
Finance Minister Ms. Nirmala Sitharaman presented a holistic, inclusive and development-oriented budget focused on boosting economic growth and generating employment, supported by wide-ranging measures that invest in people, economy, and innovation. This year’s Budget focused on four powerful engines of growth, and introduced reforms for agriculture, MSMEs, investment, and exports.
On the consumption front, in a substantial boost to the middle and salaried class, the announcement of no income tax up to Rs 12 lakh in the new tax regime will greatly enhance consumption in the economy, by boosting disposable incomes and encouraging savings. Several transformative tax reforms aimed at rationalizing TDS and TCS provisions, expanding the filing update limit from the current 2 to 4 years, focus on increasing tax certainty and reduced litigations are aimed at enhancing taxpayer’s convenience, reducing the compliance burden and improving ease of doing business.
Under indirect taxes, consumers are expected to get tax relief from the reduction of basic customs duty for several products including import of drugs and medicines, EV and mobile phone battery production, among others. CII is enthused to find many of its direct and indirect tax recommendations accepted in this year’s Budget.
Regarding consolidation, despite the tax change measures, which are expected to lead to a revenue loss of Rs 1 lakh crore in direct taxes and Rs 2,600 crores in indirect taxes, it is commendable that the Government continues to adhere to fiscal prudence and has decided to bring down the fiscal deficit to 4.4% of GDP in 2025-26 from revised print of 4.8% of GDP in 2024-25, broadly in line with CII recommendations. Further, the Government has budgeted Rs 11.21 lakh crore for capital expenditure in 2025-26 from revised Rs 10.2 lakh crore in 2024-25, continuing its persistent focus on infrastructure development. Over the four-year period between 2020-21 and 2024-25, Government capex spending has increased from Rs 4.3 lakh crore to Rs 10.2 lakh crore, recording a CAGR of 19%.
The Budget had a clear focus on catalysing investments and improving the investment climate further with measures including the increase in the FDI limit in the insurance sector from 74% to 100%, the introduction of the State Investment Friendliness Index, revamping the Bilateral Investment Treaties (BITs) and focus on speedy approvals for company mergers. These measures will promote an investor friendly business environment and further consolidate India’s position as a global investment destination.
The launch of the National Manufacturing Mission covering small, medium and large industries is laudable as it will help to catalyse India’s manufacturing sector, while providing an impetus to the Make in India initiative, with the help of policy support and a governance & monitoring framework. Further, Budget proposals on mining sector reforms for minor minerals through sharing of best practices and the launch of policy on recovery of critical minerals will also boost manufacturing by enhancing the critical mineral value chain.
The Budget placed a strong emphasis on the agriculture sector, with schemes aimed to boost the supply-side potential of the economy through the launch of a Mission for ‘Aatmanirbharta in Pulses, National Mission on High Yielding Seeds, which are expected to bring down inflation, thus providing an impetus to the household incomes. Other measures such as the launch of the Prime Minister Dhan-Dhaanya Krishi Yojana, Comprehensive Programme for Vegetables & Fruits in collaboration with states, enhanced Credit through Kisan Credit Cards (KCC), among others are aimed at enhancing agricultural productivity and improving farmer incomes.
The re-categorization of MSME investment and turnover limits by 2.5 and 2 times is a welcome move which will improve MSME access to credit, enabling greater manufacturing capability, while enhancing their export prowess. Enhancement in credit access by doubling the credit guarantee cover from Rs 5 crore to Rs 10 crore for MSMES and for startups from Rs 10 crore to Rs 20 crore will bolster the industrial ecosystem and address the financial obstacles faced by these enterprises by infusing adequate liquidity.
Focus on labour intensive sectors in the Budget including leather, footwear, food processing and toys also aligns with key industry recommendations and is in line with the Government’s vision of generating 78.5 lakh non-farm jobs every year. The National Action Plan for Toys aims to establish India as a global manufacturing hub for toys.
CII also welcomes the Budget announcements for startups and unicorns including setting up of a new Fund of Funds for Startups, the Fund of Funds on Deep Tech and extension of social security benefits to the gig workers, which will encourage innovation and the startup ecosystem in the country.
The continued emphasis on jobs creation and skilling with a thrust to make the workforce ready in line with the ‘future of jobs’ is welcome as it will help to leverage India’s demographic dividend and provide a steady pool of skilled youth. The announcement of setting up of Centre of Excellence in AI along with five National Centres of Excellence for Skilling to equip the youth with the necessary skills for global opportunities is welcome.
The Budget has also laid emphasis on boosting investments in the economy to boost the productive capacity of the economy through a slew of critical policy measures. These include promotion of infrastructure projects in Public Private Partnerships (PPP) mode, granting of 50-year interest-free loans to states for capital expenditure and the announcement of National Monetisation Plan 2.0 for 2025-30 with a target of Rs 10 lakh crore.
The Budget also places a significant focus on research, development and innovation initiatives with an allocation of Rs 20,000 crore which will augment the emerging tech infrastructure along with integrating AI in renewable energy. The initiative, backed by significant funding, will position India as a strong global leader in AI.
Importantly, the Budget has placed a strong emphasis on strengthening the social sector to promote inclusive growth. This is evidenced by a sharp rise budgeted in the social sector spending to Rs 7.9 lakh crore in 2025-26 from revised Rs 6.7 lakh crore in 2024-25. This translates into the social sector spending as a per cent of total expenditure rising to 15.6 per cent from 14.3 per cent across the comparable period.,
Trends in Social Sector Spending*
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Note: Social sector spending is spread across 11 heads including Education, Rural Development, Health, Employment, Skill Development, Women & Child Welfare amongst others
Source: CII Research based on Union Budget documents
Overall, the Budget’s growth-promoting initiatives will foster comprehensive economic development and inclusivity. These measures will also significantly contribute to achieving India’s vision of becoming a ‘Viksit Bharat’ or a developed nation by 2047.