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Economic Challenges and Budgetary Approach UPSC NOTE

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  This article analyzes the Union Budget 2025-26 , focusing on its approach to addressing India's economic challenges and its potential ...

 

  • This article analyzes the Union Budget 2025-26, focusing on its approach to addressing India's economic challenges and its potential effectiveness.

Key Economic Challenges and Budgetary Approach:

  • Flagging Domestic Demand: The Budget aims to boost consumption, primarily through tax breaks for the middle class.   

  • Sluggish Private Investment: The Budget continues to incentivize the corporate sector, but the article questions the effectiveness of this approach given past trends.

  • Tepid Wage Growth: The Budget seeks to address this indirectly by stimulating demand and supporting MSMEs.   

  • Cautious Approach: The article describes the budget as cautious, relying heavily on projected tax revenue increases and private sector investment, rather than significant increases in public spending.

Key Budgetary Measures and their Rationale:

  • Tax Breaks: A major focus is on providing substantial tax relief to the middle class, particularly those earning up to ₹12 lakh

  • This is intended to increase disposable income and stimulate consumption.  

  • Fiscal Consolidation: The government aims to reduce the fiscal deficit from 4.8% of GDP in FY25 to 4.4% in FY26. 

  • This implies a focus on controlling spending.   

  • Projected Tax Revenue Increase: The Budget anticipates higher direct tax collections through better compliance and technology use. 

  • The article questions the reliability of these projections.   

  • Corporate Tax Incentives: The Budget continues to offer incentives to the corporate sector to encourage private investment. 

  • The article suggests a gradual phasing out of these incentives, given the lack of significant private investment response so far.   

  • Capex Allocation: While capex allocation remains high, its share has decreased compared to previous post-pandemic budgets. 

  • The article notes stagnant support for Railways, which is concerning given recent accidents and the need for infrastructure improvements.

  • MSME Support: The Budget includes enhanced credit guarantees and support schemes for MSMEs, recognizing their importance for growth and employment.   

  • Clean Energy: Incentives are provided to the electric vehicle and battery technology sectors, and energy sector allocation has increased.   

  • Rural Development: While the overall allocation for rural development has increased, allocations for MGNREGS have decreased. 

  • This is a concern, as MGNREGS is seen as an effective tool for boosting rural incomes and consumption.   

  • Social Security for Gig Workers: The Budget includes measures for social security for gig workers, including identity cards, e-Shram registration, and healthcare under PM Jan Arogya Yojana.   

  • Skilling and Employment: The Budget speech emphasized skilling initiatives, but the Employment Linked Incentive scheme was not mentioned.

Critical Analysis:

  • Reliance on Imponderables: The article argues that the Budget relies too heavily on hopes and projections (e.g., increased tax revenue, private investment) rather than concrete measures.

  • Need for Pragmatism: The article calls for a more pragmatic approach, suggesting that the government should have considered alternative strategies, such as gradually phasing out corporate tax incentives and maintaining stronger support for MGNREGS.

  • Concerns about Demand Stimulation: The article questions whether tax breaks alone will be enough to stimulate sufficient demand to drive strong economic growth.

  • Impact on Rural Economy: The reduction in MGNREGS allocation is a concern, given its importance for rural incomes and consumption.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Economic Challenges and Budgetary Approach UPSC NOTE
Economic Challenges and Budgetary Approach UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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