Hits & Misses of Union Budget 2025

Middle class cheers tax relief, disappointment for tourism, healthcare & defence

When Union Finance Minister Nirmala Sitharaman presented the budget for the fiscal year 2025-26 in the Indian Parliament, it was received with a mix of celebrations and disappointments. While the middle class welcomed the income tax exemption on earnings up to INR 1.275 million, the tourism sector was left disheartened by modest increases and unmet demands.

For decades, the presentation of the union budget has been a closely watched activity and one that brings cheer and disappointment in equal doses, irrespective of the year when it was presented or by which minister.

The scenario has been no different this year as well, since the eighth budget presented Union Finance Minister Nirmala Sitharaman has led to celebrations and criticisms from various sections of the society.

The budgetary expectations this year were heightened as the Economic Survey presented a day before the budget warned of a slowing economy, with the GDP growth rate slowing down to 6.3–6.8 pc in the year ahead. Hence, individuals and experts alike awaited with bated breath to see which sector would receive what and how much allocation.

The highlight of the budget, perhaps with an eye on the Assembly Elections in Delhi that were to be held just days later, was the rebate in income tax on incomes of over INR 1.2 million, effectively making income of up to INR 1.275 million completely tax free, a significant jump from the existing INR 700,000 limit.

The relief was widely welcomed by the beneficiaries, the middle and upper-middle class workers in the country. However, the healthcare and tourism sectors were unimpressed with the relatively modest allocation of INR 980 billion and INR 24.3 billion respectively.

On the internet, the middle class celebrated this as a major relief, as it increases their disposable income. The excitement was so high that many jokingly suggested individuals might adjust their salaries to INR 1.19 million, hinting at creative ways to stay under the tax limit.

Another key announcement by Sitharaman was an increase in the foreign direct investment (FDI) limit for insurance industry from 74 pc to 100 pc. According to news reports, the sector has grown at a compound annual growth rate (CAGR) of 10 pc over the past five years, generating a total premium of INR 11.23 trillion in the fiscal year 2023-24. As of September 2024, the sector had received INR 828.47 billion in investments since the inception of FDI.

By lifting the cap on FDI, the government is supposedly aiming to attract stable and sustained foreign investment, boost competition and enhance insurance penetration across the country.

Similarly, recognising the importance of Micro, Small and Medium Sector Enterprises (MSME) in the economy, the finance minister introduced a range of measures to support them. For instance, the credit guarantee for MSMEs has been increased from INR 50 million to INR 100 million, which will notionally provide an additional INR 1.5 trillion in credit to businesses over the next five years.

To further support MSMEs, the investment limits for small enterprises have been increased by 2.5 times, allowing businesses to scale up while retaining their MSME status.

Neither here, nor there

However, in key domains of education and healthcare, the budget failed to generate any enthusiasm. Despite the education-related challenges that India has long-faced, such as high drop out rates, extremely expensive private schools and universities as well as poor quality of training, the allocation for education was increased by a mere 6.22 pc to INR 1,286.5 billion, which is barely enough to cover for inflation.

The Department of School Education and Literacy saw a nominal increase of 7 pc, reaching INR 507.4 million for 2025-26, compared to the Budget Estimates (BE) for 2024-25.

The government also announced plans to set up 50,000 Atal tinkering labs in government schools over the next five years and allocated INR 5 billion to establish a centre of excellence in artificial intelligence for education.

Misses of Union Budget

Besides education, the budgetary allocations for some other sectors too drew in criticism, notably tourism and healthcare. For instance, the tourism sector witnessed a modest increase of INR 24.3 billion from 23.74 billion in previous budget. Many tourism industry organisations such as Indian Association of Tour Operators (IATO), have expressed disappointment with the budget.

According to IATO President Rajiv Mehra, the reduction in the budget for overseas promotion from INR 330 million to INR 30 million is indeed shocking, emphasising that it is not enough to promote the country abroad. Additionally, other industry organisations also expressed their issues with the apparent lack of funding for inbound tourism promotion, no reduction in Aviation Turbine Fuel (ATF) to lower airfares, and no GST rate rationalisation.

Moreover, industry experts highlight, that concerns over TCS on outbound travel remain unaddressed, hindering business operations and global competitiveness.

Additionally, the defence sector faced a reduced allocation, receiving INR 6,812.10 billion. Despite a 9.53 pc increase from the 2024-25 Budget Estimate, market projections indicated it fell short of expectations, causing shares of several defence companies to drop between 3.76 pc and 9.15 pc. Companies like Mishra Dhatu Nigam (-9.15 pc), Paras Defence and Space Technologies (-7.10 pc), and Hindustan Aeronautics (-4.21 pc) saw significant declines, reflecting subdued investor sentiment.

Meanwhile, despite the reduction in customs duties on cancer drugs and the addition of 35 life-saving drugs to patient assistance programs, many health experts are disappointed with the allocation of INR 980 billion to the health sector, claiming that the allocation is stagnant, representing just 2 pc of the total budget, and does not account for inflation.

According to health experts, this modest allocation fails to address the sector’s urgent needs. It falls short on critical issues such as funding for Ayushman Bharat and GST rationalisation for healthcare, particularly for medical devices.

Despite expectations of major investments in modernisation, electrification, and new routes, the railway sector received only INR 25,500 million in this year’s Union Budget, a marginal decrease from INR 26,200 million. With this reduction, the sector is likely to face a slowdown in expansion projects, impacting key stakeholders.

The 2025-26 Union Budget offers a mix of positives and setbacks. While sectors such as insurance, education, and the middle class gain from higher allocations and tax relief, tourism, defence, and healthcare express concerns over limited funding. The budget’s effectiveness will hinge on its implementation to address these unmet needs.