Budget Skips Economic Growth

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Good evening. You usually don’t see us over the weekend. But today we come to you with a special budget edition. 

In today’s edition — Union Budget 2025 puts more money in the pockets of voters, but skips economic growth boost; why the markets are disappointed with it; and poll-bound Bihar bumper prize. 

JANUS VIEW

Union Budget 2025 Leaves India’s Economy To Flounder

The budget addresses the slowing economy the way a caregiver, who has run out of medicines, tends to a sinking patient with a happy story. You cannot offer a cure for loss of economic momentum, but you can hope to raise a smile by giving tax breaks. Economists and analysts will be disappointed by the absence of hoped-for growth boosters. But a vocal segment of voters would cheer the budget, as it puts additional money in their pockets.

Are there budgetary outlays to boost growth? The capital expenditure proposed for the current fiscal was Rs 11,11,111 crore. Numerology did not quite help. The actual spending was nearly Rs 1 lakh crore lower. Next year’s capex allocation is lower, as a proportion of GDP, than the current fiscal’s had been.

Is there a fleshed-out plan to mobilise private sector investment? No, if you don’t mistake a call to all infrastructure ministries to come up with public-private partnership projects as unleashing investment here and now.

This is, in effect, a budget that marks time, preparing for a shift in strategy from state-funded growth to private sector-funded growth, by reviving the public-private-partnership (PPP) model that the previous UPA government had used effectively to keep the share of gross fixed capital investment in the economy at 33-35% of GDP. Post-the UPA, the GFCF/GDP ratio has mostly stayed below 30% of GDP and touched 30% only briefly.

In the meantime, it doles out tax breaks to the middle class in the hopes that no one would notice that nothing was done about growth. 

THE TAKE 

Lukewarm Markets Tell The Real Story

Some 10 million taxpayers will benefit from the income tax limit being raised to Rs 12 lakh per annum under the new Tax regime. This was clearly the big headline of the Union Budget 2025 presented by finance minister Nirmala Seetharaman on February 1, 2025.

There were a raft of other announcements touching a wide variety of areas ranging from nuclear energy to renewable energy in general including electric vehicles and the manufacturing sector, infrastructure projects including in the state of Bihar.

There were also special sops for entrepreneurs and women entrepreneurs, including those from weaker sections of society.

The government will launch missions in many areas, including in areas like cotton and pulses, the latter where it hopes to push for greater self-sufficiency.

Disappointed Markets

There was also mention of a renewed export thrust, including in seafood exports and separately more efforts to bring in gig workers into the formal economy by providing them identity cards which presumably could lead to other benefits in healthcare and insurance.

The government said it was committed to keeping public spending a priority. “There is no reduction in public spending on capital expenditure. We continue to place emphasis on the multiplier effect that government capex has shown, which has sustained us,” the finance minister said.

For FY26, the capital expenditure target has been raised by 10.08 per cent to a record ₹11.21 trillion, highlighting the government’s reliance on infrastructure spending to drive economic growth. However, the capex target for the current fiscal year (FY25) has been revised downward to ₹10.18 trillion from the earlier estimate of ₹11.11 trillion.

All of this disappointed the markets, despite the increased purchasing power in the hands of consumers. The stock markets were flat after rising in the morning and swinging a few times. The  Sensex took a retreat and settled at 77,505.96, up merely 5.39 points or 0.01 per cent from its previous close. The NSE Nifty50, on the other hand, ended at 23,482.15, down 26.25 points or 0.11 per cent. 

Among the broader markets, small-cap shares outperformed others, with the Nifty Smallcap100 index ending higher by 0.41%, whereas the Nifty Midcap100 index ended down 0.42%. 

Many consumer stocks were up, given the Rs 1,00,000 crore or so that will go into the hands of consumers.

However, it does not seem intuitive that all this will necessarily flow back into consumption given that most earners at this level were already stretched as they were consuming close to or beyond their income levels. Moreover, inflation and high prices of goods have already eaten into people’s incomes, particularly in this bracket which has a relatively higher propensity to consume.

No Ease For Anything

Will the government’s tax measures be sufficient to stimulate economic expansion?

Christian de Guzman, senior vice president and lead sovereign analyst for India at Moody’s Ratings said it really depends on whether consumers do actually spend that money that is freed up from these tax measures… I would place some uncertainty there.”

On the other hand, private investment is still sluggish to weak, remember capacity expansion is still in the 70% range which means businesses have to reach somewhere before they start investing again.

The larger question is whether this was the budget for this moment.

India is in a tough spot, there is inflation domestically and the threat of tariffs and a new world trade order globally. The Core Report argued on Friday that Indian businesses, particularly small ones, need to be unshackled so they can take on the new threats, which are in addition to old ones.

