Akhil Vaani: Nirmala Sitharaman's Budget Ticks Most Boxes And Does So Correctly
Given the domestic and international headwinds within which FM Nirmala Sitharaman has presented her latest budget, it is a near miracle that she has “pulled a rabbit out of a hat” unexpectedly in a surprising and unconventional manner
Finance Minister Nirmala Sitharaman on Saturday, February 1, 2025, made history by presenting a record eighth consecutive budget.
With this, she moved closer to the record of 10 budgets presented by former Prime Minister Morarji Desai over different periods. Desai presented a total of six budgets during his tenure as finance minister from 1959 to 1964, and four budgets between 1967 and 1969.
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Varied Reactions
Varied sections have reacted to the budget differently. The reaction of the political class has been on expected lines. While the ruling dispensation has lauded the budget, the opposition – with the sole exception of the National Conference – has decried it. While one political party walked out of the Lok Sabha shouting slogans even before the budget speech, Mallikarjun Kharge, the Congress President, has gone to the extent of saying, “The budget is an attempt to dupe the people".
Balance Scorecard
In this multipart series, I present the “Balance Scorecard" of the budget just presented, which I call a “responsive, responsible and reformist" budget.
I will return to this theme of my analysis soon. But before that, I must present the circumstances under which Sitharaman presented this budget.
Headwinds
Like Manmohan Singh in 1991, Sitharaman presented her budget amid extremely difficult situations. Here are the key headwinds:
One, slowing growth – At the domestic front, GDP growth has tapered down to 6.4% in 2024–25, the lowest in the last four years, and the Economic Survey projections for GDP growth at 6.3–6.8% give no comfort given that to become Viksit Bharat by 2047, the GDP of the country must consistently grow at the rate of 7.5–8% over the next two and a half decades.
Two, inflation trouble – Though the headline wholesale price inflation has shown a downward trend, retail and food inflation continue to be persistently high.
Three, consumption story – While rural consumption has shown signs of revival, urban consumption not picking up threatens India’s growth story.
Four, subdued private investment – Much of the last four years’ growth has been turbocharged by pump-priming growth through enhanced public investment and expenditure; private-sector investment is yet to awaken from its deep slumber.
Five, increasing protectionism – When Manmohan Singh dismantled the Licence-Permit Raj and liberalised the economy, India had the opportunity to grow through exports, a model China and the Asian tigers used to thrive. When Sitharaman embarks on making India a developed economy, she faces a closed wall – rebounding protectionism globally.
Six, Trump Trouble – When Sitharaman presented her budget in the Lok Sabha, unpredictable, disruptive, and transactional Trump was getting ready with his first set of tariffs. Within hours of the budget, Trump on Saturday followed through with his threat to impose stiff tariffs on Mexico, Canada, and China, setting the stage for a destabilising trade war with the United States’ largest commercial partners. The tariffs are set to begin on Tuesday. If such is the case, US tariffs against India too may come sooner.
Given the domestic and international headwinds within which Sitharaman has presented her latest budget, it is a near miracle that she has “pulled a rabbit out of a hat" unexpectedly in a surprising and unconventional manner.
Pulling It Off
The task before her was both unenviable and onerous. It was also conflicting in nature – boosting the economic growth of the country, propelling it to a higher trajectory, but doing so without deviating from the cardinal and sacrosanct path of fiscal consolidation. Full credit goes to the finance minister for coming out with flying colours despite the challenges galore.
10 Out of 10
I begin with a caveat – I am both apolitical and stingy, and every year after the budget is presented, my first instinct is to find a hole in what the finance minister does or does not do. This year was no different. But despite being who I am and trying to find the loophole in the budget to present a critique, I have been able to find none. Unsurprisingly then, even though reluctantly, I have no option but to give 10 out of 10 to Sitharaman. And I am not “shooting from the mouth"; I say the finance minister has ticked all the boxes and done it correctly, and I am saying so after internalising the full set of voluminous budget documents.
Philosophical Shift
Before I proceed further, I must acknowledge that the budget marks a philosophical shift. Here is what I mean:
One, consumption-driven – The budget brings fresh air with its strategic shift to one with consumption-driven growth.
Two, retaining the capex thrust – Importantly, the consumption-driven growth focus does not come at the cost of downplaying the past 10 years’ focus on capex. From the revised capex budget (that was lower than budgeted), the capex budget is an increase of 10%.
Three, employment-driven – More importantly, consumption gets a leg up not only from providing more money in the hands of consumers through tax reforms, but reading the fine print of the budget indicates it categorically focuses on employment, employment, and more employment.
Articulating Viksit Bharat
Ever since Prime Minister Modi enunciated “Viksit Bharat by 2047", the question that confounded me was what it means. The budget 2025–26, for the first time, articulates the basics of Viksit Bharat.
Here it means, at a minimum:
- Zero poverty
- 100% good-quality school education
- Access to high-quality, affordable, and comprehensive healthcare
- 100% skilled labour with meaningful employment
- 70% women in economic activities
- Farmers making our country the ‘food basket of the world’
I am sure as we move closer to the actualisation of the dream, more boxes will be added, but this is a good definition to begin the journey.
Ten Pathways
But articulating what Viksit Bharat means is not enough. The moot question is what the pathways are to reach there. The budget not only provides the concrete pathways but also provides a step-by-step guide to the journey.
