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1. Reviving demand for industrial growth
The Budget focuses on reviving industrial growth by stimulating aggregate demand and ensuring fiscal consolidation. It emphasizes infrastructure investment, export promotion, and MSME support while encouraging private sector participation.
1. Budget’s Focus on Industrial Growth
- The Budget aims to stimulate aggregate demand in the economy.
- The industrial sector plays a crucial role in this revival strategy.
2. Fiscal Consolidation and Growth Projections
- Assumes a conservative GDP growth rate of 10.1% for FY26.
- Prioritizes fiscal consolidation to ensure economic stability.
- The GDP forecast appears realistic due to global uncertainties and domestic slowdown.
- Despite moderate growth expectations, the government is committed to reducing the fiscal deficit.
3. Implications of Fiscal Deficit Reduction
- Possibility of bringing fiscal deficit below 4% in the medium term.
- No concerns over liquidity crunch as the borrowing program is controlled.
- Gross borrowings estimated at ₹14.8 trillion (FY26) vs ₹14 trillion (FY25).
- A higher borrowing level could have impacted investments and market stability.
4. Challenges in Industrial Growth
- Fluctuations in manufacturing growth impact employment and GDP.
- Sluggish export growth due to low productivity, competitiveness, and R&D.
- Private investments are not matching government incentives.
5. Boosting Industrial Growth: Two Broad Strategies
A. Economy-wide Measures
- Capital Expenditure (Capex)
- ₹11.2 lakh crore allocated for infrastructure.
- Focus on roads, railways, and defense for multiplier effects.
- Investment Promotion
- Public-private partnerships (PPPs) encouraged with States.
- Urban infrastructure development supported via bond issuance.
- Stimulating Consumption Demand
- Income tax concessions to boost disposable income.
- Social welfare programs (PM KISAN, MGNREGA, PM Awas Yojana) to aid spending.
B. Sector-Specific Policies
- Manufacturing Sector Priorities
- Emphasis on employment, MSMEs, and exports.
- Promoting electronics, toys, and footwear to replace China’s exports to the U.S.
- Developing leather and toy manufacturing clusters to boost employment.
- Export Promotion Initiatives
- Export Promotion Mission led by Commerce, MSME, and Finance Ministries.
- BharatTradeNet – digital public infrastructure for trade.
- National framework to promote Global Capability Centres (GCCs) in Tier-2 cities.
- Improved warehousing for air cargo to enhance trade infrastructure.
- MSME Support & Women Entrepreneurship
- Loan limit for MSMEs under Modified Interest Subvention Scheme increased from ₹3 lakh to ₹5 lakh.
- New scheme for 5 lakh women entrepreneurs from SC/ST communities.
6. Key Challenges and the Way Forward
A. Limitations of the Current Strategy
- Export-led growth model may not work due to global uncertainties and trade wars.
- Existing skilling programs need a revamp due to rapid technological changes.
- PLI scheme requires an evaluation for effectiveness.
B. Economic Survey’s Call for a Market-Driven Approach
- Emphasizes ‘trust people’ and a light-touch regulatory framework.
- Encourages corporates to take a larger role in investment and employment.
- The government should withdraw support in phases, ensuring smooth market transition.
7. Conclusion
- The Budget outlines a clear roadmap for industrial growth, investment, and employment generation.
- While public spending and policy reforms are crucial, private sector participation is essential for long-term success.
2. Beyond tax cuts, a closer read of the Union Budget
The Union Budget aims to address economic challenges through tax relief, manufacturing incentives, and agricultural support. However, a closer analysis reveals gaps in revenue projections, export diversification, and long-term sustainability.
Beyond Tax Cuts: A Closer Look at the Union Budget
The Union Finance Minister, Nirmala Sitharaman, presented the Budget against the backdrop of pressing macroeconomic challenges, including high taxation, unemployment, subdued private investment, and external vulnerabilities. While the Budget outlines an ambitious roadmap for Viksit Bharat across multiple sectors, its policy decisions and fiscal strategies require deeper scrutiny.
Targets That Raise Questions
- Fiscal Consolidation: The target of reducing the fiscal deficit to 4.4% of GDP in FY26 relies on ambitious revenue projections—11.2% growth in total tax revenues and 14.4% in income tax revenues. These expectations seem optimistic given the economic headwinds and ₹11.54 lakh crore in net market borrowings, which could crowd out private investment. Achieving these targets demands improved tax administration and realistic asset monetisation strategies.
- Personal Income Tax Revisions: The new tax regime, which exempts incomes up to ₹12 lakh and reduces tax liabilities, offers relief to the middle class. However, the ₹1 lakh crore revenue loss raises concerns about funding essential public investments, particularly when household savings have declined to 18.4% of GDP. The long-term viability of these tax cuts remains uncertain.
