Indian Prime Minister Narendra Modi’s government has introduced its annual budget with a clear focus on attracting the middle class and stimulating economic growth, particularly through agriculture and manufacturing.
In her budget speech on Saturday, Finance Minister Nirmala Sitharaman revealed a significant tax reform aimed at easing the financial burden on citizens. Individuals earning up to 1.28 million rupees (approximately $14,800) annually will now be exempt from paying taxes, a notable increase from the previous threshold of 700,000 rupees. Those earning above this threshold will benefit from reduced tax rates, a move that the government hopes will drive domestic demand and increase household consumption, savings, and investment.
While the tax cuts are designed to put more disposable income in the hands of the middle class, the decision comes at a cost—an estimated 1 trillion rupee ($11.6 billion) reduction in government revenue. The budget seeks to offset this loss with an increase in capital spending, which will rise to 11.21 trillion rupees in 2025-26, up from 10.18 trillion in the current year.
The middle class, which accounts for about one-third of India’s population of 1.4 billion people, has been facing challenges due to high food inflation and sluggish income growth. This tax relief is expected to provide a much-needed boost to consumer demand, as well as support savings and investment, according to economist Sakshi Gupta from HDFC Bank. However, India’s growth is projected to slow down further, with weak private investment and low urban demand contributing to the forecast of the country’s slowest economic growth in four years.
The budget also introduces measures aimed at supporting the poor, youth, women, and farmers. A nationwide initiative will focus on boosting agricultural productivity, particularly in pulses and cotton production, with the government targeting 17 million farmers. To facilitate this, the government plans to increase the credit limit available to farmers, from $3,460 to $5,767, to help them access subsidized loans.
Another key proposal is to formalize India’s growing gig economy, which is expected to employ over 23 million people by 2030. The government will issue identity cards to gig workers, allowing them better access to healthcare and other welfare benefits. These changes are part of Modi’s broader push to bolster domestic growth and create more jobs, as he enters his third term in office.
