How Does The Union Budget 2025 Breathe Life Into India’s Fiscal Economy?

How Does The Union Budget 2025 Breathe Life Into India’s Fiscal Economy?

How Does The Union Budget 2025 Breathe Life Into India’s Fiscal Economy?

The much-awaited Union Budget 2025 is finally here! Announced against the backdrop of global economic headwinds, inflation, and slow wage growth, the Union Budget is a comprehensive strategy with forward-thinking policies to inject much-needed dynamism into the market.

India is the world’s fastest-growing economy in terms of growth numbers despite a lower-than-expected growth of 6.3 per cent as projected for FY 2024-25. Therefore, the proposed Budget highlights the government’s strategic approach to balance fiscal prudence and growth objectives.

Quick Peek into Union Budget 2025

The Union Budget hinges around:

  • Accelerating economic growth, 
  • Invigorating private sector investments, 
  • Empowering MSMEs,
  • Advancing infrastructure development, and
  • Putting more money into the hands of India’s rising middle class.

The upcoming fiscal year’s Budget introduces transformative reforms in taxation and financial regulation, emphasizing agriculture, exports, and urban development. These reforms aim to achieve the long-term vision of Viksit Bharat 2047.

Take a peek into the game-changing reforms of the Union Budget 2025 and how they would revitalize the Indian economy.

Tax reforms in the 8th Union Budget

The first positive aspect of the Budget offered in personal income taxes comes as a breath of fresh air. Salaried individuals with a total income of Rs. 12 lakh per annum will be exempt from tax under the new tax regime. This, along with a standard deduction of Rs. 75,000, among other measures, is set to increase disposable incomes and consumption significantly.

The Private Final Consumption Expenditure (PFCE) has historically been closely aligned with the GDP until divergence in FY 2022-23. PFCE’s share of GDP dropped from 58.1% in FY 2021-22 to 55.8% in FY 2023-24, showcasing a decline in growth from 6.8% to 4%.

The Centre’s decision to slash income tax burdens comes after the NDA government’s underwhelming performance in the 2024 polls. The revised tax rates are an economic strategy that gives the middle class enhanced spending power. Given stagnant incomes, a weak job market, and fallen consumer credit, this tax sop is a demand-led growth idea.

Amidst other reforms,

  • The Union Budget also announced a timeline extension to file updated returns from the current limit of two years to four years.
  • The annual limit of Rs. 2.4 lakh for tax deducted at source (TDS) on rent was also revised to Rs. 6 lakh.

The Union Budget’s emphasis on empowering agriculture

The backbone of the Indian economy is agriculture, the largest employer but the slowest growing sector of India with the lowest average labour productivity. The cyclical food price inflammation, lack of market linkages, and deep-seated structural inefficiency continue to plague India’s agricultural sector. 

However, the Union Budget has undertaken specific initiatives to propel this sector: 

  • The Prime Minister Dhan-Dhaanya Krishi Yojana covers 100 districts to enhance productivity. The program aims to strengthen crop diversification, production, post-harvest storage, and irrigation infrastructure. 
  • A standout example is the creation of the Makhana Board, which aims to increase the production and export of makhana, touted globally as a healthy snack.
  • A six-year mission for ‘Aatmanirbharta in Pulses’ will focus on the self-sufficient procurement of Tur, Urad, and Masoor.
  • The loan limit for Kisan Credit Cards has been increased from Rs. 3,00,000 to Rs. 5,00,000, providing greater financial security to farmers. 

Bolstering MSMEs through the Union Budget 2025

Considered the second engine of the Indian economy, MSMEs contribute 45 per cent to India’s exports. The Budget announced several key measures to propel the growth of this sector:

  • The doubling of credit guarantee and turnover limits for MSMEs comes as a welcome measure, facilitating greater access to capital and technology.
  • The financial boost provided to Scheduled Castes (SCs), Scheduled Tribes (STs) and women is a significant step in financially empowering marginalised sections.
  • The National Manufacturing Mission’s ultimate vision is to put India’s MSMEs on the global map. It also aims to leverage the ‘Make In India’ initiative to draw focus on the country’s toy and leather manufacturing industries in particular.
  • Registering one crore gig workers on the e-Shram portal is a significant step towards enhancing social security support and inclusion. 

