Fiscal analysis of the Budget 2025

On February 1, 2025, Finance Minister Nirmala Sitharaman presented the Union Budget 2025, marking her eighth budget presentation. This budget outlined key strategies for taxation, government expenditure, and economic growth for the fiscal year 2025-26 amidst significant economic challenges. Despite only a six-month gap between her seventh and eighth budgets, the Indian economy has faced major hurdles during this period.

- Dr. Rajiv Khosla

At the time of the seventh budget's presentation in July 2024, India was experiencing strong economic momentum, with a GDP growth rate of 8.2% for 2023-24, foreign exchange reserves nearing $700 billion, and a buoyant stock market. The Reserve Bank of India (RBI) also declared a dividend of ₹2.11 lakh crore for the government. However, the current economic indicators paint a less optimistic picture. The Ministry of Statistics projects India's GDP growth rate to slow to 6.4% for 2024-25—the lowest in four years since the end of the COVID-19 pandemic. Other challenges, including declining productivity, reduced consumption, high food inflation, rupee depreciation, banking sector liquidity concerns, weak corporate performance in Q2FY25 and Q3FY25, and a stock market downturn, further complicate the economic landscape.

Additionally, tensions have emerged between the Indian government and the RBI regarding interest rate policies. While the government has advocated for lower interest rates to boost economic growth and facilitate affordable credit, former RBI Governor Shaktikanta Das prioritized inflation control by maintaining high interest rates. A consensus was only reached after Sanjay Malhotra took over as RBI Governor and the Monetary Policy Committee decided to reduce the repo rate by 25 basis points (bps). However, in discussions with economists, Malhotra emphasized that lowering interest rates alone would not suffice to revive the economy-effective government interventions were also necessary. Against this backdrop, the budget was expected to introduce crucial reforms to advance India's vision of becoming a developed nation. The key provisions are discussed below.

Revenue Side Analysis