Union Budget 2025 - 26 | Full Budget Analysis

Comprehensive Summary of YouTube Video: Current Affairs - Harish Academy (Transcription Based)

Channel: PW Only IAS

Key Discussion Points:

The video discusses the Union Budget 2025-26, emphasizing its importance for UPSC exam preparation. It covers the budget-making process, key features, and relevance to different sectors of the Indian economy. The discussion is led by Rishabh and Prateek Gupta.

Budget Making Process

The budget is primarily prepared by the Budget Division of the Department of Economic Affairs, which falls under the Ministry of Finance.

Government's Focus Areas

The government's continued focus is on "GYAN" - Garib (Poor), Yuva (Youth), Annadata (Farmers), and Nari (Women). This budget also emphasizes the Middle Class, aiming to provide them with benefits and boost consumption expenditure.

Importance of Budget and Economic Survey

Budget vs. Economic Survey: The Economic Survey summarizes the government's actions in the past/current financial year and contains little new information for those following current affairs. The Budget, however, presents proposals for the upcoming financial year and is crucial for understanding government's future plans.

Budget as Income and Expenditure Statement: Analogous to personal budgeting, the government's budget outlines income and planned expenditures. Developing economies like India rely heavily on the budget for steering economic direction.

Government Borrowing: Government borrows to cover expenses, especially for long-term asset creation (infrastructure) which can generate future revenue. However, borrowing for day-to-day expenses (revenue deficit) is less desirable. India's budget aims to balance income and expenditure, with borrowings filling gaps.

Analysis of Budget Documents

Budget at a Glance: A key document summarizing government earnings and expenditures. It divides receipts into Revenue and Capital Receipts. Major earnings come from tax revenue.

Budget Size: India's budget size has reached ₹50 lakh crore for the first time. It has progressively increased from ₹44 lakh crore (2023-24) to ₹47 lakh crore (previous year) to ₹50 lakh crore (estimated).

Expenditure and Borrowings: To match expenditures, the government is taking significant borrowings, estimated at ₹15.6 lakh crore for the fiscal year to cover a part of the ₹50 lakh crore budget.

Revenue and Fiscal Deficit: Revenue Deficit, concerning day-to-day expenses, is showing a declining trend, which is a positive sign. Fiscal deficit is managed through borrowings, balancing the need for expenditure with fiscal prudence.

Transformative Reforms Highlighted

The Finance Minister emphasized six transformative reforms:

1. Taxation Reforms: Aimed at providing relief, especially to the middle class, including zero tax for income up to ₹12 lakh (discussed later in detail).
2. Power Sector Reforms: Allowing states to undertake additional borrowing up to 5.5% of GSDP to boost the power sector, particularly in transmission and distribution.
3. Mining Sector Reforms: Opening up the mining sector further, reducing duties, and introducing a State Mining Index to share best practices and track state-level performance.
4. Urban Development: Recognizing cities as growth engines and focusing on urban development initiatives.
5. Financial Sector Reforms: Including increasing FDI in the insurance sector to 100% and establishing partial credit enhancement facilities under NAFID to boost infrastructure financing.
6. Regulatory Reforms: Emphasizing light but effective regulation, promoting ease of doing business, and building trust with businesses, aligning with the Economic Survey’s stress on de-regulation.

Development Journey and Aspirations

Vision for Viksit Bharat (Developed India) by 2047: Achieving developed nation status requires sustained GDP growth of at least 8%. Current growth is around 6.4%, expected to be between 6.3% to 6.8% in the next 5 years, which is insufficient for the target.

Four Engines of Development: To accelerate growth, the budget focuses on four engines:

• Agriculture
• MSME
• Investment
• Exports

Five Aspirations:

1. Accelerate Growth to meet the Viksit Bharat goal.
2. Ensure Inclusive Development, spreading prosperity widely.
3. Enhance Spending Power of the Middle Class to boost consumption and growth.
4. Stimulate Private Sector Investment.
5. Improve Household Sentiments.

Agriculture Sector Focus

Continued Focus and Schemes: Budget 2025-26 continues focus from previous budgets (like July 2024 interim budget) with consistent schemes and new initiatives in agriculture.