More key highlights from the Union Budget 2025 

This is not it. Among other reforms announced in the Budget:

  • The Modi 3.0 Government has undertaken the initiative of generating 22 lakh job opportunities to boost the Indian economy.
  • Investment in infrastructure, upskilling, and innovation have remained core themes throughout the Budget announcement. These include broadband connectivity under the BharatNet project, creating a Center of Excellence in Artificial Intelligence (AI), and urban planning and water sanitation projects, to name a few.
  • The Union Budget also suggested increasing the foreign direct investment (FDI) limit from 74% to 100% to attract more foreign investments in the insurance sector.

Union Budget 2025: A new dawn for India’s fiscal future

The marriage of budgetary discipline with forward-thinking reforms, as reflected in the Union Budget, has breathed life into India’s fiscal economy. It reflects the Government’s commitment to promoting sustainable economic growth.

Frequently Asked Questions –

1. Which one is better between the old and the new tax regimes?

The Union Budget 2025 introduced new tax slabs, making it more appealing to India’s salaried middle class. However, deciding which tax regime is better depends on individual financial situations and parameters such as income level and deductions claimed. 

Tax slabs under the old regime – 

Annual Income Income Tax Slab
Upto Rs. 3 lakh Nil
Rs. 3 – 6 lakh 10%
Rs. 6 – 9 lakh 20%
Rs. 9 – 12 lakh 30%

Tax slabs proposed for FY 2025-26 – 

Annual Income Income Tax Slab
Upto Rs. 4 lakh Nil
Rs. 4 – 8 lakh 5%
Rs. 8 – 12 lakh 10%
Rs. 12 – 16 lakh 15%
Rs. 16 – 20 lakh 20%
Rs. 20 – 24 lakh 25%
More than 24 lakh 30%

The new tax regime has an edge over the old one, considering the leeway it provides to salaried individuals with incomes up to Rs. 12.75 lakh. It also eliminates most deductions and exemptions, including the house rent allowance (HRA), section 80C (investments in PF, PPF, ELSS, etc.),. and home loan interest deductions. 

2. How will the Union Budget impact India’s current account deficit (CAD)?

The Current Account Deficit (CAD) measures a country’s economic health by balancing the export and import of goods, services, and capital. However, India’s CAD has shown signs of narrowing due to the rise in service exports and trade deficit in goods. Factors such as the depreciating rupee, rising gold imports, and shifting global commodity prices have made imports more expensive. 

Faced with these complexities, the Union Budget seeks to strengthen India’s global trade position. The Atmanirbhar Bharat initiative aims to expand local manufacturing in electronics, semiconductors, and pharmaceutical industries. Export headwinds from U.S. trade policies can further act as a blow to India’s export sector. Therefore, the Budget encourages import substitution, especially in energy, defence, and capital goods, to curb the trade deficit and build long-term resilience against global supply chain disruptions.

WTF Is An ETF? Enhance Your Portfolio With Exchange-Traded Funds

WTF Is An ETF? Enhance Your Portfolio With Exchange-Traded Funds
WTF Is An ETF? Enhance Your Portfolio With Exchange-Traded Funds

Binged episodes after episodes of a gripping series on OTT?

Guilty as charged!

These platforms club multiple genres together to become a holistic entertainment package. That’s precisely how ETFs (Exchange-Traded Funds) work in the world of investing!

The investment landscape in India has witnessed a significant shift recently, with passive investing gaining traction among new investors and financial experts. Sensex and Nifty are India’s two most widely traded benchmarks, and the latter represents the country’s 50 largest companies by market capitalization. Investors seeking exposure to the market often wonder: What’s the most structured and efficient way to invest?

Exchange-traded funds are the answer!

What started in Canada in 1990 cascaded into India in 2002 with the launch of NiftyBeES. It was the first ETF tracking the Nifty 50 index, which is now under the purview of the Nippon India Mutual Fund. 

An ETF is an investment fund that holds multiple underlying securities, such as equities or bonds. These assets can be bought and sold in exchange, much like any other individual stock. This investment vehicle enables investors to gain exposure to a broad range of assets without having to buy multiple individual assets.

