By Naman Mishra and Dr Palakh Jain
The Union Budget 2025-26 with its announcement has left the country abuzz with much excitement but also with debate. The government has been poised to push toward economic growth and maintain fiscal stability, but the budget leaves its print with certain curveballs.
The budget is a mixture of various bold moves that have surprised the masses with their ambition, while on the other hand, certain policies have raised eyebrows for missing crucial junctures of development. The article presents a deeper dive into understanding the five biggest surprises of this budget and how they shape the trajectory of the Indian economy in the long run.
Unprecedented tax relief: Will it boost growth?
The biggest surprise of this budget is the announcement that the government has decided to forgo nearly ₹1 lakh crore in tax revenue, to cater to the needs of the middle class and provide relief to them. This landmark move under the new tax regime mentions that there will be no income tax payable for annual incomes up to ₹12 lakh. While catering to the salaried individuals the income of ₹12.75 lakh will benefit from standard deductions.
Although this presents itself as an immediate relief for working middle-class taxpayers, there is a bigger question that remains. The question whether this move will support higher consumption and tread towards more economic growth looms for the year to unfold. The notion that the tax relief may put more money into the pocket of the people may not specifically translate to more spending and as such requires a thorough watch on economic activities over the year.
Ravi Pokharna, ED at Pahle India, weighed in on this, saying: “The budget provides substantial tax relief to the middle class, amounting to a revenue loss of approximately ₹1 lakh crore. The key question is whether this will translate into higher consumption and economic growth. A similar corporate tax cut a few years ago did not lead to a proportional increase in private investments. It remains to be seen if this tax relief will yield the intended economic benefits. We are happy to see the government’s continued focus on promoting exports and tourism.”
Manufacturing miss: Where’s ‘Zero Effect, Zero Defect’?
The government has been strongly vocal in terms of helping the nation with Make in India and Aatmanirbhar Bharat, but what surprised the masses was no prioritization of the manufacturing sector as expected. There have been many policy shifts that call for betterment in this regard, but improvements of manufacturing quality and sustainability as seen by the ‘Zero Effect, Zero Defect’ (ZED) policy, saw little investment.
The budget saw a modest allocation of ₹1,200 crore, which is certainly lower than expected by the industry to be able to adopt cleaner and defect-free production to boost India’s competitiveness. It must be highlighted that the MSME credit enhancement scheme saw an allocation of ₹10,000 crore, while the export promotion schemes were granted ₹8,500 crore on the other hand. All these investments would help the sectors grow but a lack of dedicated substantial investment in the aspect ZED, highlights that the manufacturers will struggle to have high-quality productions in a sustainable manner. A greater focus on being defect-free and environment friendly would have contributed to growing India in the global markets.
(Graphic courtesy: Press Information Bureau)
Tourism gets a big push: Will it be India’s next growth engine?
Understanding the potential that the tourism sector has, this budget has taken bold steps to prioritize the same. To boost the sector, the government has announced a selection of 50 top tourist attractions will be developed through a challenge-mode partnership with states. This initiative has been coupled with various announcements like the MUDRA loans for homestays will be expanded to allow the small business to take advantage of rising tourism. Catering to the strategic partnership with states, the government has also introduced performance-linked incentives which will improve destination management to a greater extent. The sector also gets a push in terms of helping real estate development, with a significant ₹15,000 crore SWAMIH Fund 2 being set up in this regard.
All these initiatives paired with a streamlined aspect of E-visa would facilitate international arrivals and also create jobs in the local economy. Still, this sector requires substantial initiatives and collaboration with the state machinery to solve ground problems like those of pollution and local tension, which avert the flock of tourists. There is a call for the government to focus on the grassroot levels to push tourism as the next growth engine.
A silent revolution in gig economy welfare
Another surprising yet commendable move that was seen in the budget is the development of the gig economy. Through the announcement, it is seen that gig workers would be provided with a national identity through the e-Shram portal and thereby reap the benefits of health coverage under the PM Jan Arogya Yojana. This step would help nearly one crore gig workers to be able to join the central finance streams with government-backed support, making the digital economy more resilient.
However, the question in this announcement requires implementation. There are numerous challenges like seamless execution as well as prevention of bureaucratic hurdles that could limit access. A thorough and well-thought plan would determine whether this policy truly transforms gig work conditions.
A second wind for startups and MSMEs
The budget presents itself as a gift to providing relief to startups and small businesses with the help of directed initiatives. The government has announced an allocation of ₹10,000 crore for a Fund of Funds dedicated to startups. While on the other hand paired with this is the enhanced credit guarantee for MSMEs, increasing support from ₹5 crore to ₹10 crore. This mover will allow for a more streamlined additional credit infusion of ₹1.5 lakh crore in the next five years.
The various MSMEs, which cater to export markets have also benefited from the budget, with them being now able to avail term loans up to ₹20 crore under a special guarantee scheme. All these measures are poised to help the financial burden that small businesses face, easing their sustainability in the competitive market. It must be highlighted that this second wind for the startups requires meticulous implementation paradigms, which allow for easy access to credit while maintaining a transparent regulatory environment.
In all, it is seen that the union budget 2025-26 strikes a delicate balance between populism and long-term economic priorities. Although the government has been generous in helping the people with tax relief, the impact it will have on growth remains uncertain. Tourism and gig worker welfare emerge as positive highlights, yet manufacturing could have received more attention, especially under the ‘Zero Effect, Zero Defect’ initiative. As always, the real test lies in implementation. If the government can follow through on its ambitious plans, this budget could set the stage for a new era of growth and innovation in India. Until then, we watch and wait.
Naman Mishra is a Doctoral Researcher at Bennett University; Dr Palakh Jain is an Associate professor of Economics at Bennett University and a Senior Visiting Fellow at Pahlé India Foundation.