While the budget did speak of ease of doing business as did the Economic Survey and the sheer weight of regulatory oversight on Indian businesses and entrepreneurs, there was not much to suggest a change in approach.

There was some tinkering in taxes, including in TDS and customs but most of it normal and one would assume that in every budget something gets rationalised even as new ones get added.

For example, tax collected at source, a presumptive tax that does not exist anywhere in the world perhaps, on international transactions and transfers has not been dropped as it should have but merely saw an increase in value from Rs 7 lakh to Rs 10 lakh.

This does not reflect the approach of an ease of doing anything. There is a new Tax Bill which might contain some clues on how the administration is viewing the theme of ease of doing business but that will come next week.

One good takeaway is that there was no bad news as such - which is of course very good news on most days. Expect industry leaders to give their usual 10/10s and call it a balanced budget, which of course means very little.

Meanwhile, strap on your seatbelts, 2025 will be a tough year and you as an investor, salary earner or a business owner will have to depend more on your instinct and gut than anything else to navigate from here on.

In other words, not much has changed.

CORE OBSCURE

The government will launch a modified UDAN scheme to connect 120 destinations as part of its regional connectivity push. "The regional connectivity scheme will also support helipads and smaller airports in hilly aspirational and northeastern regional districts," Sitharaman said while presenting the Union Budget 2025-26 on Saturday.

While the scheme aims to democratise air travel, the ground reality of airports in India’s smaller cities are different. Many regional airports remain underutilised, struggling with inadequate infrastructure, poor connectivity, and financial challenges—issues that make them unattractive to both airlines and passengers despite government support. While the numbers announced by the finance minister seem good on paper, it leaves out the problems faced by existing airports in the country.

CORE NUMBER

Rs 1,02,600 crore

The total revenue foregone by the government due to changes in tax slabs and rates — Rs 1 lakh crore by way of direct taxes and Rs 2600 cr in indirect taxes. The government has raised the zero-income tax slab for taxpayers from Rs 7 lakh to Rs 12 lakh annual income, under the new tax regime. The proposed changes, to be effective from April 1, 2025 will provide some relief to salaried individuals facing the twin burden of a slowing economy and rising inflation adding to their household costs. Over 80% of the taxpayers are likely to benefit from this move. However, if your income crosses the Rs 12.7 lakh per annum threshold, you will be taxed according to the revised slabs applicable to the new tax regime.

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FROM THE PERIPHERY

—🪫 Nuclear energy related stocks gained on Saturday as Sitharaman announced measures to increase India's nuclear energy generation. The government target is to develop 100 GW of nuclear energy by 2047 as part of India's "energy transition efforts". India currently produces over 8,000 MW of nuclear energy. Its contribution to electricity generation is a meagre 3%. The government set an outlay of Rs 20,000 crore research and development of Small Modular Reactors. While private players are not allowed to directly develop nuclear energy in India, the finance minister said, "For an active partnership with the private sector towards this goal, amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act will be taken up." 

—🎁 Bihar received a long list of goodies from the budget. This isn’t much of a surprise as the state goes to polls later this year. A Makhana Board was announced to improve production, processing, value addition, and marketing of makhana or fox nuts. For context, makhanas have become really popular in the West as a superfood. Bihar’s good fortunes don’t end there. A new National Institute of Food Technology, Entrepreneurship and Management was announced as well, with the promise of a “strong filip” for food processing activities in eastern India. “Greenfield airports will be facilitated in Bihar to meet the future needs of the State. These will be in addition to the expansion of the capacity of Patna airport and a brownfield airport at Bihta,” Sitharaman said. She also announced a Western Koshi Canal Project in Mithilanchal and expansion of infrastructure and hostel capacity at IIT, Patna. Needless to say, the Opposition took several digs at this. 

—📦 Sitharaman also announced plans to revamp India Post into a major public logistics player, aiming to serve women, entrepreneurs, self-help groups, and large businesses. This echoes Jyotiraditya Scindia’s September 2024 statement on boosting India Post’s revenue by 50-60% in 3-4 years. However, India Post faces stiff competition from private players like Delhivery, Blue Dart, which offer faster deliveries and better technology. With outdated infrastructure and manual processing still in place, the government’s transformation plans remain vague, making India Post’s revival more of a promise than a plan.

—💲 The Union Budget 2025 introduced multiple funding measures for startups, including an expanded Credit Guarantee Fund from Rs 10 crore to Rs 20 crore, a new Rs 10,000 crore Fund of Funds, and plans for a Deep Tech Fund to support AI, quantum computing, and semiconductor startups. The government also extended the incorporation deadline for tax benefits under Section 80-IAC until April 1, 2030. However, a key startup sector demand–ESOP tax relief—remains unaddressed, leaving concerns over liquidity and compliance burden for startup employees.

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