A landmark Budget for growth and middle class empowerment

Finance minister Nirmala Sitharaman presenting the Budget in Parliament on February 1.

The Union Budget for 2025-26 addresses a critical challenge: the financial well-being of India’s middle class. Over recent years, inflation, high taxes, and sluggish income growth have hindered household savings and spending capacity. This year’s budget brings much-needed relief, especially through tax reductions and expanded inclusion of the middle class in welfare programmes. At the same time, it remains committed to fiscal discipline, economic reforms, and fostering entrepreneurship, all of which are vital for ensuring sustainable economic growth in India.

Middle-Class tax relief: A positive shift

The Budget offers a welcome reprieve to millions of middle-class households through substantial tax reductions. Depending on income brackets, individuals stand to gain savings of up to Rs 50,000 or more, with a revised tax structure that exempts salaried employees earning up to Rs 12.75 lakh annually. While the revised tax relief is beneficial, there is a compelling need for further simplification, specifically in adopting a more streamlined three-slab system in place of the current complex structure. The inclusion of middle-income households in a range of welfare schemes also highlights the government’s intent to strengthen economic security for this essential demographic.

The growth and prosperity of the middle class are pivotal to India’s broader economic ambitions. Over the next five years, sustained support for this segment will be key to translating higher incomes and financial stability into greater consumer demand and robust economic dynamism.

Follow our live blog for the latest on the Budget 2025

Balancing fiscal prudence with growth

In addition to tax relief, the Budget strikes a responsible balance between expenditure and fiscal prudence. The fiscal deficit has been reduced from 4.8 percent to 4.4 percent for FY 2025-26, reflecting prudent financial management. Borrowings have been maintained at a steady level, preventing undue strain on the credit market. This disciplined approach should ease liquidity conditions in the private sector, fostering a favourable environment for investment and potentially lowering interest rates.

Beyond tax relief, the Budget underscores a strong commitment to long-term growth, particularly through enhanced capital expenditure (capex). The government has allocated more than Rs 11.21 lakh crore for infrastructure projects, yielding significant economic benefits over time. However, increased investment in infrastructure could accelerate the nation’s growth even further.

MSME and startup ecosystem: Fuelling entrepreneurial growth

The Budget recognises the vital role of Micro, Small, and Medium Enterprises (MSMEs) in India's economic framework. It introduces key measures, including an expanded credit guarantee scheme and an increased loan limit under the Mudra scheme, facilitating easier access to capital for small businesses and entrepreneurs.

One of the most notable provisions is the additional Rs 10,000-crore allocation for startups, complementing the existing Rs 10,000-crore contribution. Given India’s rapidly growing economy, expected to reach $4.3 to $4.5 trillion by 2025-26, a larger allocation, closer to Rs 50,000 crore, would better address the capital demands of the startup ecosystem. The government’s enhanced focus on deep-tech innovations is also commendable, as it encourages technological breakthroughs in cutting-edge industries.

Further, startups incorporated by March 31, 2030, will be eligible for tax benefits if recognised by the Inter-Ministerial Board (IMB). The government is also enhancing local electronics manufacturing, providing additional support for startups in this space. The Credit Guarantee Scheme for startups has been increased to Rs 20 crore, facilitating greater access to funding. Furthermore, India Post’s vast logistics network offers D2C startups an invaluable resource to scale their businesses across the country.

Tourism and MSME boost: New horizons

The Budget also addresses the tourism sector with plans to develop 50 key tourism destinations and extend Mudra loans to homestays, fostering local entrepreneurship and driving growth in the tourism industry.

Regulatory overhaul: Simplifying processes

Despite progress, India’s regulatory environment remains a challenge. The proposed creation of a new regulatory committee to streamline non-financial regulations, alongside the continued reform of financial sector guidelines, is a step toward reducing bureaucratic complexity. These measures are designed to make it easier for businesses to operate efficiently, creating a more favourable climate for growth.

Further simplification is needed, particularly with regard to foreign exchange management, where outdated laws continue to impose unnecessary compliance burdens. A more flexible approach from institutions like the Reserve Bank of India (RBI) would further ease the business environment and support India’s goal of becoming a global financial hub.

Support for the gig economy and workforce welfare

The Budget also includes provisions for gig workers, offering identity cards and access to social welfare benefits. These measures help provide much-needed financial and social security for this expanding segment of the workforce.

Strengthening agriculture and rural development

The agricultural sector has not been overlooked in the Budget. Enhanced credit flows aim to increase productivity and resilience, particularly in 100 districts with low agricultural output. The introduction of a National Manufacturing Mission will further enhance agricultural productivity, aligning industrial growth with rural development. The government’s attention to critical issues like flooding in the Kosi river basin highlights its long-term commitment to addressing agricultural sustainability.

Inclusive growth and social welfare

The Budget reflects an overarching commitment to inclusive growth, with targeted measures to support farmers, women, youth, and marginalised communities. Key welfare initiatives include the full exemption of 36 life-saving drugs from customs duty, making essential treatments more affordable for millions of Indians.

Tax collection and economic resilience

The government has maintained a strong tax collection trajectory, with individual tax collections showing significant growth despite global economic challenges. These resilient tax revenues signal robust economic activity and provide a foundation for future growth.

The path ahead

Overall, Budget 2025 lays a solid foundation for long-term economic prosperity. By balancing tax relief, entrepreneurial support, infrastructure investment, and fiscal discipline, the government has signalled its intent to position India as a resilient, innovation-driven economy. While there is room for further investment in startups, tax simplification, and regulatory reform, the budget’s pragmatic approach highlights India’s ambition to become a more inclusive, dynamic global economic leader.