Anna Mathew
The Union Budget 2025-26 aims to boost consumption by retaining more money in taxpayers’ hands and increasing consumer spending.
The income tax rebate threshold has been raised to Rs 12 lakh, making monthly incomes up to Rs 1 lakh tax-free. Salaried individuals benefit further, with an effective tax-free income of Rs 12.75 lakh due to the standard deduction. Taxpayers earning Rs 16 lakh will save Rs 70,000 annually, while those at Rs 25 lakh will save Rs 1.1 lakh.
But will these measures deliver real economic relief, or are they just a short-term fix?
The answer lies in the inflation rate. In December 2024, India’s inflation rate was 5.22%, with food inflation being a major factor in higher household spending. Food inflation for FY 2025 stood at 8.65% in rural areas and 7.90% in urban areas.
High inflation means taxpayers’ extra money covers only essential expenses rather than fueling new spending. Without addressing inflation, the budget’s tax cuts become a temporary solution.
The government is betting on higher disposable income to spur demand, as it foregoes Rs 1 lakh crore in direct tax revenue. To bridge the fiscal gap, it plans to borrow slightly more than last year. With weak rural spending and cautious urban demand, the impact of tax cuts could fade without strong job creation and wage growth.
The budget also includes significant allocations for Bihar, such as establishing a Makhana Board, constructing new airports, and initiating a canal project. While these initiatives are beneficial, the budget feels more like a political move ahead of Bihar’s state elections than a comprehensive economic plan.
While the budget presents a vision of “Viksit Bharat,” centered on economic expansion, the real challenge lies in execution. Sustainable economic progress cannot rely solely on tax relief and infrastructure spending—it requires a parallel focus on controlling inflation, increasing wages, and generating stable employment opportunities. Without these crucial measures, the benefits of tax cuts and investment could be overshadowed by rising living costs, limiting their real impact on middle-class and low-income households. The success of this budget, therefore, depends not just on policy announcements but on effective implementation that ensures long-term economic stability for all citizens.