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It seems that suspense filmmaker Alfred Hitchcock had crafted the script for a film called Budget 2025. His style was to get the audience to wait for the ‘discovery’—you know the bomb is going to explode, just a question of when. In Paragraph 6, Finance Minister Nirmala Sitharaman announced that she would focus on the middle class but revisited it only in Para 161, keeping the potential recipients of this benefit gripped to their TV screens throughout her 1-hour 14-minute speech—her shortest yet.
Sitharaman’s eighth Union budget is beyond belief for the middle class. Despite forgoing revenue through those benefits, it remains responsible and maintains fiscal targets. It smoothens Prime Minister Narendra Modi’s forthcoming conversation with US President Donald J. Trump by addressing tariffs and customs duties, laying the ground for, and signalling an openness to, negotiate. But it falls short of announcements that could accelerate growth or address deregulation, nudged by Economic Survey 2025-2026.
Rich evaders or avoiders earning more than Rs 30 lakh must be pulled in too. Their unpaid taxes add up to INR 23.4 lakh crore.
By raising personal income tax applicability to INR 12 lakh (INR 12.75 lakh for the salaried who get a INR 75,000 standard deduction), Sitharaman has put INR 80,000 (or INR 6,666 per month) in the hands of those earning up to INR 1 lakh per month. This jump in the base rate is more than what any household could expect—usually, the tinkering is of a lesser magnitude. In 2014, Finance Minister Arun Jaitley raised the zero-tax level to INR 2.5 lakh, Sitharaman raised it to INR 5 lakh in 2019 and INR7 lakh in 2023. For those earning INR 50 lakh, the extra cash in hand is INR 1,10,000 (or INR 9,167 per month).
This extra money can go towards spending and therefore fuel consumption demand, or savings for capital deployment by banks or markets. Either way, it is good for the economy. While the Sensex and Nifty remained flat, the Fast-Moving Consumer Goods (FMCG) stocks rose by 2.9 percent, consumer durables by 2.5 percent, and real estate by 3.6 percent. This indicates an expectation of the money in the hands of taxpayers potentially moving towards toothpaste, soaps and biscuits; air conditioning and refrigerators; and housing. It also serves the grouse of the middle class of not having a political voice. How this economic goodwill plays out politically in the New Delhi elections next week remains to be seen.
But there is a flip side. There are 98 million households in the INR 5 lakh to INR 30 lakh band. Of these, only 15 million pay income tax, the combined total of which is INR 1.4 lakh crore. If this number is extrapolated, almost INR 7.8 lakh crore of taxes are not being paid by the middle class. The INR 1 lakh crore of foregone revenue that this proposal makes can be more than compensated if tax evaders or tax avoiders are brought into the tax net. So, this would be a good time for Sitharaman to cast her eye on this segment. Rich evaders or avoiders earning more than Rs 30 lakh must be pulled in too. Their unpaid taxes add up to INR 23.4 lakh crore.
At the core of revenue generation are individual income tax payees, whose share in total receipts has jumped from 16 percent in Budget 2018 to 22 percent in Budget 2025.
Despite this benefit, Sitharaman has been able to keep Budget 2025 fiscally responsible. At 4.8 percent, not only is the fiscal deficit lower than estimated by 10 basis points for the previous year’s figure, it is projected to be even lower, at 4.4 percent for the financial year 2025-26. For context, fiscal deficit has been consistently falling in every Union Budget since the COVID-19 Budget in 2020, when it jumped to 9.2 percent. It fell to 6.8 percent in Budget 2021, 6.4 percent in Budget 2022, 5.8 percent in Budget 2023, and 5.1 percent in Budget 2023. As finance minister, Sitharaman has been fiscally responsibility and politically mature.
At INR 50.65 crore, the budget size is 5 percent greater than the previous year’s. Over 11 years, Union budgets have grown at a compounded rate of 10.5 percent per annum, or a three-fold jump, from INR 16.8 lakh crore in 2014-15 to its current size. Within this, interest payments and pensions have been rising at a faster rate of 11.5 percent. These need to be rationalised and reduced.
At the core of revenue generation are individual income tax payees, whose share in total receipts has jumped from 16 percent in Budget 2018 to 22 percent in Budget 2025. In the same period, the share of receipts from corporation taxes has reduced from 19 percent to 17 percent and that of goods and services taxes from 23 percent to 18 percent. Likewise, the biggest share of expenses is interest payments, which have grown to 20 percent from 18 percent.
Budget 2025 also lays the tariff foundations for Modi’s conversations with Trump. It proposes to remove seven tariff rates, following similar removals in Budget 2024. Apart from giving India the space to negotiate, this is also good for domestic businesses using some of these products as intermediates. How these play out in Washington D.C. remains an open conversation but one where New Delhi will not be on shaky ground; it would have taken a few steps in anticipation.
What Sitharaman has shown is that when push comes to shove, she can be financially generous, economically sound, politically astute—and expressively dramatic.
Regretfully, there is no direct call to growth. The Economic Survey 2025 had made recommendations for deregulation, none of which find any echo in Budget 2025. The sole reference is through Jan Vishwas 2.0, where merely another 100 provisions will be decriminalised (113 were decriminalised in Jan Vishwas 1.0 reducing the number of imprisonment clauses under the purview of the Union government to 5,126). Even if we remove the four labour codes from this, which will reduce it to around 2,500, this is insignificant. It shows how difficult it is to bring reforms—despite Modi’s directions, the government continues to drag its feet and leaves the huge power in the hands of bureaucrats to harass wealth creators and extort from entrepreneurs.
What Sitharaman has shown is that when push comes to shove, she can be financially generous, economically sound, politically astute—and expressively dramatic.
Gautam Chikermane is Vice President at the Observer Research Foundation.
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