In a strategic move to invigorate the economy, India's Finance Minister Nirmala Sitharaman has unveiled the 2025-26 annual budget, introducing significant tax reforms aimed at bolstering middle-class spending. The budget proposes a reduction in personal income tax rates and raises the non-taxable income threshold to 1.28 million rupees, a measure anticipated to cost the exchequer approximately 1 trillion rupees in tax revenues.
Despite the substantial tax relief, the government remains committed to fiscal prudence, targeting a reduction in the fiscal deficit to 4.4% of GDP. To finance this deficit, plans are underway to borrow 14.82 trillion rupees through bonds. This approach reflects a delicate balance between stimulating economic growth and maintaining fiscal discipline.
The budget also places a strong emphasis on inclusive development, with enhanced support for farmers, youth, women, and underprivileged sectors. Initiatives to boost agriculture, manufacturing, and financial services are prominent, including raising the Foreign Direct Investment limit in insurance to 100%. These reforms aim to drive sustainable economic growth and job creation, aligning with India's longer-term economic goals.
Industry leaders have lauded the budget's focus on infrastructure spending and support for key sectors. Executives from MSMEs, electronics, fintech, housing, and infrastructure sectors have expressed optimism, viewing the measures as steps toward enhancing competitiveness, boosting manufacturing and exports, and promoting sustainable economic growth.
However, the budget also introduces increased taxes on long-term and short-term capital gains, as well as a higher securities transaction tax, aiming to moderate market activities. While market analysts anticipate a short adjustment period, they foresee long-term benefits in terms of market stability and sustainable growth.
