Beyond Tax Cuts, A Closer Read of the Union Budget

‘The Budget’s Policy Announcements and Fiscal Plans Need Closer Scrutiny’ | Photo Credit: Ani

The Union Finance Minister, Nirmala Sitharaman’s Presentation of the Union Budget on Saturday, February 1, was again The Middle-Income Class, Subdued Private Investment, Mounting External Vulnerabilites that Threten to Derail The growth story, and a looming fiscal overhang. While The Finance Minister Laid Out An Ambitious Road Map For Viksit Bharat, Spanning Agriculture, Manufacturing, Micro, Small and Medium Enterprises (MSME), Social Welfare, Social Welfare, and Infrite Announcements and fiscal plans need closer scrutiny.

Targets that raise questions

First, the fiscal consolidation target of 4.4% of GDP in FY26 is a key highlight of the budget. However, Achieving This target hinges on ambyous revionue projections, including a 11.2% growth in total tax reviews and a 14.4% Increase in Income Tax Revenues Compared to Fy25 Estimates. These assumptions appear overly optimistic given the significant tax cuts announced in the budget and the Prevailing Economic Headwinds Such as Softening Domestic Consumption and Weekning Exteernal Demendum. Much will also depend on the success of the second asset Monetisation Plan (2025-30), Announced in the Budget. The underperformance of the Previous Asset Monetisation Program Raises Valid Concerns. Furthermore, the estimated ₹ 11.54 Lakh Crore in Net Market Borrowings Risks Crowding Out Private Capital at a Critical Juncture when Credit Demand Remains Tepid. Achieving the Ambitious Revenue Targets will require improved tax buoyency, more efficient tax administration, and realistic asset monetisation strategies to ensure that fiscal consolidation plan remains.

Second, The Revisions in Personal Income-Tax Rates and Slabs under the new tax regime, exempting incomes up to ₹ 12 lakh from tax (after fateoring in the rebate benefit) Oss Various Income Brackets, Offer Welcome Relief to Middle-Income Taxpayers.

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Forge Elopmental Initiatives. The tax-base erosion also comes when households have shown a structure decline over the past decade, dropping to 18.4% of GDP in FY23 (Economic Survey 2024-25). This Raises Pressing Questions About The Long-Term Sustainability of these tax cuts, particularly when public investments in Infrastructure and Social Welfare Remain Remain Critical to DRIVESIVE Economical to DRIVESIVE.

Third, on the manufacturing front, the budget reiterates India’s Ambition to emerge as a global manufacturing powerhouse. The Economic Survey 2024-25 Flagged India’s underperformance in manufacturing, which accounts for a mere 17% of GDP. While production-linked incentives (plis) have shown moderate success in sector such as Electronics, their scalability and long-term impact remain uncertain. In that light, The Budget Announcements on Enhanced Credit Facilites for MSMES and The Launch of a National Manufacturing Mission aimed at Improving Ease of Doing Business, to Future A Future AADY WORKFRONS ech manufacturing, are important steps. The revision of msme classification criteria – Increasing Investment Limits by 2.5X and Doubling Turnover Thresholds – May Improve Scale Economies. However, the measures fall short of addressing core competition issues The absence of Concrete Measures to Boost Industrial Research and Development-Currently at a Dismal 0.64% of GDP-Undermines India’s Ability to Compete with COTH . While the budget’s focus on manufacturing is a step in the right direction, Achieving Global Competitiveness will require Deeper Deeper Deeper Deeper Deeper Deepers and Sustained Investigation Innovation Innovation and Innovation.

The gaps remain in agriculture

Fourth, Agriculture, A Key Pillar of the Economy, Received Significant Attention These measures are with the aim of enhancing production and climate resilience, which are critical for food security. The Increase in the Kisan Credit Card (KCC) Loan Limit from ₹ 3 Lakh to ₹ 5 Lakh, Along with Targeted Interventions in 100 Low-Productivity Districts, SIGNALS A StRATEGIC PIVOS Port, Empowering Farmers with Greater Financial Flexibility. However, the Measures Fall Short of Addressing Systemic INFFICINCIEs in Agricultural Markets. The Budget Lays An Emphasis on Credit Enhancements, YET the Focus on Short-Term Loans Perpetuates The Dependence of Farmers on Debt without addressing the issues of price voice Moreover, the Absence of Concrete Measures to Promote Agricultural Exports – Particularly as India eyes Leadership in Millets and Natural Farming – REPRESENTS A. Missed Opportunity.

Fifth, while the budget introduces some promising measures for the external sector, significant gaps remain unaddressed. Services expenses, particularly in it and business process outsourcing, continue to grow at a robust 10.5% CAGR, but budgetary efforts to diversify the Export PortFOLIO REMFOLIO REMFOLIO REMFYESIFY Trade Facilitation Initiatives Such as Bharat Trade Net (BTN) and Export Credit Support for MSMES, Why Announced in the Budget, Are Positive Steps but Lack the Scale Required to Tacle India E deficits. Moreover, the challenges posd by the depreciation of the rupee and declining forex reservoes require a more ambitious expense strategy. The fiscal push to value-weed sector such as pharmaceuticals, electronics, renewable energy, and high-value agricultural products ungthed indiaa ‘postion in Global Supply Ced expert competition.

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Not a transformative push

Finally, while the budget signals Intent on Climate Action and Clean Energy, its Financial Commitments Reveal A Cutious, Incremental Approach Rather Than A Transformative Push. The Budget’s Focus on Supply-Chain Resilience-Through Inventives for Lithium-ion Battery Recycling, Duty Examptions on Critical Minraals, and Support For Domestic Solar PHOTOVOLTATARITRITERE Ing – is a pragmatic move to reduce import dependent. However, with a parallel investment in grid modernisation, energy storage, and industry decarbonisation, the transition to a low-carbon economy will remain

The Budget’s fiscal outlays will eventutically be Judged by how effectively they address the fundamental trade-offs of Indian growth: How to Unleash Private Enerprise While Eanesuring Inclusive Develop How to Boost Consumption without Compromising Savings, and how to Accelerate Growth While MainTaining Macroeconomic Stability. Ultimately, the creedibility of execution and the government’s willingness to course-dorect where Necessary Will Matter.

Amarendu nandy is an assistant professor (Economics Area) At the Indian Institute of Management (IIM) Ranchi. The views expressed are personal