Combining the flexibility of stocks and the portfolio-diversifying strengths of mutual funds, ETFs enhance liquidity compared to traditional funds with relative cost efficiency. 

Just like stocks, you can trade ETFs on stock exchange platforms (National Stock Exchange and Bombay Stock Exchange) during market hours. A fund provider owns the underlying assets, forms a fund to track their performance, and offers shares in that fund to investors. Shareholders own a part of an ETF but not the fund’s assets. 

In short:

  • An ETF provider analyzes and creates a basket of securities, including stocks, bonds, commodities, and currencies.
  • Investors can buy a share of that basket using their brokerage account or through Stack’D.
  • Buyers and sellers trade the ETF throughout the day, much like stocks.

Now that you know what ETFs are, here’s why you should invest in them:

  • Diversification: Exchange-traded funds enable instant diversification across a mix of asset classes, reduce risks, and maximize returns.
  • Transparency: Most ETFs are required to disclose their daily holdings, providing investors with clear visibility into the various underlying assets.
  • Accessibility: Foreign market ETFs, Commodity ETFs or Fixed Income exchange-traded funds allow investors to invest in emerging markets.
  • Matches index performance: ETFs track indexes and match the performance of underlying assets, thereby eliminating the guesswork in investing.
  • Trading Flexibility: Swiftly move across asset classes and simply buy and sell an ETF anytime during market hours through your broker at the market price with no minimum purchase requirement.
  • Cost-efficiency: Operating expense ratios for ETFs tend to be lower than actively managed mutual funds.
  • Tax efficiency: ETFs have lower turnover rates than actively managed funds. Therefore, they result in fewer capital gains and lower tax implications for investors.
  • Stability: You know exactly what index returns to expect. So, your portfolio is stable, especially during volatile market periods when active funds may suffer a heavier blow.

However, ETFs, like any other financial product, are not a one-size-fits-all solution. They also contain risks.

  • Lower liquidity: Some unpopular ETFs have wider bid-ask spreads, which indicates you buy at a higher price and sell at a lower price.
  • Settlement dates: ETF sales are not settled for two days after the transaction. This implies that, as the seller, your money from the ETF sale will be unavailable for reinvestment for two days.

Exchange-traded funds have captured significant global market interest. According to the J.P. Morgan Equity Derivatives Strategy report, as of the end of May 2024, there were around 12,000 ETFs listed globally. The report also stated that total assets under management (AUM) were around $13 trillion, up from $10.1 trillion the previous year. 

Whether you are a beginner looking to invest or a seasoned financial professional, ETFs are a powerful investment option to help you meet your goals.

1. Do ETFs pay dividends?

Dividends are a portion of money allocated to investors. ETF shareholders are entitled to a share of earned interests as long as the underlying stock held within the ETF pays dividends. These dividends are distributed to investors quarterly, based on the number of shares one owns in the ETF.

2. How do ETFs differ from mutual funds?

While both ETFs and mutual funds provide diversification and exposure at low costs, they differ in other respects:

  • ETFs are passive investments, whereas mutual funds are often actively managed.
  • Some brokers charge commissions while buying or selling mutual funds; ETFs typically have no commission.
  • Mutual funds are priced at the fund’s net asset value (NAV), calculated at the end of each day. However, exchange-traded funds are traded during market hours.
  • Mutual funds are forced to distribute capital gains, which can increase your tax bill, whereas ETFs offer better tax efficiency.

How do ETFs differ from stocks?

While ETFs are traded like individual stocks, there’s a fine line of difference between the two:

  • An ETF is composed of a mixed bag of stocks and bonds. Individual stocks are more volatile than a collection of stocks.
  • Since ETFs include multiple assets, they provide better diversification than a single stock, further reducing your portfolio’s exposure to risk.
  • Individual stocks don’t charge an expense ratio. In contrast, exchange-traded funds charge an ongoing expense ratio.
  • An individual stock requires more analysis before trading. It is also riskier as its value is directly proportional to the company.

Disclaimer: Mutual Funds investments are subject to market risk. Please read all the scheme-related documents carefully.