Gaps in Manufacturing and Agriculture
- Manufacturing Sector: The Budget reiterates India’s push to become a global manufacturing hub. While production-linked incentives (PLIs) have seen some success in electronics, their scalability remains a concern. Measures such as enhanced credit for MSMEs and a National Manufacturing Mission are positive but fail to address core issues like regulatory inefficiencies, low R&D spending (0.64% of GDP), and infrastructure bottlenecks. Achieving global competitiveness requires deeper structural reforms.
- Agricultural Reforms: Initiatives like the Prime Minister Dhan-Dhaanya Krishi Yojana and increased Kisan Credit Card (KCC) loan limits aim to boost productivity and financial access. However, the focus on short-term credit does not address price volatility or market access issues. The absence of measures to promote agricultural exports, especially in millets and organic farming, represents a missed opportunity.
External Sector and Climate Action
- Export Competitiveness: While services exports remain strong, trade facilitation measures such as Bharat Trade Net and export credit support for MSMEs lack scale. Challenges such as rupee depreciation and forex decline demand a more ambitious export strategy, with a focus on high-value sectors like pharmaceuticals and renewable energy.
- Climate Action: The Budget takes incremental steps toward sustainability, including incentives for lithium-ion battery recycling and domestic solar manufacturing. However, without parallel investment in grid modernization and energy storage, India’s clean energy transition remains incomplete.
Conclusion
The Budget attempts to balance tax cuts, fiscal consolidation, and economic growth but leaves critical gaps in execution. Its success will depend on the government’s ability to implement reforms effectively, adapt to evolving economic conditions, and ensure that fiscal policies drive long-term, inclusive development.
3. A Budget that is forward-looking and growth-oriented
This article highlights the Union Budget 2025-26 as a forward-looking and growth-oriented initiative, emphasizing economic expansion, fiscal prudence, and sectoral development. Key takeaways include:
- Income Tax Relief: Complete exemption for individuals earning up to ₹12 lakh per year, expected to boost consumption and economic activity.
- Capital Expenditure: ₹11.2 lakh crore allocated to infrastructure, enhancing employment and industrial growth.
- Manufacturing Boost: National Manufacturing Mission to strengthen domestic industries and reduce import dependency.
- Labour-Intensive Sectors: Special incentives for tourism, food processing, and leather industries to create employment.
- Maritime & Aviation Growth: New Maritime Development Fund and expansion of UDAN scheme for improved connectivity.
- Agriculture Support: Prime Minister Dhan-Dhaanya Krishi Yojana to increase rural productivity and incomes.
- Fiscal Deficit Reduction: Target lowered from 4.8% to 4.4%, improving financial stability.
- Ease of Doing Business: Simplified tariff structures and rationalized cess for a more predictable taxation system.
While the Budget lays a strong foundation for economic growth, its real impact will depend on execution and stakeholder response in the coming months.
4. Crisis in Congo: on the Democratic Republic of the Congo and rebels
The ongoing crisis in the Democratic Republic of the Congo (DRC) reflects deep-seated ethnic tensions, regional power struggles, and the legacies of the 1994 Rwandan genocide. The recent advances by the M23 rebel group, supported by Rwanda, have escalated the conflict, undermining efforts for peace. Key points include:
- M23 Rebellion: The rebel group, originating from Tutsi-led fighters, claims to protect Congo’s Tutsi minority. After seizing Goma, M23 has reignited a cycle of violence.
- Rwanda’s Involvement: The DRC and UN experts accuse Rwanda of supporting M23, which has been backed by President Paul Kagame’s strong military and economic position.
- Historical Context: The roots of the conflict trace back to the 1994 Rwandan genocide, where Hutus massacred Tutsis, prompting refugees to seek shelter in Congo and fueling ethnic conflicts.
- Rwanda’s Role: Rwanda has historically intervened in Congo, citing security concerns over genocide-linked groups. However, Rwanda’s growing regional influence complicates peace efforts.
- Congo’s Vulnerability: Congo’s inability to decisively address armed groups and protect Tutsis highlights the state’s vulnerabilities, exacerbating regional insecurities.
- Call for Peace: The international community must push for a ceasefire, urging President Kagame to rein in M23 and for Congo to address genocide-linked groups, ensuring long-term peace by engaging the Tutsi population.
For sustainable peace, Congo must take the Tutsi community into confidence and address ethnic divisions while tackling external threats.
5. Making health system push economic growth: a case of missed opportunity
Introduction: The Link Between Health and Economic Growth
- Economic growth requires an increase in private consumption.
- Higher disposable income is essential for boosting consumption.
- Reducing healthcare expenses can help people save more.
- The Union Budget 2025-26 missed an opportunity to achieve this.
Budget Allocations and Their Limitations
- The Department of Health and Family Welfare (DoHFW) received only an 11% increase in Budget Estimates (BE) from the last fiscal year’s Revised Estimates (RE).
- This increase is the lowest in three years.
- The actual spending by DoHFW in 2023 was ₹80,292 crore, while the 2024 RE was just 7.8% higher at ₹86,582 crore.
