a dynamic landscape of opportunities across sectors. As India charts its path towards a $10 trillion economy, strategic investments aligned with government priorities can unlock significant value.

Budget 2025 thus reflects a strategic balance, shifting from an infrastructure- centric approach to a model that leverages consumption and responsible investments to drive sustainable economic growth and long-term prosperity.

Disclaimers and Disclosures

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