Key Schemes and Missions:

• Kisan Credit Card Scheme: Continued with potential enhancements.
• National Mission on High Yielding Seeds: Ongoing mission to improve productivity.
• Prime Minister Dhan Dhanya Krishi Yojana: New scheme announced, focusing on developing agriculture districts and benefiting 1.7 crore farmers, especially small and marginal farmers. Aims to establish research and development centers in 100 districts.
• Mission for Cotton Productivity: New five-year mission to improve cotton productivity, important for regions with farmer suicides, especially in cotton-growing areas. Companies in the cotton sector saw stock increases following this announcement.
• Makhana Board in Bihar: To support Makhana production, Bihar, producing 90% of India’s Makhana, will benefit from a dedicated board. Significant as Bihar is election-bound, indicating regional focus. Focus on developing airports in Bihar under the UDAN scheme and financial support for the Western Koshi Canal Irrigation Project also highlight focus on Bihar.
• Mission for Self-Sufficiency in Pulses: A 6-year mission to achieve self-reliance in pulse production, specifically targeting Toor, Urad, and Masoor dals to reduce import dependence and improve protein availability.
• Focus Scheme for Footwear and Leather: To create employment, especially in labor-intensive sectors. Expected to generate 22 lakh jobs.
• Toy Sector Focus: Emphasis on "Made in India" brands, particularly local toys from regions like Karnataka.
• Food Processing Industry: Continued support and focus.

MSME Sector Focus

Importance of MSMEs: MSMEs are crucial for employment generation in India due to their labor-intensive nature. Government emphasizes promotion but faces challenges like competition from large corporates, marketing, and sales.

Revised MSME Definition: Significant change in categorization for Micro, Small, and Medium Enterprises by revising investment and turnover limits. Unified criteria for manufacturing and service sectors.

New Limits: Investment limits are increased by 2.5 times, and turnover limits are doubled from previous criteria (likely from around 2020).

• Micro Enterprises: Investment limit increased to ₹2.5 crore (from ₹1 crore), Turnover limit doubled to ₹10 crore (from ₹5 crore).
• Small and Medium Enterprises: Investment and turnover limits also increased by a factor of 2.5 and 2 respectively. (Specific new limits for Small and Medium not detailed in summary but calculable by 2.5x and 2x increases).

Significance of MSMEs: Over 1 crore registered MSMEs in India employing over 7.5 crore people, contributing over 45% to exports and 36% to manufacturing output. Focus on women, Scheduled Castes, and Scheduled Tribes entrepreneurs with provision of collateral-free loans up to ₹2 crore for 5 years for first-time entrepreneurs.

Rationale for Increased Limits: Increasing limits aims to strengthen MSMEs by extending protections and benefits under the MSME Act, including reserved government procurement and payment protection. While reservation of product categories isn't mentioned, the focus is on enabling MSMEs to flourish through policy support.

Focus on Social Sectors and Infrastructure

Social Sector Schemes: Continued emphasis on schemes for poverty alleviation, youth development, farmers, and women, including Poshan 2.0, Anganwadi, expansion of IITs, day-care cancer centers in all district hospitals, Bharatiya Bhasha Pustak Scheme, National Centers for Excellence in Skilling, Atal Tinkering Labs, Centers of Excellence in AI, internet connectivity, medical education, PM Swanidhi, and welfare of online platform workers.

Infrastructure Development: Focus on extending Jal Jeevan Mission to 2028, supporting states for infrastructure development, asset monetization, power sector reforms allowing states to borrow up to 5.5% of GSDP, and Urban Challenge Fund for city redevelopment focusing on water and sanitation (AMRUT scheme).

R&D and Modernization: Emphasis on Research and Development (R&D) with initiatives like Gene Bank, modernization of PM Gati Shakti through the National Geo-Spatial Mission, aiming to increase R&D spending from current levels (less than 1% of GDP).

Export Promotion

Export Focus: Emphasis on boosting exports through export promotion missions and a national framework for global capacity centers. Acknowledges improved turnaround time for exports but aims for further facilitation, including export credit support.

Financial Sector Reforms

Insurance Sector FDI: FDI limit in the insurance sector increased from 74% to 100% to enhance insurance penetration. Potential future focus on reducing GST on health insurance.

NAFID and Infrastructure Financing: National Bank for Financing Infrastructure and Development (NAFID) to introduce Partial Credit Enhancement Facility to improve infrastructure financing.

New Income Tax Bill: Expected new Income Tax Bill aimed at simplifying tax laws, reducing volume by half, fewer sections, and easier language. Current income tax form 'Saral' is not user-friendly, necessitating reforms for easier compliance.

Income Tax Slab and Exemptions (FY 2025-26)

Revised Income Tax Slabs: Income up to ₹4 lakh is tax-exempt. Slabs are 5% for ₹4-8 lakh, 10% for ₹8-12 lakh, and slab rates apply above ₹12 lakh (detailed rates to be confirmed).

