‘One bet in the budget is that tax concessions for the middle class will highlight the race of spending which will revive the demand for consumption and the GDP growth’. Photo Credit: Getty Image/ISTOCKPhoto
The background of Budget 2025-26, as also presented by the official Economic Survey 2024-25, has challenged the Narendra Modi government which is settling in its third term. Development of low consumption and slowing down public capital expenditure is reducing development, and private investment is not making for dull. Meanwhile, global development and policy trends, pre -and subsequent Trump, make it clear that external trade does not help much. Any attempt to reversed the recession in development and ensure that the Vikasat India is not all publicized to take the slogan of India 2047, or ‘ambition to take India into a developed country’.
Income indicates inequality
The major source of the problem seems to be an inadequate increase in demand for large-scale consumption, which is domestically demanding after weakening an unstable magic of credit-fuel expansion. In a clearly clear section on earning trends, the economic survey notes that the underlying suppressed demand is a trend of increasing income inequality. Standing development is the conclusion of survey, requires proper distribution of income between capital and labor. But in a trade-friendly New India, corporate profitability reached a 15-year peak in 2023-24, with beneficiary inequality to the largest firms, while the corporate sector had increased employment and the increment was moderate.
Reducing the demand for consumption operated from these trends was not neutralized by active government expenditure as increased capital expenditure. In nominal terms, even the “effective capital expenditure” (which involves grant in assistance to the states for the creation of states), which means real terms that means real terms. Decline in. Budget 2024-25 had estimated effective capital expenditure, which increased from ₹ 12.5 lakh crore to ₹ 15 lakh crore or 20%. Therefore, relative to plans, the revised figure reflects a sharp decline. It is not shared with the extraordinary receipts of the Center such as revenue from revenue from states, which are not shared with states, receipts from spectrum sale, special dividends from cash-rich public enterprises and Reserve Bank of India Despite the transfer of “surplus” from the larger, was transported. To the government. In practice, revenue from taxes and fiscal conservatism spent the government and adversely affected capital expenditure.
Disappointing demand means that despite better profitability, there is also a lack of private investment, increasing the development recession. Therefore, the chief asking the Finance Minister was to raise the level of government expenditure relative to the GDP, with focus on the increase in capital expenditure of the central government, and the way to promote employment and low and medium-income earnings in the moderate period .
Vote bank is taken into consideration
Additional resources need to be raised to increase expenditure. However, it does not take emphasis in the budget. Tax -friendly corporates bends on consolidating a middle class vote bank using a mit -speaking and a major agenda, the prohibition and concessions of the tax seem to be the current objective of the fiscal policy. Part B of Budget speech 2025-26 reserved its punch for the end, providing important direct tax benefits for middle-income people. The tax-free income level has increased from ₹ 7 lakh to ₹ 12.75 lakh and the revised rates in various tax slabss provide adequate benefits to the necessary people to pay income tax. One result, according to the minister, is a loss of potential direct tax revenue of about ₹ 1 lakh crore.
In addition, as part of the relative borrowing commitment to the Central Government’s GDP constant, the Finance Minister has promised to reduce GDP in 2024-25 in 2024-25 in 2024-25 by 4.8% of GDP in 2025-26. . As a result of the sacrifice of revenue and self-aligned on borrowings, the budget for 2025–26 has increased the total nominal expenses of only 7%.
However, the budget promises to increase capital expenditure by 17% against the revised estimates for 2024–25. This arithmetic works due to the desire to record the curtain spending on social welfare. Food subsidy bill for an increased security trap under the National Food Security Act, fell from ₹ 27.3 lakh crore in 2022-23 to 2024-25 in 2024-25, increased to 19.7 lakh crores, just ₹ 20.3 lakhs in 2025-26 Ten million. Similarly, the outlay for the National Rural Employment Guarantee Scheme, fell from ₹ 90.8 thousand crore to ₹ 86 thousand crore in 2022-23 to ₹ 86 thousand crore in 2024-25, is expected to be at the same level. These are not the final figures in any case and are also likely to be less.
Despite playing with numbers, the government is not clearly convinced that all its claims will be physical. Therefore, there are two bets in the budget. The first is that tax concessions for the middle class will open a cost of spending which will revive the demand for consumption and GDP growth. The other is that, even if corporate profits and promotion of stable worker’s earnings, as per the Economic Survey, bad, “encouragement” corporate sector will help revive private investment.
Therefore, domestic, emphasis has been laid on regulatory reforms for non-financial sector which will improve “ease of trading”. This contradictory position includes the recognition that income inequality (freedom inspired to trade) reduces demand and limits private investment on one side, and belief that the freedom of corporates to achieve great profits The use was used, while the capacity is reduced and the other, was clear in the economic survey. It is also visible in the budget.
‘Foreign angle’
Similar incentives are also being extended to foreign investors. The roof on foreign ownership in the insurance sector has been increased from 74% to 100%, despite the evidence that such firms may be ruthless with customers when chasing profits. The government has promised to dilute India’s “model” bilateral investment treaty template and make it more investor friendly. Investment treaties are the means by which firms and sovereign in less developed countries are conducted for ransom by transnational conjylomerates. Giving them the freedom to do that in a serious world economic environment on this basis that he can help distribute the Vikasi India, it is not just an illusion, but a dangerous.
CP Chandrashekhar is a former professor of economics, Jawaharlal Nehru University
Published – 02 February, 2025 12:16 AM IST