The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, comes at a crucial juncture for the Indian economy. This marks the twelfth Budget under the Narendra Modi government, and its significance lies in addressing the economic slowdown that has gripped the nation in recent years.
Economic Context: A Slowdown in Growth
Despite major structural reforms such as the introduction of the Goods and Services Tax (GST), ease-of-doing-business initiatives like the Insolvency and Bankruptcy Code, and a historic corporate tax cut in 2019, India’s economy has steadily lost momentum. The most visible sign of this slowdown has been the stagnation in personal consumption, which reflects poor job creation and declining real wages.
The Economic Survey highlighted that most new employment is concentrated in self-employed categories, primarily involving women entering the workforce at subsistence-level wages. Moreover, real wages for self-employed individuals remain below 2017-18 levels.

Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman calls on President of India Droupadi Murmu before presenting the Union Budget 2025 at Rashtrapati Bhavan, in New Delhi on Saturday. (Photo/PIB)
A key factor behind sluggish employment growth has been the government’s policy focus on capital-intensive production, favoring big corporations over labor-intensive sectors such as textiles, leather, and micro, small, and medium enterprises (MSMEs). Despite significant subsidies through the Production-Linked Incentive (PLI) scheme, these employment-generating sectors have continued to struggle.
Government’s Strategy and Its Challenges
The Modi government has long adhered to the philosophy that the private sector should be the primary driver of job creation, while the government’s role is to develop infrastructure. This has resulted in large-scale disinvestment efforts and public sector unit (PSU) sell-offs aimed at improving market efficiency.
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However, despite increased government spending on infrastructure projects like roads and ports and the substantial corporate tax cut of 2019, the economy has failed to break out of its slow-growth cycle. Since 2019, India’s GDP growth has averaged below 5% annually and under 6% since 2014. Frustration within the government has grown as private sector investment has not matched expectations, prompting the finance minister to compare businesses to Lord Hanuman—unaware of their own potential.
A Major Course Correction: Income Tax Cuts
The most striking feature of Budget 2025-26 is the announcement of significant income tax breaks—a clear acknowledgment that boosting consumer demand is essential for revitalizing economic growth. The move comes after increasing discontent among core voters, making it a politically and economically strategic decision.
This shift in approach underscores a realization that tax cuts for corporations alone have not spurred investments as anticipated. If consumer spending does not rise, companies lack incentives to expand capacity, create jobs, and drive further economic growth. The expectation is that with more disposable income, households will increase spending, prompting businesses to ramp up production and hiring.
What’s Still Missing? A Holistic Growth Strategy
While income tax reductions can provide a short-term boost, they are not a standalone solution. Sustained economic recovery requires a comprehensive strategy that prioritizes:
– Encouraging labor-intensive industries such as textiles, MSMEs, and manufacturing.
– Addressing the structural challenges in job creation.
– Reducing GST rates to benefit a broader consumer base, as income tax cuts impact only a limited number of people.
A well-rounded approach that balances tax incentives with robust employment policies is necessary for India’s long-term economic prosperity. While the Budget 2025-26 signals a critical shift in the government’s economic policy, its success will depend on how effectively it is implemented and whether it sparks the much-needed cycle of higher demand, increased investment, and sustained growth.