Increased Tax Exemption Limit: Effective tax exemption up to ₹12.75 lakh annual income due to a ₹75,000 standard deduction for salaried individuals. Net taxable income up to ₹12 lakh may result in zero income tax.

Tax Calculation Example (₹30 Lakh Income): Illustrative calculation shows a tax liability of ₹4.8 lakh on a ₹30 lakh annual income, resulting in a monthly in-hand salary of approximately ₹2.1 lakh.

Impact and Rationale: Aimed at providing significant relief to the middle class, boosting consumption expenditure, and improving household sentiments. Expected to cause a revenue loss of ₹1 lakh crore but may increase the number of taxpayers due to easier loan access with tax returns.

Increased Deduction for Senior Citizens: Increased limit for tax deduction on FD interest for senior citizens from ₹50,000 to ₹1 lakh, reducing tax burden and compliance issues.

Increased TDS Threshold for Rent: Increased threshold for TDS deduction on rental income from ₹2.4 lakh to ₹6 lakh, easing tax compliance.

Indirect Taxes and Customs Tariff

Customs Tariff Measures:

• Capping of Surcharge and Cess: No item to have more than one type of cess or surcharge.
• Tariff Rate Removals: Certain tariff rates removed. No reduction in gold import duty, disappointing precious metals industry expecting further reduction after last year's 4% cut. Gold prices in MCX have crossed ₹83-84,000.
• Exemptions for Ship Building and Breaking: 10-year exemptions on goods for shipbuilding and ship breaking, extension of time limits to promote MRO (Maintenance, Repair, and Overhaul) in India.
• Promotion of Make in India: Exemptions for looms for textiles and capital goods for lithium and batteries to boost domestic manufacturing and self-reliance (Atmanirbhar Bharat).

Pharmaceuticals: Exemptions or reduced duties on certain medicines, including 36 life-saving drugs added to the exemption list and duties reduced to 5% for 6 medicines, primarily for rare diseases and cancer treatment. Concerns raised about whether benefits will reach consumers or be absorbed by corporations; emphasis on need for price capping and essential medicines classification, especially for generic versions under schemes like PM Jan Aushadhi.

Rupee Flow in Budget

Rupee Comes From (Sources of Income):

1. Borrowings and Other Liabilities: 24% (Highest source)
2. Income Tax: 22% (Second highest)
3. GST
4. Corporation Tax

Note on GST: GST related announcements are expected post GST Council meetings as it's a combined tax of central and state governments.

Rupee Goes To (Expenditure):

1. States' Share of Taxes and Duties
2. Interest Payments (Significant expenditure due to high borrowings)
3. Central Sector Schemes
4. Defense, Subsidies, Pensions, etc. (Each around 8%)

Concerns: High borrowing and interest payments need long-term management through efficient expenditure and reduced project delays. Project delays in the previous year cost the government ₹6 lakh crore.

Deficit Trends and Analysis

Deficit Trends: Government aims to reduce fiscal deficit to 4.4% of GDP. Deficit types include Primary Deficit, Effective Revenue Deficit, Revenue Deficit, and Fiscal Deficit, all showing a declining trend, which is positive. Aim is to bring Effective Revenue Deficit to zero.

Budget Estimates Analysis (24-25 vs. 25-26): Analysis of 'Budget at a Glance' document shows:

• Capital Account Expenditure: Showing a decrease of approximately ₹1 lakh crore, indicating slower pace in new projects, which is a concern.
• Central Government Grants to States for Capital Asset Creation: Also reduced by ₹1 lakh crore, impacting development and job creation.
• Revenue Targets: Government revenue targets are largely being met in both tax and non-tax categories.
• Borrowings: Reduced by only ₹40-50,000 crore, less significant compared to capital expenditure cuts.

Conclusion: Deficit reduction is partly due to expenditure cuts in capital accounts rather than solely through revenue increases or efficiency gains. Emphasis should be on rationalizing and improving efficiency of expenditure to control deficits, rather than just cutting down on capital expenditure which impacts long-term growth.

Ministry-wise Budget Allocation (Top Ministries)

Top Ministries by Allocation:

1. Defence Ministry (Highest allocation, consistent trend)
2. Ministry of Rural Development
3. Ministry of Home Affairs
4. Ministry of Agriculture
5. Ministry of Education
6. Ministry of Health

Top 2-3 ministries' allocations are most relevant for general awareness.

This is a comprehensive, transcription-based summary of the current affairs discussed in the YouTube video by PW Only IAS. For detailed information, please refer to PW Only IAS Telegram channel.