Event Report
Naushaba
IMPRI Center for the Study of Finance and Economics (CSFE), IMPRI Impact and Policy Research Institute, New Delhi, hosted a panel discussion on ‘Viksit Bharat—Developed India @2047 and Union Budget 2025-26’ on February 2, 2025, under its 6th Annual Series of Thematic Deliberation and Analysis of Union Budget 2025-26. This diplomatic dialogue aimed to delve into the key areas of the Union Budget 2025 -26 and its implications across the sectors in discussion with esteemed panellists.
Prof Nilanjan Banik, Professor and Program Director (BA, Economics and Finance), Mahindra University, Hyderabad; Visiting Consultant, IMPRI, opened the discussion panel on ‘Viksit Bharat—Developed India @2047 and Union Budget 2025-26’ by introducing with the catchphrase of the budget i.e. the big tax rebate for the middle class.
Although the definition of the middle class varies, some indicators suggest that the tax exemption will benefit approximately 3 crore people in India. Prof Banik further led the discussion towards the MSME (Micro, Small and Medium Enterprises) sector with the finance minister, Nirmala Sitharaman’s emphasis on making the sector more resilient. From the perspective of livelihood and employment generation, MSME becomes the second most essential sector after agriculture. The budget also asserted an increase in the allocation of seats for IT, medical and engineering colleges.
However, the budget 2025-26 has its own apprehensions, specifically when it comes to the budget allocation for the social, education and health sectors which saw no increment in the session 2025-26. On these lines of catchphrases and apprehensions, Prof Banik asked the eminent panellists to give their views on the Union Budget 2025-26 and its implications across various sectors.
The Tax Rebate and the Union Budget 2025-26
Mr T K Arun, an Independent Journalist, comprehensively spoke on the nits and grits of the budget 2025-26, covering all the questions pointed out during the panel discussion. Relating to the increase in income tax exemption from 7 lakh to 12 lakh to reduce the tax burden on people earning 1 lakh per month, Mr Arun called it essentially a political manoeuvre to please the taxpayers. The economy has been slowing and the government’s efforts in the last budget to increase the growth rate have not turned out to be very efficient. The growth rate of 8.2% last year has come down to 6.4 % this year despite efforts, with this the Trump Tariff Wars has also led to the slowing down of the world economy consequentially affecting every other country. Hence, to keep the people happy, instead of providing an adequate and concrete solution for slowing growth, the government of India chose a tax rebate for the people.
Dr Radhika Pandey, Associate Professor, National Institute of Public Finance and Policy (NIPFP), New Delhi, highlighted the fact that with the exemption on tax, there will be an increase in disposable income among the people. However, this does not imply that this increase in disposable income among people will lead to an increase in consumption, which again depends upon various other factors. Hence, one-on-one relations cannot be assumed when it comes to disposable income and consumption and it remains questionable. Furthermore, regardless of the income tax cuts, tax revenue estimates seem to be optimistic with the collection expected to grow by 14% over the RE of the current year and the corporate tax by 10.4%.
Social Sector and the Union Budget 2025-26
Mr Subhomoy Bhattacharjee, Consulting Editor, Business Standard; Professor of Practice, Director, Centre for Regulatory Governance, Jindal Global Law School, OP Jindal Global University, Sonipat, discussed the topic of rural revival in the context of the Union Budget 2025-26. He pointed out that since there has been no increase or change in wage rates, and wage growth has remained low, it is difficult to expect a significant rural revival. The Government of India has allocated a budget of 50 trillion for this fiscal year, with 5.5 trillion dedicated to central-sponsored schemes. This 50 trillion budget is comparable to or even exceeds the GDP of countries like the UAE. However, 30% of the funds under the central-sponsored schemes have not been utilised. Our productivity remains low, and states are not spending enough despite receiving substantial budgets. Instead, the funds are often used for activities that are easy to report, such as painting school walls or distributing freebies, which require minimal effort. Meanwhile, critical areas like education and health continue to be neglected and underdeveloped.
Mr Subhomoy further emphasised that the budget is not the sole solution to the country’s economic problems but rather an art of allocation. The current budget for 2025-26 has provided relief to the poor and middle class by offering a tax rebate of up to 12 lakh. Additionally, a positive aspect is that the fiscal deficit remains stable. While there are challenges with PPP, the budget alone cannot address these issues. Effective bureaucracy and proper models for PPP implementation are essential. Mr Subhomoy highlighted that the good news is inflation is low, the fiscal deficit is stable, and the budget deficit is under control, indicating a relatively balanced economic situation.