- Historical trend: Since 2021, budget allocations have risen only by 6-8% annually (excluding the 2022-23 dip).
Focus on Insurance-Based Healthcare
- The Pradhan Mantri Jan Arogya Yojana (PMJAY) saw a 24% increase in allocation from last year’s RE.
- Compared to actual usage in 2023, the increase in PMJAY funding is 41%.
- In contrast, National Health Mission (NHM) allocations grew only by 3.4% from 2024 RE.
- Urban NHM allocation increased by just 4.3%, indicating insufficient attention to urban health.
Challenges with an Insurance-Led Model
- Insurance expands hospital options but focuses on secondary and tertiary care.
- Primary healthcare (basic illnesses, preventive care) is largely neglected.
- Insurance does not cover many routine health needs.
- Public health services, such as Health and Wellness Centres, did not see meaningful budget increases.
The State of Public Healthcare Infrastructure
- Around 50% of healthcare services in India are provided by the private sector (NFHS-5 data, 2019-21).
- At the primary care level, only 10% in rural areas and 5% in urban areas visit government health facilities.
- Urban Primary Health Centres (UPHCs) in Rajasthan (Jaipur, Udaipur, Ajmer) face overwhelming patient loads (up to 250 per day).
- Karnataka has a 38% deficit in UPHCs, alongside nationwide shortages in healthcare staff, including specialists, ANMs, pharmacists, and programme managers.
Persistent High Out-of-Pocket Expenses (OOPE)
- OOPE reduced from 63% in 2014 to 39.4% in FY2021-22 (National Health Accounts data).
- However, India still has one of the highest OOPE levels globally, at 46% in 2022 (WHO data).
Impact on the Middle Class and Economic Growth
- Low health allocations and an insurance-focused approach exclude the middle class.
- The middle class is a key driver of economic growth through consumption.
- Without financial relief from healthcare expenses, middle-class spending power remains limited.
Policy Recommendations
- The government should revise health allocations and prioritize the NHM.
- Strengthening primary healthcare by improving infrastructure and hiring more staff is crucial.
- A well-funded public health system will reduce OOPE, increase disposable income, and drive economic growth.
- A robust healthcare system ensures sustainable economic growth, resilient to external shocks.
Conclusion: Aligning Budget Priorities with Growth
- A strong public healthcare system is key to long-term economic stability.
- The government must realign its budget priorities to support comprehensive healthcare reforms.
5. Budget 2025 overlooks joblessness
Employment-Linked Initiatives Ignored
- The July 2024 Budget prioritized jobs (₹2 lakh crore package for 4.1 crore youth).
- The 2025 Budget did not mention this package.
- Official document states an “Employment Linked Incentive” is still under discussion, raising uncertainty.
Rising Joblessness and Income Decline
- Youth unemployment rate (15-29 years) rose to 10.2%, graduates to 13% (PLFS 2023-24).
- Salaried job share is shrinking; informal self-employment is rising.
- Real earnings of self-employed males fell from ₹9,454 (2017-18) to ₹8,591 (2023-24).
- Salaried workers’ real wages declined from ₹12,665 (2017-18) to ₹11,858 (2023-24).
Deflationary Budget with Expenditure Cuts
- GDP growth expected to slow to 6.4% (2024-25) from 8.2% last year.
- Net tax revenues are slowing, leading to a fiscal consolidation focus.
- Budget expenditure to fall short by ₹1 lakh crore; capital expenditure by ₹92,000 crore.
- Cuts in crucial areas:
- Jal Jeevan Mission (-₹47,469 crore)
- Pradhan Mantri Awas Yojana (-₹38,575 crore)
- MGNREGA (-₹3,654 crore)
Tax Breaks Over Social Spending
- Annual income tax rebate raised from ₹7 lakh to ₹12 lakh.
- Only 2.8 crore people (22% of salaried workforce) benefit from this.
- Indirect tax cuts (fuel, GST) would have benefited more people.
Missed Opportunity for Rural Demand Boost
- MGNREGA wage: ₹252.31 (2024-25) vs. ₹452 minimum wage for agricultural workers.
- Higher rural spending would have boosted consumption.
Corporate Profit Growth Not Leading to Jobs
- Nifty 500 profit-to-GDP ratio rose from 2.1% (2020-21) to 4.8% (2023-24).
- Corporate tax cuts did not translate into higher investments or job creation.
Lack of New Economic Strategies
- Reliance on income tax breaks instead of investment in jobs and welfare.
- Budget fails to address the needs of the working class and employment crisis.
Disclaimer:
This analysis is based on the editorial content published in The Hindu and is intended solely for informational and educational purposes. The views, opinions, and interpretations expressed herein are those of the author of original article. Readers are encouraged to refer to the original article for complete context and to exercise their own judgment while interpreting the analysis. The analysis does not constitute professional advice or endorsement of any political, economic, or social perspective.
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