10 February 2025 : Indian Express Editorial Analysis

1. Budget’s political priorities

(Source – Indian Express, Section – The Ideas Page – Page No. – 13)

Analysis of the news:

Acknowledgment of Economic Slowdown

• The Union Budget 2025-26 comes at a time when India’s economic slowdown is no longer ignored by the government.
• The Economic Survey, presented just a day before the budget, provided a candid assessment of the country’s financial challenges, particularly the issue of stagnant or declining incomes.
• The survey highlighted the decline in earnings of self-employed individuals and nearly a decade of stagnant real wages for wage workers.
• Given this reality, there were expectations that the budget would introduce measures to stimulate the economy.
• However, instead of new economic revival strategies, the budget appears to be driven by political pragmatism, with upcoming elections in Delhi and Bihar influencing its focus on middle-class benefits rather than addressing the broader economic distress, especially in rural areas and agriculture.

Limited Increase in Public Expenditure

• A major requirement in times of economic slowdown is increased public expenditure to stimulate demand.
• However, the budget does not reflect an expansionary fiscal policy. The projected nominal GDP growth rate is 10.1%, with inflation in the range of 4-5%, yet the growth in budgeted expenditure stands at only 7.3%, which is lower than nominal GDP growth.
• When interest payments—an unavoidable expense—are excluded, the actual increase in government spending is just 5.9%, the same as the previous year.
• Despite announcing a tax giveaway of ₹1 lakh crore to the middle class, the government anticipates a 10.9% increase in tax revenue.
• Instead of boosting fiscal spending, the budget prioritizes reducing the fiscal deficit to 4.4% by cutting expenditures in crucial programs and ministries that require financial support.
• A trend of overestimating budget allocations followed by lower actual spending continues, undermining crucial developmental initiatives.

Declining Rural Development and Employment Expenditure

• Rural distress and unemployment remain critical issues, yet the budget does not reflect an urgency to address them.
• The revised estimates for the Ministry of Rural Development are ₹3,654 crore lower than initially budgeted.
• Similarly, the Ministry of Labour and Employment faced a reduction of ₹4,224 crore.
• Despite widespread distress in rural areas and growing unemployment concerns, the government has continued to underspend in these crucial sectors.
• The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), a crucial safety net for workers facing stagnant wages and lack of employment opportunities, has seen no increase in allocation.
• Its budget remains at ₹86,000 crore, the same as the previous year, despite inflation and rising wage demands.
• This allocation is even lower than the actual spending of ₹89,368 crore in 2023-24, highlighting a worrying trend of reduced support for rural employment.

Stagnant Agricultural Expenditure

• Agriculture, a sector facing persistent distress, has been highlighted as a priority by the government, yet budgetary allocations do not reflect substantial support.
• There is growing evidence of stagnant or declining farm incomes, yet the budgeted expenditure for agriculture in 2025-26 is ₹1,27,290 crore, which is lower than the revised estimate of ₹1,31,195 crore from the previous year.
• This reduction in real spending contradicts the need for increased financial assistance to farmers, particularly when rural distress and agrarian crises remain prominent issues.
• Despite acknowledging the problems in the sector, the budget fails to introduce structural reforms or increased fiscal support to revitalize agricultural incomes.

Middle-Class Tax Benefits as a Demand Stimulus

• While sectors facing financial distress have seen spending cuts, the government has provided significant tax relief to the middle class.
• Tax exemptions have been introduced for incomes up to ₹12.75 lakh, with the intent of increasing disposable income and stimulating demand.
• However, this approach raises concerns about its effectiveness in reviving consumption.
• While higher disposable income for the middle class may increase spending, it remains uncertain whether it will be sufficient to address the broader economic slowdown.
• The decision to focus on middle-class relief seems to be politically driven, influenced by media narratives portraying the middle class as the primary victim of economic distress, despite deeper financial struggles in rural areas and among informal workers.

Parallels with Corporate Tax Cuts

• This middle-class tax relief strategy mirrors the government’s previous approach of granting large-scale corporate tax cuts.
• In an earlier attempt to stimulate investment, the government provided over ₹2 lakh crore in tax relief to corporations.
• However, instead of boosting investment or job creation, companies primarily used the tax benefits to improve their balance sheets and reduce wage costs.
• The government later acknowledged its disappointment with the corporate sector’s lack of investment, suggesting that the tax relief failed to achieve its intended impact.
• A similar risk exists with middle-class tax benefits, as households burdened by increased loans and mortgages over the last four years may use additional income to clear existing debts rather than boost consumption.
• Whether the middle class will contribute to economic recovery or follow corporations in prioritizing financial security over spending remains to be seen.

Conclusion:

• The Union Budget 2025-26 reflects the government’s political priorities rather than addressing the structural economic slowdown.
• Instead of increasing public expenditure to boost demand, the budget relies on tax incentives for the middle class, despite evidence that similar measures in the past have not significantly improved investment or consumption.
• Rural development, employment programs, and agricultural support—areas that directly impact the majority of India’s population—have seen budgetary cuts in real terms, further deepening economic distress.
• While the fiscal deficit has been controlled, it has come at the cost of much-needed public spending.
• Ultimately, this budget highlights the government’s preference for short-term electoral gains over long-term economic recovery, leaving critical issues like rural distress and employment largely unaddressed.