The BGA India Team, led by Managing Director Vaman Desai, wrote an update to clients on India’s union budget for 2025-26.

Context

  • Finance Minister Nirmala Sitharaman February 1 presented the first full budget under the third term of the Narendra Modi-led National Democratic Alliance (NDA) government for the financial year 2025-26 (FY26). Sitharaman announced income tax relief for annual income up to US$14,000 and complimented that with multiple-sector specific initiatives to spur manufacturing and exports. The budget was announced amid global economic and political uncertainties and increasing expectations for measures to boost domestic consumption and attract more investment. 
  • Budget FY26 aims at broad-based incremental steps to further India’s growth momentum, rather than focusing on big-ticket announcements, signaling policy continuity. It aims to compliment the government’s steadfast infrastructure push with strengthening domestic manufacturing capacity and demand. Through various allocations, it also appeals to the three emerging constituents of youth, women and farmers while catering to states such as Bihar and Delhi where elections are impending. 

Significance

  • In line with the Economic Survey’s point to accelerate and achieve a sustained 8 percent GDP growth for about two decades, the budget aims for greater domestic investment and FDI, job creation and increasing urban and rural demand. Emphasizing resilience in the Indian economy, the survey also calls for improvement in industrial growth, easing regulations especially for exports and effective and innovative resource mobilization.
  • Income tax relief measures are expected to add about $12 billion more disposable income for India’s urban middle-class, helping strengthen consumer demand and increase savings, while ensuring fiscal stability. The government is also likely to come out with a new income tax bill which will simplify tax filing and encourage building a larger tax-base in the country in the long-term, which is currently a mere 6 percent and needs a major boost to improve fiscal management. Sitharaman has also rationalized tax deducted at source and tax collected at source thresholds in many areas resulting in enhanced liquidity in the hands of consumers.

Implications

  • Fiscal prudence and consolidation continue to underline the government’s approach to public finance as Sitharaman exceeded market expectations by setting the fiscal deficit target at 4.4 percent of GDP. This is expected to help improve the country’s sovereign rating, lower its risk premium and borrowing costs but also align the fiscal scale to emerging global standard of debt-to-GDP ratio from budget 2026.
  • Fast-moving consumer goods, insurance across life and general categories, toy and footwear manufacturing, infrastructure and shipbuilding, electric vehicles (EVs), artificial intelligence (AI), solar photovoltaic cells and wind turbines are some of the specific sectors which will benefit. Manufacturing, micro, small and medium enterprises (MSMEs), emerging technologies, employment, export generation and clean energy will remain larger themes and focus areas.  

We will continue to keep you updated on developments in India as they occur. If you have any questions or comments, please contact BGA Senior Director Vaman Desai at vdesai@bowergroupasia.com.

Best regards,

BGA India Team

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Senior Director

Vaman works with BGA clients across the Asia-Pacific to help them navigate and understand the public policy and strategic communications landscape in the countries where they operate. He brings a strong background in South Asia and is responsible for ensuring that client needs are met in a comprehensive and timely manner. Based in Mumbai, India, he serves as a linchpin for engagement in Maharashtra and surrounding states. Prior to joining BGA in its Washington, D.C. office, Vaman served as a marketing executive with the Commercial Wing of the Indian Embassy in Washington. At the embassy, he focused on U.S.-India bilateral ... Read More