Modi 3.0 Faces Economic Challenges Amid Slowdown
The Union Budget 2025-26 was presented against a backdrop of slowing economic growth, weakened consumption demand, and cautious private investment. The Narendra Modi-led government, now in its third term, faces the crucial task of reviving domestic demand while maintaining fiscal stability. With global trade uncertainty and geopolitical risks mounting, the budget seeks to navigate a delicate path toward achieving the ambitious Viksit Bharat 2047 vision.
Rising Income Inequality and Stagnant Demand
One of the most striking revelations from the Economic Survey 2024-25 was the widening income disparity. While corporate profitability soared to a 15-year high in 2023-24, employment growth remained sluggish, and wage increases were modest. This has contributed to weaker consumption demand, as rising wealth concentration limits spending power among the lower and middle-income groups. The survey noted that for sustainable growth, there must be a fairer distribution of income between capital and labor—an aspect the budget has only partially addressed.
Government Tightens Purse Strings Despite Revenue Gains
Despite access to significant non-tax revenues, including spectrum sales, special dividends from public enterprises, and record-high RBI transfers, the government has taken a conservative approach to spending. The much-anticipated increase in capital expenditure has been modest, with actual growth lower than projections from the previous budget. While the Centre had planned an ambitious 20% rise in “effective capital expenditure,” the revised estimates show a much smaller increase of just 5%, implying a real-term decline.
Middle-Class Tax Cuts: A Key Electoral Strategy
One of the biggest takeaways from the budget is the relief provided to the salaried middle class. The tax-free income threshold has been raised from ₹7 lakh to ₹12.75 lakh, offering significant benefits to those under the new tax regime. This move, which is expected to cost the exchequer nearly ₹1 lakh crore in revenue, signals the government’s focus on consolidating its middle-class voter base ahead of future elections. However, whether this results in a boost to consumption remains uncertain.
Fiscal Deficit Reduction Comes at the Cost of Social Welfare
The government remains committed to its fiscal consolidation roadmap, aiming to reduce the fiscal deficit from 4.8% of GDP in 2024-25 to 4.4% in 2025-26. However, this has been achieved by cutting down on key welfare expenditures. The food subsidy bill, which had already fallen sharply from ₹2.73 lakh crore in 2022-23 to ₹1.97 lakh crore in 2024-25, is projected to rise only marginally. Similarly, spending on the National Rural Employment Guarantee Scheme (MGNREGS) remains stagnant at ₹86,000 crore. Given the high inflation and rural distress, these budgetary cuts could impact the most vulnerable sections of society.
Corporate-Friendly Measures Amid Investment Concerns
The government continues to push for ease of doing business and investment-friendly policies. However, there remains skepticism about whether corporate tax benefits will translate into higher private investment. Despite record-breaking profits, many large firms have chosen to sit on cash reserves rather than expand production, primarily due to weak consumer demand. The budget’s assumption that tax incentives will spur private investment, despite capacity underutilization, raises concerns about its effectiveness.
Foreign Investment Liberalization Raises Questions
While this is expected to attract foreign capital, concerns remain about consumer protection and the aggressive profit-driven approach of multinational insurance firms. Additionally, India is set to revise its Bilateral Investment Treaty (BIT) framework to make it more investor-friendly, a move that could increase foreign investor influence at the cost of sovereign policy flexibility.
Does the Budget Do Enough to Achieve ‘Viksit Bharat’?
Despite its promises, the budget presents contradictions—while it acknowledges income disparity and demand weakness, it largely bets on corporate incentives and middle-class tax relief to drive growth. The focus on private investment, while keeping social spending in check, raises concerns about whether the benefits will trickle down to the broader economy.
As India moves forward with its ambitious Viksit Bharat 2047 goal, the success of this budget will depend on whether the government’s assumptions about tax relief and corporate investment materialize into real economic growth or if the challenges of income disparity and sluggish demand continue to weigh down progress.
Author: This news is edited by: Abhishek Verma, (Editor, CANON TIMES)
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