Decoding who wins and who loses in Modi 3.0's first major budget

The Federal hosted a special live panel discussion to decode India’s 2025-2026 federal budget. The discussion centred around Union Finance Minister Nirmala Sitharaman’s presentation of her eighth consecutive budget, with a particular focus on middle-class relief, tax reforms, and economic growth strategies.

Middle-Class Relief and Tax Reforms

The budget has been hailed as a “middle-class budget,” primarily due to tax reforms that increase exemption limits. Prof Kalaiyarasan Arumugam from the Madras Institute of Development Studies noted that these changes would offer short-term relief to the middle class. However, he also raised concerns about stagnant private consumption levels. Despite these exemptions, the country faces a persistent issue: the lack of substantial private investment, which has not gained momentum despite previous tax cuts.

Prof Arumugam explained that while the budget could boost immediate consumption, it remains uncertain whether it will lead to a sustained increase in private investments — a critical factor for long-term growth.

Fiscal Prudence and its Impact on Growth

Chokkalingam from Equinomics Research highlighted Finance Minister Sitharaman’s fiscal prudence, with plans to further reduce the fiscal deficit. The government aims to minimise capital receipts while focusing on debt reduction. However, Chokkalingam questioned whether this emphasis on fiscal restraint might hinder faster growth, especially as the global economy faces significant shifts.

The panel also raised concerns over India’s projected GDP growth rate, expected to range between 6.3% and 6.8% for FY26. With challenges like US tariff policies and inflationary pressures, there are doubts about India’s ability to achieve the 8% growth needed to realise its vision of “Viksit Bharat.”

MSMEs and the Shift to Domestic Growth

The budget placed special focus on Micro, Small, and Medium Enterprises (MSMEs), a crucial sector for India’s economy. Prof Kalaiyarasan pointed out that while the government’s attention to MSMEs is positive, deep-rooted manufacturing issues remain unaddressed. Despite initiatives like “Make in India” and “Skill India,” the manufacturing sector has struggled to increase its output and contribute significantly to GDP and job creation.

This stagnation is linked to the country’s employment crisis. Boosting domestic manufacturing could generate jobs, driving consumption and growth. However, more robust policy interventions are needed to unlock the sector’s potential.

AI and the Future of Tech Investments

The budget announced the creation of three new AI research centres, with an allocation of ₹500 crore. However, Chocko Valliappa from The Sona Group expressed disappointment, stating that the approach was too modest for India to remain globally competitive in AI and deep tech. He emphasised that more aggressive investment in these areas is crucial, particularly as nations like China and the US ramp up their technological capabilities. Additionally, he stressed the need for workforce retraining to adapt to these technological shifts.

Geopolitical and Global Economic Concerns

Sunita Kaul, a senior journalist, warned that while the middle class received some relief, the budget did not adequately address global economic risks, particularly the evolving US-China trade tensions. Rising US tariffs on key sectors like pharmaceuticals could negatively affect India’s export potential. Moreover, the rupee’s depreciation against the dollar could further complicate matters for the export-driven sectors.

Energy and Manufacturing

Dr Jai Asundi, Executive Director at CSTEP, highlighted a critical issue in India’s manufacturing growth: the availability and cost of energy. As one of the biggest inputs to manufacturing, energy costs in India are high compared to countries like China, where manufacturers benefit from much cheaper power. Dr Asundi argued that without addressing energy access and pricing, India’s competitiveness in manufacturing would continue to suffer.

Dr Asundi also discussed the government’s push for nuclear energy, with plans to add 100 gigawatts of nuclear capacity by 2047. While this is an ambitious goal, it faces challenges in terms of land acquisition, local support, and regulatory hurdles. However, the recent emphasis on small modular reactors is a step in the right direction.

On the renewable energy front, Dr Asundi praised solar energy’s progress, particularly rooftop solar initiatives. He suggested that integrating renewable energy into India’s power infrastructure could benefit both large-scale manufacturers and smaller enterprises, offering decentralised energy solutions that could reduce costs and improve energy access.

A Balancing Act for India’s Economy

In conclusion, the budget offers some much-needed relief for the middle class, but many long-term challenges remain unaddressed. The debate over fiscal prudence versus growth continues to shape India’s economic trajectory. While the focus on MSMEs and consumption is a step forward, more aggressive efforts are needed to boost manufacturing and capitalise on emerging technologies like AI.

The coming years will determine whether the measures laid out in this budget are sufficient to drive sustainable growth, or if bolder steps are required to achieve India’s ambitious economic goals.

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