Critical Analysis
The opening
portion of Finance Minister Nirmala Sitharaman’s Union Budget speech appeared to
place greater emphasis on political messaging than on articulating a clear
economic vision. Instead of laying out strong and credible policy initiatives to
address India’s evolving macroeconomic concerns, the speech leaned largely on
familiar expenditure announcements that involve substantial fiscal commitments.
At present, India
is navigating several macroeconomic pressures, including a gradually weakening
rupee, challenges in the balance of payments, strain on foreign exchange
reserves, and a growing mismatch between educational outcomes and workforce
readiness. Against this backdrop, the budget offered limited clarity on
strategies to strengthen foreign exchange-earning sectors, encourage high
value-added industries, or harness emerging technologies to improve
productivity. Important areas such as administrative efficiency, tax compliance,
and systematic auditing of government revenues-key elements of fiscal
discipline-were reiterated in principle but without clearly defined
institutional mechanisms for implementation.
This lack of
policy depth is particularly noticeable in sectors with significant employment
potential. There is little guidance on incentives for defence manufacturing or
agricultural processing, both of which could support large-scale job creation
while enhancing domestic value addition. Similarly, the services sector, which
has been central to India’s growth and foreign exchange earnings, appears to
have received limited focused attention. At a time when the rupee remains under
pressure, the absence of discussion on options such as encouraging the
repatriation of overseas assets suggests a cautious approach toward politically
sensitive but economically relevant measures.
Long-standing
structural challenges in agriculture also remain insufficiently addressed. A
substantial share of Indian agriculture continues to rely on uncertain monsoons
due to the lack of an extensive irrigation network, leaving farmers vulnerable
to recurring income instability. The budget offers little indication of
sustained, long-term investment in irrigation infrastructure that could improve
productivity and provide greater income security in rural areas.
The absence of
meaningful land reforms further highlights the difficulty of addressing
entrenched inefficiencies. The existing DLC (circle) rate system, which often
values land well below market prices, has inadvertently encouraged the use of
land transactions as a store of unaccounted wealth. This not only limits
potential stamp duty revenues for governments but also contributes to
speculative price increases, making productive farming less economically viable.
It may also be
noted that the budget proposes to finance approximately 24% of total expenditure
through additional borrowing, a move that would add to the government’s overall
interest payment obligations. In this context, it appears that a substantial
share of fresh borrowing is being used to service existing debt, as nearly 20%
of total expenditure is already allocated to interest payments arising from past
borrowings.
In addition, the
budget indicates the use of capital receipts to meet revenue expenditure. From a
fiscal management perspective, this approach is generally viewed as sub-optimal.
Capital receipts are typically intended for the creation of long-term assets,
while recurring expenditure is more sustainably financed through regular revenue
streams.
Overall, the
budget appears more oriented toward managing immediate perceptions than toward
pursuing economic stabilisation or deep structural reform. Several difficult but
necessary decisions have been postponed, longstanding distortions remain
unresolved, and policy announcements take precedence over accountability-leaving
farmers, workers, and productive sectors to absorb the longer-term consequences.
In summary, it is
commendable that the Finance Minister has placed strong emphasis on several
emerging sectors that are likely to shape the future trajectory of the Indian
economy. These include:
1. Artificial
intelligence
2. Digital technology
3. Infrastructure development
4. Manufacturing
5. Skill development
6. Defence
7. Tourism
8. Healthcare
The Case for Stronger
Commitments:
At the same time, sustained long-term growth will require focused attention on
certain critical areas to strengthen economic resilience and institutional
effectiveness. These include:
1. Built-in
administrative accountability across government institutions.
2. Robust
financial accountability mechanisms to ensure prudent use of public resources.
3. Effective
control over avoidable and wasteful administrative expenditure; all significant
spending decisions should be preceded by thorough cost–benefit analysis.
4. Greater
emphasis on non-tax sources of government revenue.
5. Strong fiscal
and infrastructure support for institutions and sectors that generate foreign
exchange.
6. Development of
a comprehensive and resilient irrigation network, including river water recharge
systems, to address long-term water scarcity.
7. A bold,
transparent, and effective framework to encourage the repatriation of Indian
funds held overseas.
8. Reform or
rationalisation of DLC (circle) rates in land transactions, which have
contributed to the circulation of unaccounted money and often prevent genuine
sellers from receiving full consideration through formal banking channels.
