The Aakhya Weekly #132 | Prelude to the Union Budget 2025
In Focus: What to Expect from Modi 3.0's 2nd Budget?
By Yashvika Malhan, with assistance from Tarit Kar
The Union Budget 2025 is set to be presented tomorrow, making it Finance Minister Nirmala Sitharaman’s eighth consecutive Budget, a first for any of India’s Finance Ministers to achieve this. The Union Budget holds the key to the government’s economic vision for the year ahead. Beyond the technicalities, it also serves as a stage for unveiling flagship initiatives and scaling up existing programs, while shaping tax and economic policies that ripple across the economy.
Unlike the last few years, this year's budget arrives at a critical juncture. Domestically, the economy is grappling with slowing growth momentum. GDP growth slipped to 5.4% in the second quarter, with full-year projections at 6.4%, marking a significant deceleration. Globally, uncertainty remains rife, with the spectre of trade tensions, tariffs and fluctuating interest rates adding to the economic fog.
With Modi 3.0 now dependent on coalition partners like the Telugu Desam Party and Janata Dal (United), the budget will likely reflect the interests of these regional players, apart from familiar priorities such as agriculture, employment, and infrastructure. We saw hints of this in the July 2024 budget, where special support was allocated to these states. The government’s focus on “Garib” (poor), “Mahilayen” (women), “Yuva” (youth), and “Annadata” (farmers) will also continue, with particular emphasis on employment, skilling, MSMEs, and the middle class. While these priorities are part and parcel of every budget, the weight given to each might shift.
Key Budget Priorities for 2025
The central tenets of the 2025-26 budget are likely to include robust capital expenditure, tax reforms, and fiscal consolidation. Infrastructure remains one of the cornerstones of India's growth strategy. Given the global economic headwinds, India must leverage domestic demand as a key growth driver. Infrastructure development has been a strategic priority in recent years, and the 2025-26 Budget is expected to focus on rejuvenating this pipeline. With a significant shortfall anticipated in FY25 capital expenditure compared to the budgeted INR 11.1 lakh crore, the government is expected to allocate increased funds for infrastructure investment. A minimum 20% increase in capital expenditure is likely to be seen, which will help spur growth across sectors like transportation, housing, and energy. Infrastructure investment has the potential to create jobs, boost productivity, and catalyse economic growth especially when the global market faces uncertainties.
In response to the changing global economic landscape, the government may also focus on revisiting India’s import tariff structure. The objective will likely be to protect and promote domestic manufacturing, as global supply chains face disruptions. By offering higher protection to key industries, the government could encourage domestic production capacities and reduce reliance on imports.
The government is also likely to maintain its push for a streamlined tax framework, making the New Tax Regime more appealing. Proposals such as raising the basic exemption limit to ₹5 lakh and extending rebates for incomes up to ₹10 lakh are being anticipated, considered as measures to stimulate consumption and ease the burden on middle-income households. Adjusting tax slabs in line with inflation could help preserve purchasing power while rationalising TDS rates and simplifying filing processes, offering much-needed clarity and ease of compliance.
Sector-Specific Expectations from India Inc.
As India prepares for the 2025 Budget, various sectors are voicing their expectations for reforms that can drive growth, enhance competitiveness, and address long-standing challenges.
Travel & Tourism Sector
The tourism sector has high expectations from the 2025 Budget, particularly concerning reforms that could make India’s tourism industry more competitive globally. A key demand is the reduction of the Tax Collected at Source (TCS) for foreign travel. Currently, the TCS rates increase the cost of international travel for Indian tourists, making it less affordable. Reducing these rates would make international travel more accessible and help boost the competitiveness of India’s domestic tourism sector.
Automobile Sector
The automobile industry is looking to the 2025 Budget to address long-standing challenges. While the Production-Linked Incentive (PLI) scheme has been instrumental in attracting investment, manufacturers are calling for revisions to the Domestic Value Addition (DVA) criteria and a more streamlined process for disbursing incentives. These changes could ensure timely support to manufacturers, driving innovation and strengthening domestic production. Another concern is the complex tax structure for auto components, given how parts such as engines, batteries, and chassis are taxed at different rates. Simplifying this structure by categorising similar components under the same tax bracket would reduce compliance costs and prevent misclassification. The industry is also seeking a resolution to the GST disparity that affects the electric vehicle (EV) market. While EVs with lithium-ion batteries are taxed at 5%, standalone batteries are taxed at 18%. Aligning these rates would reduce costs, making EVs more affordable and accelerating the shift toward green mobility.
