Budget 2025: Breathing life into India's consumption and investment story

The Indian government has made good on its promise to boost inclusive growth by providing much-needed tax relief to the middle class. Now, citizens earning up to Rs 12 lakh per annum will not have to pay any income tax under the new regime, and further changes have been proposed that will result in significantly lower taxes for those earning between Rs 12 lakh and Rs 24 lakh annually.

 

The upcoming Income Tax Bill further promises to be clearer, reducing the number of chapters in the current law by half, which could lead to greater certainty and reduced litigation.

 

Other significant announcements include speedy approval of corporate mergers, liberalised FDI in insurance up to 100 per cent, further simplification of compliance, and the decriminalisation of 100 additional provisions under business laws. These are all welcome moves that will fortify investor confidence. This is a clear step towards further improving ease of doing business, which has been a priority for some time.

 

With steps to boost credit for MSMEs and first-time entrepreneurs, especially those belonging to vulnerable sections of society, the government has reiterated its commitment to inclusive development.

 

New schemes and indirect tax measures benefiting agriculture, warehousing, exports, electronics manufacturing, renewable energy, handicrafts, leather, and toymaking sectors are commendable.

 

For these measures to take root and result in a long-lasting impact that will bring about tangible upward social mobility for citizens, a sharper focus on infrastructure and education investment will be the next step. The institutionalisation of a Centre of Excellence for AI in Education is a bold move, demonstrating that supporting traditionally strong sectors while integrating rapid technological advancements is the way forward.

 

However, a pertinent question is the investment gap that may arise due to reduced tax revenues from income tax changes, alongside India’s fiscal deficit target of 4.4 per cent for FY25-26. While greater ease of doing business, smoother PPP models, and further tax incentives are likely to spur the private sector into a period of greater investment, it remains to be seen whether additional support will be extended to specific sectors to further augment industry and global investor participation.

 

(Haigreve Khaitan is senior partner, Khaitan & Co. Views expressed are personal.)