India’s Budget Aims to Boost Economic Growth Through Middle-Class Tax Cuts

Close-up of an Indian rupee banknote
Close-up of an Indian rupee banknote

The Indian government unveiled its annual budget with a strategic focus on the middle class, aiming to stimulate economic growth through significant tax cuts. Presented by Finance Minister Nirmala Sitharaman, the budget sets forth various initiatives to enhance private investment and develop sectors including agriculture and manufacturing.

In her address to Parliament, Finance Minister Sitharaman highlighted the government’s commitment to inclusive economic advancement. She announced plans to adjust the fiscal deficit to 4.4% of GDP by the 2025-26 financial year, seeking to balance growth with fiscal responsibility.

The budget outlines reforms across finance, power, urban development, and mining. Central to these plans is a new income tax structure, raising the starting point for income tax to $14,800 from $8,074. This change is poised to increase disposable income for the middle class, thereby encouraging household spending and investment.

Economists have advised the Modi administration to focus on tax cuts and job creation as key strategies to combat rising unemployment, particularly with youth joblessness at 7.5% as of January. Meanwhile, GDP growth is anticipated to range between 6.3% and 6.8% in the upcoming fiscal year, amid broader economic challenges like sluggish manufacturing and urban consumption.

Recognizing agriculture’s critical role in the economy, the budget proposes a nationwide program aimed at increasing productivity through the cultivation of high-yielding crops such as pulses and cotton. The initiative will expand the limit on subsidized credit for farmers from $3,460 to $5,767, impacting approximately 17 million farmers and positioning them for greater economic contribution.

The budget also addresses the growing gig economy by suggesting formal registration of gig workers, enhancing their access to healthcare and social welfare through a national registry and identity cards. Projections by government think tank NITI Aayog estimate that over 23 million individuals could be working within this sector by 2030.

Further initiatives include a new fund to nurture startups and encourage innovation through partnerships with the private sector, alongside plans to boost manufacturing and export capabilities in India. The manufacturing sector currently contributes around 17% to the national economy, with aspirations to increase this to 25%.

In alignment with sustainable development goals, the government announced the Nuclear Energy Mission. This initiative aims to generate 100 GW of nuclear power by 2047, marking a significant step in India’s transition to cleaner energy sources.

India’s latest budget reflects a deliberate effort to address economic stagnation while providing relief to the middle class. Through tax cuts, infrastructure investment, and support for key industries, the government seeks to drive growth and enhance the nation’s economic trajectory. These measures, if effectively implemented, could foster an environment of prosperity and inclusion.

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