Renewable Energy Sector
As India works towards carbon neutrality by 2070, stakeholders hope for a clear, actionable roadmap from the government. This would include concrete policy measures aimed at reducing carbon footprints across industries while fostering economic growth. The sector is particularly focused on offshore wind and large-scale solar projects, which align with India’s ambitious target of generating 500 GW of non-fossil energy by 2030. There is also a call for policies that support the development of advanced energy technologies, such as energy storage systems, green hydrogen, and solar cell manufacturing. These initiatives could attract more private sector investment and position India as a global leader in renewable energy technologies.
Technology Sector
The technology sector is looking forward to transformative measures in the 2025 Budget, particularly in areas like artificial intelligence, digital transformation, and cybersecurity. Investment in AI infrastructure and tax incentives for companies that invest in emerging technologies are key priorities. The sector is also calling for clear ethical guidelines for AI development to ensure responsible and sustainable innovation. Another crucial area of focus is cybersecurity, as India continues to face threats from deepfake and digital fraud attacks. The sector expects greater investments in cybersecurity infrastructure, particularly at educational institutions, to ensure the development of talent equipped to handle real-world challenges.
Semiconductor Sector
The industry advocates for bold policy interventions in the upcoming budget to sustain its recent growth momentum. Industry leaders are pushing for additional allocations to the PLI Scheme, beyond the current ₹76,000 crore, with a proposed ₹1,56,000 crore infusion over the next five years. There is also a strong push for targeted investments in research and development, particularly in the Electronics System Design & Manufacturing (ESDM) sector. The industry is calling for the consolidation of various schemes into a single unified product creation initiative, which could enhance India’s competitiveness in the global semiconductor market. To further support exports, the sector is urging the government to introduce additional export incentives and tax benefits for semiconductor products that meet value-addition norms. Simplifying export procedures and providing logistical support would also help strengthen India’s position in the global market.
MSMEs and Startups
MSMEs and startups are hoping for significant support in the 2025 Budget to address their unique challenges. The sector is calling for simplified regulations, particularly for cross-border payments, which would enable smoother global trade. Revised income tax rates for proprietorships, partnership firms, and LLPs could reduce the financial burden on these businesses. Service-based MSMEs are also advocating for inclusion under interest equalization schemes, which would lower their cost of capital and improve their competitiveness in international markets. In addition, the sector is asking for measures to ensure timely access to credit, fiscal incentives for digital transformation, and targeted skill development programs to support growth and innovation.
Top Stories of the Week
National Critical Mineral Mission Approved by the Cabinet
The Union Cabinet has approved the National Critical Mineral Mission (NCMM) with a 34,000 Cr Investment over the next seven years, aiming to secure India’s access to essential minerals crucial for technology, clean energy, and defence industries. This decision comes as nations worldwide race to secure Critical Minerals like lithium, and cobalt, essential for electric vehicles (EVs), semiconductors, renewable energy storage, and defence applications. India heavily depends on imports, particularly from countries like China and Australia. The mission seeks to reduce this dependence, establishing a stable supply chain amid global geopolitical uncertainties. The mission will focus on exploring, mining, processing, and recycling critical minerals, decreasing the reliance on imports.
Key initiatives include offshore mineral exploration, regulatory streamlining and financial support for domestic and overseas asset acquisitions. The NCMM will establish mineral processing parks, boost recycling efforts, and promote research through a proposed Centre of Excellence on Critical Minerals. The Geological Survey of India (GSI), has undertaken 368 exploration projects for critical minerals over the last three years, following amendments to the Mines and Minerals (Development and Regulation) Act.
The Implementation of the Uniform Civil Code in Uttarakhand
On January 27, 2025, Uttarakhand became the first Indian state to implement the UCC, marking a significant milestone in the country's legal landscape. The UCC aims to standardise personal laws related to marriage, divorce, inheritance, and live-in relationships for all citizens, regardless of religion, ensuring equality in civil rights.
Notable aspects of the new legal framework include the prohibition of polygamy and practices like "Halala," setting a minimum marriage age of 18 for women and 21 for men, and mandating the registration of marriages and live-in relationships. It seeks to promote gender equality by granting equal inheritance rights to sons and daughters and recognising children born out of live-in relationships as legitimate. CM Pushkar Singh Dhami stated that the implementation reflects a commitment to equality and aims to simplify the legal framework, providing a cohesive governance model that addresses diverse civil matters and national integration.
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