The Union Budget 2025, presented by Nirmala Sitharaman, comes at a time of economic challenges like high taxes, unemployment and a growing fiscal deficit. Budget 2025 aims to boost agriculture, manufacturing and MSMEs but relies on optimistic projections. Tax cuts could impact revenue, while manufacturing and export growth need more focus. Agricultural support is limited and climate action plans are insufficient. The Budget's success depends on balancing growth with fiscal stability and effective execution.

Note: To understand the analysis of the Editorial read all about Budget 2025-2026 first: https://www.iasgyan.in/blogs/union-budget-2024-at-glance

Union Budget 2025

The Union Budget 2025 was presented by Finance Minister Nirmala Sitharaman on February 1. It comes amid major challenges like high taxes, unemployment, low private investment and a growing fiscal deficit. The government has ambitious plans for agriculture, manufacturing and MSMEs. However, the policies need careful examination. 

India's Fiscal Deficit India's fiscal deficit for April-December 2024 stood at ₹9.14 lakh crore, accounting for 56.7% of the full-year target of ₹16.13 lakh crore, according to the data released by Controller General of Accounts (CGA) on Friday (January 31). This is lower than the ₹9.82 lakh crore fiscal deficit recorded during the same period in the previous year. The deficit was 55% of the budget estimate (BE) of 2023-24 in the year-ago period.

Are the Fiscal Targets Achievable?

The Budget sets a fiscal consolidation target of 4.4% of GDP for FY26. However, it relies on optimistic revenue projections. The government needs to improve tax administration and make asset monetisation plans more realistic. The planned ₹11.54 lakh crore in market borrowings may crowd out private capital.

What is Asset Management? Asset management involves optimising and unlocking value from assets. Asset monetisation is the process of generating revenue from underutilised public assets like roads, airports, railways and power lines. It creates partnerships with the private sector to utilise public infrastructure without selling it. India's National Monetisation Pipeline (NMP), introduced in 2021, aims to raise Rs 6 trillion by monetising brownfield assets over four years. This initiative focuses on underutilised infrastructure, bringing in private capital to enhance development while retaining government ownership. What's crowding out effect in Economics? The crowding out effect refers to a situation where increased government borrowing from the market to finance its spending needs reduces the availability of funds for private sector investment. This can potentially hinder economic growth, as funds are diverted away from private investment. However, some argue that government spending doesn't always crowd out private investment. They suggest that during economic depressions, the government’s demand for funds can actually compensate for the lack of private demand, helping to support aggregate demand and stimulate economic activity.

Will Tax Cuts as have announced in Budget 2025 Lead to Problems?

The Budget reduces personal income taxes for middle-income earners. However, this will result in a ₹1 lakh crore revenue loss. This loss may affect the government’s ability to fund key projects. It also comes when household savings are already falling.

Can India Become a Manufacturing Leader?

Budget focuses on boosting manufacturing. It includes production-linked incentives (PLIs) and credit support for MSMEs. However, many challenges remain. The government needs to address regulatory inefficiencies and promote innovation in the sector.

What About Agriculture?

The Budget provides support for farmers including a higher Kisan Credit Card loan limit. However, it does not solve issues like price volatility or market access. There is also little focus on promoting agricultural exports.

How Will the External Sector Benefit?

India’s services exports are growing well. However, the Budget’s steps to diversify exports are not enough. Initiatives like Bharat Trade Net and export credit support are good but lack scale. India needs a stronger export strategy to reduce trade deficits. 

BharatTradeNet (BTN) BharatTradeNet (BTN) is a Digital Public Infrastructure will be a unified platform for trade documentation and financing solutions and be part of the India Stack, which includes UPI, Aadhaar, ONDC and DigiLocker. It aims to eliminate paper-based processes by integrating key stakeholders such as the customs, Directorate General of Foreign Trade, GSTN, banks and exporters into a unified digital platform.

Is Climate Action Sufficient?

The Budget includes support for clean energy and supply chains. However, the financial commitment is small. India’s climate action will fall short without more investment in grid modernisation and decarbonisation,

Conclusion: Will the Budget Succeed?

The success of the Budget depends on balancing growth with fiscal stability. The government needs to promote private enterprise and ensure inclusive development. It must boost consumption without harming savings. Execution will be key to success.

UPSC MAINS PRACTICE QUESTION Q.Balancing economic growth with fiscal stability is a critical challenge for developing economies. Discuss India’s measures to achieve this balance. 250 Words UPSC PEVIOUS YEAR QUESTION Q.What were the reasons for the introduction of Fiscal Responsibility and Budget Management (FRBM) Act, 2003? Discuss critically its salient features and their effectiveness.

FAQs

What are the key highlights of the Union Budget 2025 and its impact on the economy? The Union Budget 2025 presented by Finance Minister Nirmala Sitharaman aims to address challenges like high taxes, unemployment and a growing fiscal deficit. It focuses on boosting sectors like agriculture, manufacturing and MSMEs but faces challenges in tax cuts, manufacturing growth, agricultural support and climate action.

How does India’s fiscal deficit in FY24 compare to previous years and what are the implications for Budget 2025?

India's fiscal deficit for April-December 2024 stood at ₹9.14 lakh crore, 56.7% of the full-year target. This is lower than the previous year’s ₹9.82 lakh crore. Despite this, the Budget’s fiscal consolidation target of 4.4% of GDP for FY26 may face challenges due to optimistic revenue projections and high borrowings.

What are the risks of the government's tax cuts in the Union Budget 2025?

While tax cuts aim to ease the burden on middle-income earners, they could lead to a ₹1 lakh crore revenue loss. This may affect the government's ability to fund essential projects particularly at a time when household savings are already falling.

How does the Budget 2025 plan to boost manufacturing and exports in India?

The Budget focuses on boosting manufacturing through production-linked incentives (PLIs) and credit support for MSMEs. However, challenges like regulatory inefficiencies and innovation in the sector need attention. While the external sector is growing, export diversification efforts are not yet substantial enough to reduce trade deficits.

Does the Union Budget 2025 adequately address climate action and clean energy?

While the Budget includes support for clean energy and supply chains, the financial commitment is limited. Without more investment in grid modernization and decarbonization, India’s climate action goals may fall short.

Source:
The Hindu