Union Budget 2025-26: An Inclusive and Aspirational Strategy towards Development

The Union Budgets focuses on Development. It envisages Agriculture, MSME Sector, Investment and Exports as growth engines of development. The fuel for these engines would come through reforms in every sector of the economy and the destination is said to be Viksit Bharat which is proposed to be reached with the guiding spirit of inclusivity.

People centric growth strategy:

The tagline of the Budget is “A Country is not just its soil, a country is its people”. Hence, it may also be considered as a people-centric Budget, which has been prepared to include the interest of the Poor, Youth, Farmers and Women on one hand and the interest of the middle strata of the society and the MSME entrepreneurs on the other hand. They all occupy a prime seat in the compartments attached to the respective growth engines.

It is important to understand here that none of the people are sitting in water tight compartments nor the growth engines are supposed to be moving in different directions. All these engines and all the beneficiaries of development are moving with the same guiding force marching towards the same destination i.e., Viksit Bharat or Atmanirbhar Bharat (self-reliant developed India).

Vision of the Budget:

The Budget aspires for achieving the developed state of the Nation through accelerating growth, securing inclusive development, enhancing spending powers of India’s rising middle class, invigorating private sector investments, Uplifting household sentiments.

The vision of the Viksit Bharat has been defined as a stage of development characterized by zero-poverty, hundred per cent good quality school education, giving access to high-quality, affordable, and comprehensive healthcare for all and providing hundred per cent skilled labor with meaningful employment, with around seventy per cent women participating in economic activities and our farmers making our country the ‘food basket of the world’.

Engines of Development

According to the Budget document, there are 4 Engines of Growth pulling the economy towards a developed India in the years to come and they are fueled by reforms and fresh initiatives in the schemes or projects that have yielded nice results in the past.

The First Engine-Agriculture:

The major initiatives taken for agricultural sector are as follows:

Developing Agri Districts Program The Government proposes to undertake a ‘Prime Minister Dhan-Dhaanya Krishi Yojana’ in partnership with the states, covering 100 districts having low productivity, moderate crop intensity and below-average credit parameters. The objective is to reach out to around 1.7 crore farmers of these districts by adopting measures to enhance agricultural productivity, adopt crop diversification and sustainable agriculture practices, augment post-harvest storage at the panchayat and block level, improve irrigation facilities, and facilitate availability of long-term and short-term credit.

Building Rural Prosperity and Resilience This initiative addresses the problem of under-employment in agriculture among rural women, rural youth, marginal and small farmers, and landless families and focuses on providing gainful employment to them through skilling, investment, technology, and invigorating the rural economy.

Self-sufficiency in Pulses The Budget proposes to launch a 6-year “Mission for Aatmanirbharta (self-sufficiency) in Pulses” with a special focus on Tur, Urad and Masoor through enhanced procurement upto 100% of what is offered from the farmers who register with the designated central agencies and enter into agreements with them.

Comprehensive Program for Vegetables & Fruits The Budget talks about setting up appropriate institutional mechanisms for implementation and participation of farmer producer organizations and cooperatives to promote production, efficient supplies, processing, and remunerative prices for farmers.

National Mission on High Yielding Seed A National Mission on High Yielding Seeds is proposed to be launched, for strengthening the research ecosystem, targeted development and propagation of seeds with high yield, pest resistance and climate resilience, and commercial availability of more than 100 seed varieties released since July 2024.

Incentives for Export oriented produce The Budget provides for special majors for the improvement in the productivity and quantity of export oriented agricultural produce such as fish, marine products, cotton textiles etc., by giving incentives to the fishermen and farmers working in these sectors.

Enhanced Credit through KCC The upper limit for short term loan against Kisan Credit Cards under the Modified Interest Subvention Scheme is proposed to  to be enhanced from Rs. 3 lakh to Rs. 5 lakh and this is going to benefit over 7.7 crore farmers, fishermen, and dairy farmers.

Incentives for Urea production A plant with annual capacity of 12.7 lakh metric tons is proposed to  to be set up at Namrup, Assam in order to increase the supply of Urea.

