India’s annual budget exercise serves dual roles. First, it provides an institutional forum for the central government to state its policy ambitions for the next fiscal year, the financial allocations to back them up and its revenue-generating plans to fund them. Second, the budget provides an early signal of government intentions that the private sector can use to make its own plans for the year ahead.

In terms of this year’s budget, the highlights were the additional rebates that made salaried income till ₹12 lakh free from taxation, and the reduction of some import duties. The effects of these two initiatives are, however, marginal. Even though the tax rebate package will exempt 90% of salaried Indians from paying any income tax, the bill for it is just 0.3% of Gross Domestic Product (GDP). This reflects the fact that even before the new rebate measure, almost 79 million salaried workers in India paid no taxes, i.e., their incomes were below the lowest taxable income level of ₹7 lakh. Similarly, the tariff reductions will only have a token effect since the average tariff rate will decline by just one percentage point to 10.6% as a result.

The reality of the Indian economic situation is that the country is stuck in a middling growth trajectory. The growth boost of 2023 was mostly a delayed return of economic activity after the Covid-induced output losses. Indeed, the slower growth rate of 6.4% for 2025, which has attracted much attention is almost identical to the average economic growth rate between 2015 and 2024 even after excluding the Covid-hit years of 2021........

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