Prof NR Bhanumurthy, Director – Madras School of Economics, discussed the capacity constraints faced by states, noting that even large states like Maharashtra are not fully utilising the budgets allocated for specific policies and schemes. Similarly, the central government has not released 1.3 lakh crore allocated for states, despite the norms for release being in place. He also highlighted the ongoing decline in household savings, which raises concerns about financial stability. If the fiscal deficit continues to remain at 4.8% to 5%, the resources available for states and the private sector become very limited. Therefore, reducing the fiscal deficit is crucial to create more space for private investment and ensure sustainable economic growth.
In reference to freebies, Prof Bhanumurthy highlighted that not all government-provided benefits should be labelled as “freebies” There are essential state duties and schemes, such as nutrition and education, that the government is obligated to carry out, and these should not be categorised as freebies. However, he pointed out that we have fallen short in these critical areas, particularly in nutrition. Additionally, he criticised the tendency of governments to spend on low-effort activities, such as painting walls or, at the lowest end, putting up large advertisements on occasions like Republic Day, rather than focusing on meaningful and impactful initiatives
Dr Surajit Das, Assistant Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU, highlighted that the Union Budget 2025-26 has not adequately addressed the social sector. He raised critical questions, such as if the number of IIT seats has been increased, where are the teachers to educate such a large number of students? Education and health fall under the concurrent list, with 70% of responsibility lying with states and 30% with the central government. However, significant cuts in central transfers to states have negatively impacted these sectors, leading to reduced state spending on health and education. Additionally, he pointed out that in the previous year, 2.35 crore individuals eligible for tax returns did not file their Term Deposit Receipts (TDRs), raising questions about where that unclaimed money is going.
The MSME, Corporate and the Union Budget 2025-26
Mr Arun on the topic of MSMEs (Micro, Small, and Medium Enterprises) explained that the primary issue in the country is access to credit. Only about 15% of the credit needs of MSMEs are met through formal sources, while the remaining 85% is sourced from informal channels at significantly higher costs. Another major challenge is the delay in payments, with small companies often waiting for 7 to 8 months to receive their dues. He pointed out that government policies tend to favour larger companies, providing them with more benefits, while smaller enterprises continue to struggle. This imbalance highlights the need for more inclusive policies that address the specific challenges faced by MSMEs, ensuring they receive timely credit and payments to sustain and grow their businesses.
Dr Radikha further noted that there is an expenditure gain of one lakh crore but not the same is seen from the side of revenue which will thus act as a challenge for hitting the fiscal deficit target of 4.4% of the GDP. The data released further suggest that the inflation numbers are easing down and will continue to remain stable till the first quarter and the fourth quarter of the next financial year. On one hand, the budget shows an optimistic scenario for the corporate sector, on the other, the Trump Tariffs and China’s dumping of steel will considerably affect the manufacturing market of India.
The Way Forward
Dr. Surajit noted that the world is slowly entering a recession, and India is no exception. With the export economy struggling, domestic investment has become a major challenge. To address these issues, he stressed the urgent need for an expansionary fiscal policy to stimulate growth and stability. By investing in infrastructure, healthcare, and education, the government can not only address immediate economic challenges but also lay the foundation for long-term growth.
Dr Radhika emphasised further that there is a need to encourage tourism for the multiplier effect which is essential for employment generation. Although it has not been appreciated, it has become crucial today and the government has shown more thrust towards it for the last two years. For more employment generation a comprehensive PLI (Production Linked Incentive) scheme is also the need of the hour. Additionally, infrastructure development, proper implementation, contract reinforcement, and dispute settlement in PPP (Public Private Partnership) are essential for stable growth.
The Panel discussion ended with a Q&A session and the way forward was listed by all the panellists briefly emphasising the aims of the Viksit Bharat to transform the country into a self-reliant and prosperous economy by 2047. The chair of the session, Professor Banik concluded the session by expressing his gratitude to all the esteemed panelists for their insightful contributions and valuable perspectives on the Union Budget 2025-26. He acknowledged their detailed analysis of its implications and the constructive suggestions offered to address its shortcomings and enhance its effectiveness. The discussion, he noted, provided a comprehensive understanding of the 2025-26 Union Budget and its motto, “Innovation, Inclusion, and Investment.”
Acknowledgement: Written by Naushaba, Research Intern at IMPRI.