India Post as a Catalyst for the Rural Economy There are proposals to transform India Post as a large public logistics organization, utilize massive infrastructure available with it comprising of 1.5 lakh rural post offices, numerous India Post Payment Banks and a vast network of 2.4 lakh Dak Sevaks to act as a catalyst for the rural economy by meeting rising needs of Viswakarmas, new entrepreneurs, women, self-help groups, MSMEs, and even large business organizations.

The Second Engine-MSME:

MSMEs contribute 36 per cent of manufacturing and constitute 45 per cent of Indian exports while providing employment to 7.5 crore people. The Budget envisages several measures to provide support to over 5.7 crore MSMEs engaged in manufacturing and services sector. They are briefly discussed below:

Revision in classification criteria for MSMEs The investment and turnover limits for classification of all MSMEs is proposed to be enhanced as under:

Further, for the manufacturing MSMEs, the government proposes to set up a National Manufacturing Mission which will provide policy support, execution roadmaps, governance and technology in order to promote ease and cost of doing business and future ready workforce for in-demand jobs.

Significant enhancement of credit availability with guarantee cover The credit guarantee cover is proposed to be enhanced from Rs. 5 crore to Rs. 10 crore for Micro and Small Enterprises, and from Rs. 10 crore to 20 crore for startups. Besides, the guarantee fee may also be lowered to 1 per cent for loans in 27 focus sectors which are considered as important for Atmanirbhar Bharat.

Fund of Funds for Startups The Alternate Investment Funds (AIFs) for startups are supported by the Fund of Funds set up with a government contribution of Rs. 10,000 crore.  Now, a new Fund of Funds, with expanded scope and a fresh contribution of another Rs. 10,000 crore is proposed to be set up.

Scheme for First-time Entrepreneurs First-time entrepreneurs coming from women, Scheduled Castes and Scheduled Tribes are proposed to be given term loans up to Rs. 2 crore during the next 5 years for undertaking entrepreneurial activity.

Focus Product Scheme for specified industries The government is likely to take industry specific incentives to boost production in footwear, leather, toys, food processing sectors in order to enhance the productivity, quality and competitiveness of their products. This is going to create new employment opportunities.

Clean Tech Manufacturing The Budget envisages to support Clean Tech manufacturing in order to build our ecosystem for solar PV cells, EV batteries, motors and controllers, electrolyzers, wind turbines, very high voltage transmission equipment and grid scale batteries.

The Third Engine-Investment:

The major initiatives proposed under the third engine investment, encompasses investing in people, investing in the economy and investing in innovation.

Investing in People The major initiatives can be summarized as under:

• providing nutritional support to children, pregnant women and lactating mothers all over the country.
• Fifty thousand Atal Tinkering Labs will be set up in Government schools to foster a scientific temper among young minds.
• Providing Broadband connectivity to all government schools and primary health centers.
• To set up five National Centers of Excellence with global expertise and partnerships for skilling.
• To expand capacity for enrollment of students in select IITs and medical colleges.
• To set a Centre of Excellence in Artificial Intelligence for education (Rs. 500 Crore).
• To set up 200 Day Care Cancer Centers in all district hospitals.
• To give capacity building support to street vendors through enhanced loans form banks.

Investing in the economy The major initiatives can be summarized as under:

• To provide 50 years interest free loans to states for capital expenditure and as incentives for reforms.
• To plough back capital of Rs. 10 lakh crore in new projects under the new Asset Monetization Plan (2025-30).
• To provide additional funds for Jal Jeevan Mission.
• To launch funds and reforms to improve urban quality of life.
• To incentivize electricity distribution reforms and augmentation of intra-state transmission capacity by states.
• To promote shipbuilding clusters in order to increase the range, categories and capacity of ships.
• To set up a Maritime Development Fund with a corpus of Rs. 25,000 crore to promote competitiveness in the maritime industry.
• To launch a modified Udaan scheme to enhance regional connectivity to 120 new destinations and carry 4 crore passengers in the next 10 years.
• To provide affordable and Mid-Income Housing to additional 1 lakh families by allocating a fund of Rs. 15,000 crores.
• To develop around 50 tourist destination sites in the country
• To facilitate employment to led growth.
• To promote medical tourism in India.