9. A white paper
analysing the increasing incidence of permanent migration and acquisition of
foreign citizenship by very high-net-worth individuals from India, with a focus
on the underlying economic, regulatory, and institutional drivers, as well as
the potential implications for domestic investment, tax revenues, and long-term
economic growth.
10. A white paper
analysing the increasing overseas industrial investments by Indian
industrialists and entrepreneurs, including the underlying reasons, funding
sources, and implications for domestic industry and employment.
11. Mandatory
annual disclosure of assets-along with comparative figures from previous years
and explanations for significant variations-for all individuals on the
government payroll, without exception.
12. A clear,
long-term and visionary strategy to address the persistent depreciation of the
Indian rupee in international markets
Union Budget –
Key Amendments and Highlights
Legislative Framework
Covered in the Budget
1. The Union Budget proposes
amendments across multiple tax and fiscal statutes, including:
• Income Tax Act, 1961
• Income Tax Act, 2025
• Central Goods and Services Tax (CGST) Act
• Integrated Goods and Services Tax (IGST) Act
• Excise Duty provisions
• Customs Act
• Securities Transaction Tax (STT)
• Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,
2015.
• The Budget amends two separate Income Tax Acts—the Income Tax Act, 1961 and
the Income Tax Act, 2025.
• The Income Tax Act, 2025 will come into force from 1 April 2026.
• Notably, amendments have been introduced prior to the formal applicability of
the Income Tax Act, 2025.
2. CGST Act:
Amendments have been proposed in the following areas:
• Issuance and treatment of credit notes
• Refunds under inverted duty structure
• Refunds on exports
• Constitution of a National Appellate Authority
3. IGST Act:
• The principal amendment relates to the place of supply provisions for
intermediary services.
4. Excise Duty:
• Excise duty on tobacco products has been increased from 25% to 60%.
• Biogas used for compression in CNG has been fully exempted from excise duty.
5. Customs Duty:
• Several amendments have been introduced relating to customs duty.
• In most cases, customs duty rates have been reduced, supporting trade
facilitation and cost reduction.
6. Securities Transaction
Tax :
• The Securities Transaction Tax (STT) on futures and options (F&O) transactions
has been increased.
• The Budget proposes an increase in Securities Transaction Tax applicable to
stock exchange transactions.
7. Income Tax:
The Budget introduces wide-ranging changes under the Income Tax framework. Major
highlights include:
• Receipts from Gold Bonds to be tax-free.
• Cloud service income exempt from tax until 2047.
• Compensation and interest received under the Motor Vehicles Act exempt from
tax.
• Interest paid to earn dividend income will not be allowed as a deduction.
• Revised returns can be filed up to 31 March.
• Due date for filing ITR Forms clarified.
• Lower deduction tax certificates can be generated online.
• Forms 15G and 15H may be filed through depositories.
• TDS and TCS rates reduced in select cases.
• NRI property sellers are exempted from the requirement of obtaining a TAN.
• NRIs excluded from MAT applicability.
• Assessment and penalty proceedings to be combined into a single order.
• Block assessment period for third-party search cases reduced to one year.
• Pre-deposit for appeals reduced from 20% to 10%.
• Extensive scrutiny not to be initiated in the absence of evidence of
wrongdoing.
• Under Section 148, only the Assessing Officer will have jurisdiction to issue
notices.
• MAT rate reduced from 15% to 14%.
• MAT credit cannot be carried forward, except for existing balances.
• Technical defaults to attract a fee instead of penalty.
• Imprisonment for prosecution capped at two years, except in serious cases.
• Immunity scheme introduced for disclosure of foreign assets up to Rs.20 lakh.
• Failure to get accounts audited to attract a penalty ranging from Rs.75,000 to
Rs.1,00,000.
• Residential property held as stock-in-trade will be assessed under the head
“Income from House Property” after a period of two years.
• The deduction available for interest paid on self-occupied residential
property will be capped at Rs. 2 lakh
• Customs duty on imports meant for personal use has been reduced from 20% to
10%.
• An immunity scheme has been introduced for foreign income and assets with a
value of up to Rs. 1 crore, provided a declaration is made within six months and
tax at the rate of 30% is paid on the declared amount.
• The tax holiday for units in GIFT City has been extended from 10 years to 20
years, with the concessional tax regime continuing to apply. 
The figure summarizes the key drivers of a sustained high growth rate of around
7%, including energy security, reduced import dependence, structural reforms,
fiscal prudence, and monetary stability. These are complemented by strong public
investment, expanding domestic manufacturing capacity, and government actions
that support broad-based economic benefits.
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