Budget 2025-26: Pursuing Growth by raising urban demand & Exports, ignores Employment | Sher Singh Sangwan

The budget is broadly growth-oriented like the earlier ones of the BJP-led government. This time the path of pushing investment is by raising the urban demand and increasing exports.The urban demand was showing signs of slackness over the previous two years or so due to inflation and jobs lost after COVID-19. Assessing the situation, the Finanace Minister has aptly raised the income tax exemption limit from Rs.7 lakh to Rs12 lakh for the middle class and even reduced slab rates up to income of Rs 24 lakh which was earlier up to Rs15 lakh. Tax tax-free limit will be up to 12.75lakh for employees after excluding of standard deduction of Rs75000. The Delhi Assembly election may be one of the other extrinsic factors for this largesse to the middle class by the BJP. It is widely known that almost all middle-class families are presently living in urban areas and hence their tax savings of about Rs one lakh crore from taxes will go toward purchasing houses, durable assets and investment in non-farm activities directly or through securities. It will in turn create demand for industrial products, services and hospitality activities.

The MSMEs coined as 2nd engine of growth in the budget, are being considered as the path for growth. MSMEs account for about 30 % of GDP, 36 % of manufacturing output and 45 % of exports. MSMEs also employ about 7.5 crore persons. With these considerations, the Budget has revised MSME’s investment and turnover limits by 2.5 and 2 times, respectively. It will enable them to access capital and the latest technology. To improve their access to credit, the loan guarantee cover has been increased from Rs 5 crore to Rs 10 crore with a guarantee fee of just 1 % of the loan amount. Even startup units will get a loan guarantee covering up to Rs 20 crores. The export units of MSMEs will also get cover for loans up to Rs20 crore. The micro-enterprises will also get a Credit Card with a limit of Rs5 lakh for emergent needs. However, to address unemployment, the budget mentions minuscule sectors like footwear leather, toys and food processing.

The 3rd engine of growth i.e. investment encompasses investing in people, economy and innovation. Investment in people will be taken through skilling, increasing seats in ITIs, Medical Colleges, etc as announced in the budget. The investment in the economy will result from the measures taken for MSMEs and adopting public-private models. Bilateral Investment Treaties will made to attract foreign investment too. Support for innovations will be from funds such as the R D innovation initiative and PM fellowships as per the budget. The customs duties have also been changed to promote exports. The tariff rates are minimized by removing 14 tariff rates in the previous two years and now there are only 8 tariff rates including the zero. Again, the number of jobs to be created is missing in all these measures.

The 4th engine of growth i.e. exports will be increased by setting Export Promotion Mission which in turn will fix sector /department-wise targets. A digital platform Bharat Tradenet will be set up for international trade documentation and financial solutions. The manufacturing capacities of India will be integrated with international supply chains to augment exports. Warehousing facilities will be set up for air cargo near airports.

Agriculture and allied activities are mentioned as the first engine of growth but in terms of allocation and new schemes, it has got low priority. The main beneficial step will be an increase in interest subvention for KCC whose limit has been raised from Rs 3 lakh to Rs 5 lakh. ‘Makhna’ Board in Bihar is minuscule to benefit a few hundred families in 2/3 districts of Bihar. Subsidy for Fertilizer, Foods and petroleum has been contained. A new urea plant is envisaged in Assam but it will take 2-3 years to operationalize and give employment. A new Dhan-dhanya scheme in 100 districts has been announced but it lacking in specifications. Allocation for the MGNREGA scheme to employ unskilled labour has been reduced by about Rs3100 crore.

Focusing directly on employment, an allocation of Rs2954 crore has been made under Prime Minister (discretionary) Employment Generation Programme for a few less educated and SHGs. Almost similar new scheme has been allocated Rs20000 crore for the first time. Thus the growth oriented budget through promotion of MSMEs and exports overlook the critical issue of employment.

(Author: Dr Sher Singh Sangwan, Former Professor SBI Chair at CRRID Chandigarh)