However, given the demand compression that the country has been witnessing with huge inventories of unsold automobiles and housing stock and single-digit growth in fast-moving consumer goods, it is to be seen how far the taxes forgone will go. Especially, since GDP growth plummeted to 5.4 per cent in the second quarter of the current fiscal and is expected to remain range-bound between 6.3-6.8 per cent in the coming fiscal. 

Tax Giveaway For Consumption Boost 

“The focus of the Budget is taking everyone together on an inclusive path,” Sitharaman said, adding that the move will reduce taxes on the middle class “and leave more money in their hands, boosting household consumption, savings and investment.”

The tax slabs for those opting for the New Tax Regime (NTR) some five years ago were rejigged. Those earning up to Rs 12 lakh annually and opting for the NTR were exempted from paying income tax. Salaried individuals will get an additional exemption of Rs 75,000 by way of standard deduction. 

The Indian urban middle class, which has an annual income between Rs 5 lakh and Rs 30 lakh and gives heft to the country’s purchasing power, has been consistently voting for the government and may well be enthused by this measure. 

The tax cuts will also come in handy for the ruling coalition ahead of the Delhi state elections, which is largely urban, and whose voters are mostly salaried individuals and small business owners. 

Elections Ahead

Till now, direct benefit transfers and pro-women schemes have worked well electorally in states including Maharashtra, where the NDA won by a big margin. However, Delhi's large urban middle-class voter base represents a different challenge.

Despite the optics of the tax exemption, the actual numbers of those who will benefit remains a bit fuzzy, though it will certainly be substantial. Ashok Dhingra, formerly of KPMG, in a conversation with The Secretriat, pointed out that the bulk of those filing income tax returns fell in the Rs 3 lakh to Rs 12 lakh income bracket. 

However, tax revenues will not be challenged by this move. “Some 95 per cent of personal income taxes collected will remain untouched by the measure,” said Annu Thapar, a partner in the chartered accountant firm Akar Associates. 

A large number of sops were also announced for Bihar, which will go for state polls later this year, including new greenfield airports, expansion of Patna airport, Western Kosi Canal ERM project in Bihar's Mithilanchal, were announced by Finance Minister Sitharaman, who chose to wear a Madhubani sari, a handloom for which Bihar is famous. 

Despite the tax giveaways, the government continued to improve its finances, targeting a fiscal deficit of 4.4 per cent of GDP in 2025-26, down from a revised 4.8 per cent of GDP in the current year, mainly on the back of better income tax collections. The government’s borrowings are being checked and will marginally increase to Rs 15.66 lakh crore.

Trump Effect On Tariffs

Perhaps with US President Donald Trump's threat to slap fresh trade tariffs, the government also rationalised halving the number of customs tariff rates removing seven of them and reducing the number of tariff rates to just eight, including the “zero” tariff rates.

The top-end basic tariff rate, which had stood at 125 per cent, has also been slashed to 70 per cent and the average tariff on imports reduced to nearer 20 per cent instead of an earlier 37 per cent. Officials added that multiple surcharges would also not be imposed on imports.

A large number of life-saving drugs were exempted from tariff, a move that will please not only the middle class that is overly burdened by rising healthcare costs, but also big US pharma companies who funded the Trump campaign. 

Similarly, machinery needed for EV manufacturing and mobile phone battery factories have been exempted from customs duties, a move that will please not only Indian industry, but also large multinationals like General Motors, Honda and Tesla. Similarly, duty on ethernet switches made by US firms like Cisco and Adva was halved to 10 per cent. 

Farm Thrust To Beat Price Rise

India has been combatting a period of double digit food inflation over the past year. Even though retail inflation eased to a four-month low of 5.2 per cent in December, food inflation remained high at 8.39 per cent, troubling the poorest the most, for whom food forms the biggest chunk of their consumer spending.

To spur farm productivity, the government now plans a national mission aimed at promoting high-yielding crops, with a particular emphasis on pulses and cotton. Beside this, Sitharaman announced that to support farmers, the cap on subsidised credit has been increased by 66 per cent to Rs 5,00,000.

A 100 districts that have low productivity will also be selected and helped to boost productivity, augment post-harvest storage capacity, and improve irrigation facilities, besides being given adequate credit inputs. This will cover some 17 million farmers.

The government also said it will register India’s gig workers and improve their access to healthcare. Sitharaman announced plans to issue identity cards and set-up a national registry to ensure their inclusion in welfare programmes.

According to estimates from the central government think-tank NITI Aayog, India’s gig economy could expand to employ over 23 million people by 2030.

Raising The Bar For Industry

The Budget also tried to raise the bar for Indian industry with a focus on sustainability, high-tech innovation, and value-driven practices, with the Production-Linked Incentive (PLI) Scheme continuing to lead the way. The ultimate goal is to position India among the global leaders while championing climate-conscious policies.

“This strategic push will act as the third engine of India’s growth, alongside services and agriculture, fostering investment, innovation, and self-reliance in crucial sectors,” said Sitharaman.

The overarching objective is to drive sustainable industrial growth through clean technologies. 

The Budget also significantly raised the investment limit for MSME classification by 2.5 times and doubled the turnover threshold. The aim seems to help small businesses grow into mid-sized ones. “What India needs is to grow businesses to global standards, and to do that, small players have to be helped to grow in size, and that is why this reclassification was long needed,” Rupa Dutta, former Principal Economist with the Ministry of Industry and Commerce told The Secretariat.

The Credit Guarantee Cover scheme for MSMEs has been increased from Rs 5 crore to Rs 10 crore, while exporter firms can now access term loans of up to Rs 20 crore. Besides, micro-enterprises registering on the ‘Udyam’ portal will receive customised credit cards with a Rs 5 lakh limit.

Questions Remain

However, questions remain on whether the tax giveaways will do the trick in boosting domestic consumption in the face of commodity prices firming up and of manufacturing and exports being able to make headway in the face of tariff walls springing up all over the world. 

More reforms will possibly be needed to improve the ease of doing business in the country, and thereby attract more investment and jobs, while improving productivity and wages — the essential conditions for greater consumption expenditure for the country as a whole.

India will have to show diplomatic nimbleness to ensure its major markets remain open to its attempt to sell more abroad. There is talk of India trying to have a mini-trade deal with the US.

It also needs to explore new markets such as Africa where China has a lead and to go up the value chain in order to improve its market share from less than 2 per cent of global merchandise exports and 4 per cent of services to a larger heft.