Investing in Innovation

• To provide Rs. 20 thousand crore towards promotion of R & D in the field of Nuclear Energy.
• To provide additional 10,000 fellowships in IITs & IISCs for technological research.
• To develop foundational geospatial infrastructure and data. Using PM Gati Shakti, facilitation of modernization of land records, urban planning, and design of infrastructure projects.
• To promote documentation and conservation of more than 1 crore ancient manuscripts and to promote National Digital Repository of Indian knowledge systems for knowledge sharing.

The Fourth Engine-Exports:

• To develop exports as a growth engine for the Indian economy in order to facilitate easy access to export credit, cross-border factoring support, and support MSMEs to tackle non-tariff measures in overseas markets.
• To set up a digital public infrastructure, ‘BharatTradeNet’ (BTN) for international trade as a unified platform for trade documentation and financing solutions.
• To provide support for integration with Global Supply Chains in order to develop domestic manufacturing capacities of our exporters.
• To increase warehousing facility for air cargo through upgradation of infrastructure.

Fuel for the Engines of Development

The budget sees reforms as fuel for speeding up the pace of the four engines of development that will lead us to accomplishment of the vision of Viksit Bharat.

Tax Reforms To continue with the reforms that strengthened the commitment of the tax department to “trust first, scrutinize later”. The major tax proposals are apprised as under:

Indirect Taxes:

• To rationalize the customs tariff structure for industrial goods by reducing the no of applicable tariff rates, cess or surcharge.
• To add 36 lifesaving drugs and medicines to the list of medicines fully exempted from Basic Customs Duty (BCD) and to add 6 lifesaving medicines to the list attracting concessional customs duty of 5%.
• To fully exempt BCD on cobalt powder and waste, the scrap of lithium-ion battery, Lead, Zinc and 12 more critical minerals.
• To add two more types of shuttle-less looms to the list of fully exempted textile machinery. To promote domestic production, BCD rate on knitted fabrics covered by nine tariff lines are proposed to be revised from “10% or 20%” to “20% or Rs.115 per kg, whichever is higher”
• To increase the BCD on Interactive Flat Panel Display (IFPD) from 10% to 20% and reduce the BCD to 5% on Open Cell and other components.
• To exempt Open Cells of LCD/LED TVs from BCD.
• To add 35 additional capital goods for EV battery manufacturing, and 28 additional capital goods for mobile phone battery manufacturing in the list of exempted from BCD items.
• To continue the exemption of BCD on raw materials, components, consumables or parts for the manufacture of ships for another ten years.
• To reduce the BCD from 20% to 10% on Carrier Grade ethernet switches to make it at par with Non-Carrier Grade ethernet switches.
• To fully exempt BCD on Wet Blue leather and to exempt crust leather from 20% export duty.
• To reduce BCD from 30% to 5% on Frozen Fish Paste (Surimi) for manufacture and export of its analogue products and to reduce BCD from 15% to 5% on fish hydrolysate for manufacture of fish and shrimp feeds.
• To extend the time limit for export of foreign origin goods that were imported for repairs, from 6 months to one year and further extendable by one year for railway goods on similar lines as already there for the aircrafts and ships.
• To fix a time-limit of two years, extendable by a year, for finalizing the provisional assessment.
• To introduce a new provision that will enable importers or exporters, after clearance of goods, to voluntarily declare material facts and pay duty with interest but without penalty.
• To extend the time limit for the end-use of imported inputs in the relevant rules, from six months to one year. Further, such importers will now have to file only quarterly statements instead of a monthly statement.

Direct Tax Proposals:

The finance minister has proposed to introduce the new income-tax bill next week with a view to make it simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.