The 10 pathways are:
- Spurring Agricultural Growth and Productivity
- Building Rural Prosperity and Resilience
- Taking Everyone Together on an Inclusive Growth Path
- Boosting Manufacturing and Furthering Make in India
- Supporting MSMEs
- Enabling Employment-Led Development
- Investing in People, Economy, and Innovation
- Securing Energy Supplies
- Promoting Exports
- Nurturing Innovation
Engines and the Fuel
On April 16, 1853, the first train in India, hauled by three engines – Sultan, Sahib, and Sind – began India’s journey to the path of development. Sitharaman has chosen, and rightly so, four engines to make India a developed nation. The four powerful engines are “Agriculture, MSME, Investment, and Exports".
And she has carefully chosen the fuel for the growth engines – “the reforms and deregulations", whose urgent need was articulated a day before by the Chief Economic Advisor in the Economic Survey.
Before I come to the nitty-gritty of the budget, I must first return to the main theme of my piece: why I call this year’s budget “Responsive, Responsible, Revolutionary and Reformist".
One, Responsive – The budget, presented against the backdrop of extraordinary domestic and external headwinds, navigates dexterously considering all the factors. More importantly, it is a rare budget that not only accepts the diagnosis of the Economic Survey but also bites the bullet and accepts the nostrum provided by the survey.
Two, Responsible – While presenting her 2021–22 budget, Sitharaman committed to bringing down the fiscal deficit – then at 9.2% as a share of GDP – to 4.5% by 2025–26. In 2024–25, she achieved a fiscal deficit of 4.8% against the budgeted 4.9% and has kept her word to be responsible by pegging the 2025–26 fiscal deficit at 4.4%.
Importantly, she has reduced the deficit, keeping capital expenditure sustainably at a high level and despite giving substantive tax relief in this year’s budget.
The above is par for the course and is as per the promise made five years ago. But the icing on the cake is the new fiscal paradigm shift that aims to preserve the macroeconomic situation in an uncertain global environment while leaving enough resources for the growth push and welfare measures. The principal lever of this paradigm change is the new fiscal roadmap for FY2027–2031, as per which the government plans to reduce its debt from the present 57.1% to 50% of GDP in the span of five years. This will take the country to the much-desired path of prudent debt management, where it borrows only to increase productive capital expenditure.
Three, Revolutionary – Revolutionary is high praise for a budget. But make no mistake, despite her back against the wall, despite domestic headwinds and an extraordinarily hostile global scenario, made suddenly more unpredictable after the return of Trump to the Oval House, if Sitharaman and team do not falter at the altar of implementation, the budget will go down in history as one of the few revolutionary budgets independent India has seen – I call it “evolutionary revolutionary", picking up the words of famous American social anthropologist Margaret Mead.
Four, Reformist – Three principal messages of V. Anantha Nageswaran’s Economic Survey were “deregulation and reforms, getting out of the way, and trust". The survey prescribed reforms through deregulation, augmentation of internal capacities, private-sector participation, energy transition, and turning artificial intelligence (AI) into an opportunity as the five pillars of the strategy to achieve higher growth in the new atmosphere.
Nirmala Sitharaman has taken these recommendations of her Chief Economic Advisor to heart and focused on next-generation reforms in the following key areas to fast-track growth and improve the competitive edge of the nation. The selected reform areas for the year are taxation, the power sector, urban development, the financial sector, and regulatory reforms.
Here are a few of the reform measures:
1. Leading the reforms from the front is the simplified Income Tax Bill to be presented in Parliament in the coming week, with an unmistakable focus on “trust first, scrutinise later".
2. Increasing FDI in the insurance sector from 74% to 100%.
3. An urban challenge fund of Rs. 1,00,000 crores to rejuvenate cities and towns (it is the minimum beginning, as the urban population of Bharat in 2050 will be 814 million), rationalisation of indirect taxes.
4. KYC simplification (a major sore point).
5. A bilateral trade framework (to insulate from unpredictable Trump trade policies).
6. Most importantly, developing a modern, flexible, people-friendly, and trust-based regulatory framework.
The most significant regulatory reform proposed is setting up a High-Level Committee for Regulatory Reforms for a review of all non-financial sector regulations, certifications, licences, and permissions with the objective to strengthen trust-based economic governance and take transformational measures to enhance the ‘ease of doing business’, especially in matters of inspections and compliances. States will be encouraged to join in this endeavour. The committee recommendations are expected in a year.
The Big Bang Bonanza
Part I of the budget analysis shall not be complete without talking about the big bang bonanza on the income tax front, which is set to substantially increase discretionary income and thereby pump-prime consumption. An hour before the budget presentation began, even the wisest and most optimistic pundits would not have imagined that in one go Nirmala Sitharaman would make the bulk of Bharatiyas tax-exempt by announcing zero income tax on an annual income of Rs. 12,00,000 (Rs. 12,75,000 in the case of salaried employees). The limit was set at Rs. 7,00,000 only two years ago in 2023. The new income tax provisions mean an annual tax saving of between Rs. 80,000 to Rs. 1,10,000, depending upon the income.
While Sitharaman’s budget is one of the best I have read in recent years, there is a limit to what the Finance Minister can do, and that too in one year. A lot of heavy lifting must be done by state Finance Ministers because it is the states that are responsible for two-thirds of expenditure and one-third of the budget. States unable to consume grants for capital expenditure from the centre is a serious point to ponder upon.
More when I critically analyse the voluminous budget documents in the coming two parts of this special budget bulletin.
The author is multidisciplinary thought leader with Action Bias, India-based international impact consultant, and keen watcher of changing national and international scenarios. He works as president advisory services of consulting company BARSYL. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.
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