NEW DELHI — Indian Prime Minister Narendra Modi’s administration recently unveiled its annual budget to Parliament, aiming to attract the salaried middle class with enticing tax cuts and to stimulate economic growth by focusing on agriculture and manufacturing sectors.
During her budget speech, Finance Minister Nirmala Sitharaman emphasized the government’s commitment to enhancing private investment as a means to bolster growth. She highlighted plans to increase funding in agriculture and improve the financial capacity of the middle class.
“The main aim of this budget is to uplift everyone together,” Sitharaman stated, noting a target for a fiscal deficit of 4.4% of India’s gross domestic product for the fiscal year 2025-26.
As the world’s fifth-largest economy, India is facing challenges such as a sluggish manufacturing sector, ongoing food inflation, limited job growth, and weak consumer spending, leading to the slowest projected growth in four years. The government’s chief economic advisor recently estimated that India’s economy will grow between 6.3% and 6.8% in the upcoming fiscal year.
Tax Cuts for the Middle Class
Sitharaman announced that the government will introduce reforms across various sectors, including finance, energy, and urban development, promising “transformative reforms in taxation.” One notable change is raising the income tax exemption limit from $8,074 to $14,800, with a new income tax bill set to be introduced soon.
“This new tax structure will significantly lower the tax burden on the middle class, allowing more money to remain in their hands, which will enhance household consumption, savings, and investments,” she explained.
Facing criticism and pressure to address middle class concerns and job generation, Modi’s government is responding to economists’ calls for tax cuts and job creation initiatives, as youth unemployment reached 7.5% in January, highlighting the employment challenge in a nation of over 1.4 billion.
Boosting Agriculture and Gig Economy
To enhance agricultural productivity, the government plans to initiate a nationwide program encouraging the cultivation of high-yielding crops, particularly pulses and cotton. Sitharaman mentioned that this initiative aims to assist at least 17 million farmers and will increase the subsidy limit for loans from $3,460 to $5,767.
Additionally, plans are underway to officially recognize gig workers, giving them access to healthcare and issuing them identity cards. This move aims to integrate them into various welfare programs, anticipating that India’s gig economy could create over 23 million jobs by 2030, according to government estimates.
Investments in Startups and Energy
Sitharaman also revealed the introduction of a new startup fund and pledged to collaborate with the private sector to foster innovation and promote manufacturing and exports. Although manufacturing currently contributes about 17% to India’s economy, the goal is to reach 25%.
To boost employment through tourism, the government plans to invest in infrastructure projects and expand air connectivity to 120 new destinations over the next decade. Moreover, she announced the Nuclear Energy Mission, aimed at advancing India’s clean energy goals by developing at least 100 GW of nuclear power by 2047.