• To rationalize Tax Deduction at Source (TDS) by reducing the number of rates and thresholds above which TDS is deducted for better clarity and uniformity. The limit for tax deduction on interest for senior citizens is being doubled from the present Rs. 50,000 to Rs. 1 lakh. Similarly, the annual limit of Rs. 2.40 lakh for TDS on rent is being increased to Rs. 6 lakh. This is likely to reduce the number of transactions liable to TDS, thus benefitting small tax payers receiving small payments.
• To remove TCS on remittances for education purposes, where such remittance is out of a loan taken from a specified financial institution.
• To increase the threshold to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) from Rs. 7 lakh to Rs. 10 lakh.
• To omit Tax Collected at Source (TCS) provisions on sale of specified goods of value of more than fifty lakhs and so now only the TDS provisions are to be applicable to them.
• To extend the time-limit to file updated returns for any assessment year, from the current limit of 2 years, to 4 years for the taxpayers who had omitted to report their correct income subject to the applicable tax rates given in the Annexure attached to the budget.
• To allow to claim the annual value of two self-occupied properties as nil without any condition Presently tax-payers can claim the annual value of one self-occupied property as nil only on the fulfilment of certain conditions.
• To exempt withdrawals made by individuals on or after the 29th of August, 2024 from very old National Savings Scheme accounts on which interest is no longer payable.
• To extend the benefits of tonnage tax scheme, which is currently available to only sea going ships, to inland vessels also which are registered under the Indian Vessels Act, 2021.
• To extend the period of incorporation by 5 years to allow the benefit available to start-ups which are incorporated before 1.4.2030.
• To provide specific benefits currently available, to ship-leasing units, insurance offices and treasury centers of global companies also, which are set up in International Financial Services Centre (IFSC). Further, the cut-off date for commencement in IFSC is to be extended by five years i.e up to 31.3.2030 to avail specific benefits, if any.
• To extend the date of making an investment from Sovereign Wealth Funds and Pension Funds to the infrastructure sector by five more years, to 31st March, 2030.
• To introduce a new tax regime with revised tax structure as under:

Financial Sector reforms

The following major reforms are proposed to be introduced by the Union Budget:

• To raise the FDI limit for the insurance sector from 74 to 100 per cent in case of companies which invest the entire premium in India.
• To set up a ‘Partial Credit Enhancement Facility’ for corporate bonds for infrastructure.
• To launch ‘Grameen Credit Score’ framework through public sector banks to serve the credit needs of Self Help Groups (SHG) members and people in rural areas.
• To simplify the KYC process, through revamping of Central KYC Registry.
• To rationalize the procedures for speedy approval of company mergers.

Regulatory Reforms:

Too much of everything is said to be bad and regulations also do not seem to be an exception. The budget proposes a light-touch regulatory framework based on principles of trust to unleash productivity and employment and thus proposes four specific measures:

• To set up a High-Level Committee for Regulatory Reforms for a review of all non-financial sector regulations, certifications, licenses, and permissions in order to strengthen trust-based economic governance and ‘ease of doing business’.
• To launch an investment Friendliness Index of States in current year to further the spirit of competitive cooperative federalism.
• To set up a mechanism under the Financial Stability and Development Council to evaluate impact of the current financial regulations and make them more responsive towards the development of the financial sector.
• To bring up the Jan Vishwas Bill 2.0 to decriminalize more than 100 provisions in various laws.

Summing Up

The Budget is being considered as a transformational budget which attempts to ease out compliance burden for both individuals and the corporates. The budget proposes to infuse more purchasing power in the hands of the middle strata of the society and the MSMEs and start ups to meet their purchase requirements. This kind of a unique proposition to balance the possibility of increased demand in consumer markets with increase in productive capacities in the corporate sector is what makes these budgetary proposals commendable. It is also expected to give depth to the financial markets by improving the retail participation in them on one hand and the financial services industry on the other hand which will generally benefit from the buoyancy in the corporate sector due to general and industry specific reforms.

The Union Budget not only seems to carry forward some of the reforms or benefits extended in the previous budget(s), but also extends their applicability further in some of the cases. This kind of continuity in the reformative pursuits of the government is likely to not only promote the stability and growth in the domestic economy but also attract foreign investments in the long run which will strengthen India’s external sector as well. This budget strives to give relief to the direct tax paying Indians on one hand and to create employment opportunities for the youth, women, farmers and poor strata of the society who may eventually add numbers to the tax payers’ community in India in the years to come.

Disclaimer:

This article makes an attempt to capture some of the highlights of the Union Budget. For a detailed applicability of various provisions, the interested readers are advised to check the finer details available in the Budget documents and Annexures attached therewith, regarding the major proposals of the Budget.