The Union Budget of India for the fiscal year 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, outlines the government's financial plan to address current economic challenges and foster growth.

Economic Context

India's economy has faced a slowdown, with growth decelerating to 5.4% in the July-September quarter of 2024, marking a seven-quarter low. Factors contributing to this downturn include high inflation, elevated interest rates, and rising unemployment. Despite these challenges, there are positive indicators such as strong domestic demand, improved agricultural output, and robust public investments, suggesting potential recovery in the upcoming fiscal year.

Key Budget Highlights

1. Tax Reforms

   • Income Tax Relief: To alleviate the financial burden on the middle class and stimulate consumption, the budget proposes increasing the basic exemption limit under the new tax regime from ₹3 lakh to ₹5 lakh. Additionally, there is an anticipated increase in the Section 80C deduction limit from ₹1.5 lakh to ₹2 lakh, encouraging greater savings and investment among taxpayers.

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   • Corporate Tax Incentives: The government plans to extend the 15% concessional tax rate under Section 115BAB for new domestic manufacturing companies, aiming to attract investments and boost the manufacturing sector. This initiative is expected to enhance job creation and strengthen the country's industrial base.

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2. Infrastructure Development

   • A significant allocation of funds is directed towards infrastructure projects, including the development of three major railway corridors and the expansion of new airports. The budget also emphasizes sustainable development through projects on coal gasification and liquefaction, viability gap funding for wind energy projects, and the promotion of rooftop solar panels for households.
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3. Support for Key Sectors

   • Automotive Industry: The budget proposes funding and incentives for electric vehicle (EV) infrastructure, including the establishment of service centers and tax credits for green technology. Classifying charging infrastructure as part of the infrastructure industry is expected to provide access to more affordable financing options, thereby reducing the overall costs of setting up these facilities.

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   • Manufacturing Sector: To promote domestic manufacturing, the government plans to offer subsidies on raw materials and machinery, tax breaks for Micro, Small, and Medium Enterprises (MSMEs) and startups, and financial support for e-commerce platforms and digital infrastructure. Enhanced export incentives are also anticipated to help Indian brands compete globally.

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4. Education and Skill Development

   • The budget underscores the importance of education and skill development, with proposed investments aimed at transforming India's education system. This includes measures to enhance digital infrastructure in educational institutions, support for research and development initiatives, and programs to upskill the workforce in emerging technologies such as artificial intelligence and quantum computing.
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Fiscal Discipline and Future Outlook

While the budget focuses on stimulating economic growth through increased public spending and tax incentives, it also emphasizes the importance of fiscal consolidation. The government aims to balance growth-supportive fiscal policies with measures to reduce the fiscal deficit, ensuring long-term economic stability. The emphasis on long-term reforms in land and labor regulations is expected to boost medium-term growth, aligning with the government's economic objectives.

In summary, the Union Budget 2025-26 presents a comprehensive strategy to navigate current economic challenges while laying the groundwork for sustainable growth. Through targeted tax reforms, substantial infrastructure investments, and support for key sectors, the government aims to revitalize the economy and achieve its development goals.

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