Budget 2025: Easing middle-class woes, but states must step up

Any budget is an exercise in imaginative and elliptical messaging. Within these guardrails, Nirmala Sitharaman has produced a responsive and responsible budget.

Three themes stand out:
1. Dealing with the Middle: Sitharaman has addressed middle-class disquiet, which had left its impact on consumption. Tepid consumption had, in turn, led to an understandable investment reluctance in the private sector. Some of the conditions for this were domestic, others global and reflective of volatility in markets—and middle classes—everywhere. To be fair, these conditions are not new. The difference is that in previous years, the government carried the burden with unprecedented public spending. The exchequer’s capacity to increase capex still further has reached a limit, at least with the current fiscal math. The outlay has not fallen in this year’s proposals, but it has not risen either.


The onus is, therefore, on the economy’s two other engines—household consumption, and ultimately corporate investment. The budget recognises there is no instant solution. I-T cuts are noteworthy without being overdone and busting the bank. Results will unfold gradually. If the cuts are followed up by a GST rationalisation and lowering of interest rates—both are a logical corollary—then it is feasible that the festive/Diwali season will see more robust spending than in the previous year. This could be evidenced not in sales of big SUVs, but in middle-class folk buying small cars and motorcycles, with the bet that they can afford EMIs.

Even so, the complementary factors—GST unclogging and interest rate cuts—are dependent on the state governments’ cooperation and RBI’s inflation assessment, respectively. At the moment, both are suppositions, not done deals. The FM has a summer of political persuasion ahead of her.

2. Not to Get Trumpled: All Over Sitharaman’s term has coincided with enormous geopolitical turbulence. Not surprisingly, she has anticipated upheaval this year as well. Wisely, she has sought to prepare. Trade and tariff negotiations with the Donald Trump administration will be a key driver of economic decision making in the coming weeks and months. While some customs tariff cuts have been announced to promote local manufacturing—notably for EV batteries—there is a probability of a consequential, Trump-induced round down the line.

Pressure from Washington has combined with India’s legitimate energy transition needs to arrive at an ambitious nuclear energy target of 100 GW by 2047. Saturday’s budget speech was also used to indicate private participation, likely in small and modular reactors, and finally an amendment to the nuclear liability law. That piece of legislation from 2010 was an extraordinary piece of self-harm. It has become an abiding and unfortunate emblem of broken opposition-treasury relations in 21st c. India.

3. The Real Double Engine: For all the rambunctious politics of our times, the budget speech is an acknowledgement—even an appeal—that the Union and state governments need to pull together. Without meaningful collaboration and enlightened division of labour between New Delhi and the state capitals, India will simply not cover its jobs deficit and industrial GDP delta. It will remain a chronic under performer at a moment of abundant global opportunities, amid, of course, challenges.

While not part of the budget, the GST rigmarole necessitates fewer slabs as well as an interpretation of tax provisions by state authorities that is less short-termist, and not mindlessly extractive. Manufacturing dreams will not be realised without simpler rules, regulations and procedures, and an exorcising of the inspector raj mindset down to the shop floor.

Sitharaman has taken a step in this direction by setting up a ‘high-level committee for regulatory reforms… for a review of all non-financial sector regulations, certifications, licences, and permissions… The objective is to strengthen trustbased economic governance and take transformational measures to enhance ‘ease of doing business’, especially in matters of inspections and compliances’. The key lies in the section’s final line: “States will be encouraged to join in this endeavour.’

Tourism is another telling example. In the past 11 years, connectivity in India has improved dramatically. The Modi government inherited 75 airports in 2014. Today, the number is over 150—comprising both greenfield and upgraded facilities. Yet, what happens next? The harsh truth hit home this winter when vacationing Indians flew to locations like Da Nang (Vietnam) while Sindhudurg airport (Maharashtra) languished. Airlines pulled out because there was not enough in the city to attract travellers.

Again, Sitharaman has acted on the problem:
‘Top 50 tourist destination sites in the country will be developed in partnership with states through a challenge mode. Land for building key infrastructure will have to be provided by states. Hotels in those destinations will be included in the infrastructure HML [harmonised master list].’ One trusts states will rise to the occasion, and North Block will be true to its word. Like elsewhere with the budget, India’s economic stakeholders wait and hope.