Budget: Economic Challenges Persist Amid High Fiscal Deficit and Slow Job Growth

Balancing Growth and Stability: Addressing Fiscal Pressures, Employment Gaps, and Social Sector Needs

THE UNION BUDGET 2025-26, presented by Finance Minister Nirmala Sitharaman, has drawn both praise and criticism. While it introduces significant tax relief and welfare measures, it falls short in addressing crucial economic challenges such as job creation, inflation control, wage growth, and global trade disruptions.

Despite these concerns, the budget has been lauded for providing substantial tax relief—raising the exemption limit to ₹12 lakh per annum for the middle class—and offering several social welfare initiatives.

Challenges Post-Budget

The Union Budget lays out a financial roadmap, but several key issues must be addressed to ensure effective implementation:

1. Employment and Job Creation

Despite signs of economic recovery, job growth remains sluggish, particularly in the informal sector. The budget lacks a targeted employment policy and does not introduce direct incentives for businesses to expand hiring. The government must focus on strengthening manufacturing, MSMEs, and start-ups to boost employment opportunities.

2. Agricultural Reforms and Rural Economy

Rural distress continues to mount, with stagnant productivity and inadequate support for farmers. While the budget offers subsidies and credit support, it fails to introduce comprehensive reforms to ensure stable farm incomes. Farmers continue their agitation for a legally guaranteed Minimum Support Price (MSP), an issue that has been largely sidestepped by the government.

3. Inflationary Pressures

Rising global oil prices and ongoing supply chain disruptions pose significant inflation risks, directly impacting consumer demand. The government must balance food security with effective price control measures to prevent inflation from eroding purchasing power.

4. Fiscal Deficit and Debt Management

Managing the fiscal deficit while sustaining growth remains a challenge. Increased infrastructure spending has led to higher borrowing, which raises concerns about long-term fiscal sustainability. Rising interest payments could put further strain on public finances if revenue generation does not keep pace.

5. Revenue Generation Concerns

The government has set ambitious tax collection targets, particularly for GST, but achieving them amid global uncertainties may be difficult. Additionally, the success of privatization plans remains crucial, yet past disinvestment targets have been consistently missed.

6. Social Sector Spending

Public investment in essential services like health and education remains inadequate. Programs like MNREGA have not seen a significant increase in funding, despite rising rural unemployment. Effective utilization of resources is necessary to strengthen social welfare programs without compromising fiscal discipline.

7. Boosting Private Investment

To attract both domestic and foreign investments, the government must address regulatory bottlenecks and ensure policy stability. Uncertainty in taxation policies and delays in privatization have discouraged private sector participation in key industries.

8. State Finances and Federalism

Many states are facing financial stress and are demanding higher devolution of funds from the center. Balancing fiscal transfers while maintaining responsible financial management remains a policy challenge that needs urgent attention.

9. Global Economic Slowdown and External Risks

Geopolitical tensions, trade disruptions, and a slowing global economy threaten India’s export-driven sectors. The government must strengthen domestic demand while securing new trade partnerships to mitigate these risks.

10. Implementation and Execution Bottlenecks

Efficient governance is crucial for the timely execution of budgetary policies. Corruption, bureaucratic delays, and leakages in fund allocation must be tackled to ensure the intended impact of government schemes.

Lack of Substantial Relief for the Poor and Rural Sector

While middle-class taxpayers benefit from higher exemption limits, lower-income groups receive limited direct relief. Key concerns include:

Rural Distress Overlooked: Employment schemes like MNREGA did not receive a major funding boost, despite rising joblessness in rural areas. Additionally, food security programs and direct cash transfers for the poor were largely ignored.

Underfunded Health and Education Sectors: Healthcare spending remains below 3% of GDP, which is insufficient to bridge gaps in public healthcare infrastructure. Similarly, while digital education reforms were emphasized, the budget lacks provisions to improve rural schools and recruit more teachers.

Concerns Over Fiscal Deficit and Rising Debt

Higher Fiscal Deficit and Debt Risks: Increased infrastructure spending has led to a widening fiscal deficit, raising concerns over long-term sustainability. Market borrowing remains the primary source of financing, which could drive up interest rates and crowd out private investments.

Unclear Revenue Plans: The government’s strategy for revenue generation, beyond disinvestment, remains vague, raising questions about its ability to manage rising debt levels.

Job Creation Remains a Weak Spot

Lack of Direct Job Stimulus: While the manufacturing and infrastructure sectors may generate employment in the long term, the budget lacks immediate measures to boost job creation, particularly in the informal sector.

No New Hiring Incentives: The private sector remains cautious in hiring, and there are no fresh incentives for companies to expand their workforce.

Climate Resilience and Green Energy Transition Underfunded

Weak Climate Resilience Measures: Despite increasing climate uncertainties, the budget does not allocate sufficient funds for climate adaptation in agriculture.

Missed Opportunities in Renewable Energy: While infrastructure investments are prioritized, the budget does not provide substantial funding boosts for renewable energy. There are no major incentives for electric vehicles (EVs) or large-scale adoption of solar and wind power.

Privatization and Disinvestment: Slow Progress

Missed Targets and Delays: The government has repeatedly fallen short of its privatization goals, and this budget lacks a clear roadmap for asset monetization. Public sector enterprises (PSUs) continue to be a financial burden, yet no significant privatization push has been made.

Taxation: Burdens and Uncertainties

Higher Taxes on Certain Sectors: The increased tax burden on high-income earners and luxury goods may discourage investments in key industries.

Complex GST Structure: The budget does not introduce any major reforms to simplify GST, which remains a challenge for businesses, particularly small enterprises.

Positive Takeaways from the 2025-26 Union Budget

Despite its shortcomings, the budget introduces several measures aimed at stimulating economic growth:

1. Income Tax Reforms

Higher Tax Exemption Limit: The exemption limit has been raised from ₹7 lakh to ₹12 lakh, providing substantial relief to the middle class, boosting disposable income, and increasing consumer spending.

Higher Standard Deduction: The standard deduction has been raised to ₹75,000, effectively eliminating the income tax burden for individuals earning up to ₹12.75 lakh annually.

2. Promotion of Manufacturing and Exports

National Manufacturing Mission: Aimed at reducing import dependency and making India a global manufacturing hub.

Higher FDI in Insurance: The foreign direct investment (FDI) limit in the insurance sector has been raised to 100%, which could attract global insurers and enhance capital inflows.

3. Infrastructure Development

Significant investments in regional air connectivity, highway expansion, and railway modernization reflect the government’s focus on long-term infrastructure growth.

4. Support for Start-ups and Small Businesses

Incentives and Funds: Dedicated funds and tax exemptions have been introduced to encourage entrepreneurship and innovation.

Conclusion

The Union Budget 2025-26 reflects a commitment to growth, welfare, and fiscal stability. By focusing on tax relief, agriculture, manufacturing, infrastructure, and entrepreneurship, the budget lays the groundwork for sustained economic development. However, the government must address persisting challenges, particularly in job creation, rural distress, and social sector spending, to ensure balanced and inclusive growth.

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