UPSC Key: Union Budget 2025, Makhananomics and PM Dhan-Dhaanya scheme

Preliminary Examination: Current events of national importance, economic development

Mains Examination: General Studies-II, III: Indian economy and Government budgeting.

What’s the ongoing story: Union Finance Minister Nirmala Sitharaman presented the Union Budget 2025 on Saturday. If Union Finance Minister Nirmala Sitharaman’s seventh Budget after the BJP returned to power was about coalition politics, the Budget for 2025-26 seems to bet big on an unprecedented tax bonanza to push flagging consumption alongside a continuing thrust on capital expenditure to maintain a 6-per cent plus growth momentum.

Key Points to Ponder:

• What are the constitutional provisions regarding the budget?

• What are the components of the budget?

• What is a fiscal deficit?

• How does a Union Budget influence the economy?

• Which sector and scheme got the highest budget allocation?

• What are the issues and challenges faced by various sectors of Indian Economy?

• What measures needs to be taken to address the challenges pertaining to the various sectors of indian economy ?

Key Takeaways:

FROM FRONT PAGE: TAXPAYER THANKSGIVING 

Income up to Rs 12 lakh tax-free; consumption, capex key drivers 

• The fiscal deficit for this year is now estimated at 4.8 per cent of the GDP, and that for 2025-26 at 4.4 per cent of GDP. This is lower than the glide path which required her to bring down the deficit to under 4.5 per cent.

• The growth realism gives the government some fiscal space should there be a consumption boost leading to a consequent increase in growth. It is estimated that the change in tax slabs and the hike in tax rebate limit to Rs 12 lakh a year from Rs 7 lakh a year will benefit at least 1.75 crore citizens, and buoy the sentiments of the middle class.

• The Budget didn’t lose sight of the Assembly elections in Bihar later this year. From a Makhana (fox nuts) Board in Bihar to a National Institute for Food Technology, the Entrepreneurship and Management, the largesse for the state also included a brownfield airport in Bihta, expansion of IIT Patna, and a Western Kosi canal project for farmers in the Mithilanchal region.

• Taking forward the initiatives of last year, Sitharaman identified four engines of growth: agriculture, exports, MSMEs and investment. At the heart of these initiatives is an effort to focus on sectors that are labour intensive and also generate more employment.

• In the backdrop of the Red Sea crisis, the government also announced a ship-building financial assistance policy and made a provision for ship building clusters.

FROM PAGE-8: UNION BUDGET 2025- GOVT & POLITICS 

External Affairs Ministry gets Rs 20,516 crore, emphasis on ‘Neighbourhood First’ policy

• The Ministry of External Affairs (MEA) has allocated Rs 5,483 crore for aid to foreign nations, higher than last year’s budget estimate of Rs 4883 crore, but lower than last year’s revised estimate of Rs 5,806 crore.

• The MEA budget has placed an emphasis on India’s ‘Neighbourhood First’ policy. Rs 4,320 crore — 64 per cent of the total scheme portfolio — has been earmarked for the country’s immediate neighbours for initiatives like large infrastructure projects such as hydroelectric plants, power transmission lines, housing, roads, bridges and integrated check-posts.

• Bhutan continues to be India’s largest foreign aid recipient, receiving Rs 2,150 crore in 2025-26, which is an increase from last year’s budget estimate of Rs 2,068 crore.

Defence gets 13% of Budget, outlay up 10% to Rs 6.81 lakh crore

• In the wake of challenges of modern warfare and to modernise the military to counter rival China, the Union Budget has allocated Rs 6.81 lakh crore to the Defence Ministry, which is 9.5% higher than the allocation last year, if compared to budget estimate.

• The defence allocation is 13.45% of the Union Budget, which is highest among the ministries. Of the total allocation, Rs 1.8 lakh crore will be for capital expenditure underlining the importance the government accords to modernising the Armed Forces and procuring new weapons.

• The budgetary allocation to Defence Research and Development Organisation (DRDO) has been increased to Rs 26,817 crore in FY 2025-26 from Rs 23,856 crore last year. Of this, a major share of around Rs 15,000 crore has been allocated for capital expenditure and to fund the R&D projects.

In Budget’s allocation to Home Ministry, focus on borders and security 

• The 2025-26 Union Budget’s allocation for the Ministry of Home Affairs reflected a focus on security, both internal and at the borders, while also indicating that the census exercise would likely be delayed again.

• This magnified focus on the borders come after an increase over the last year in cross-border infiltration and terror attacks in Jammu and Kashmir, especially in the once-relatively peaceful Jammu division.

• The total allocation of Rs 2,33,211 crore is a Rs 12,840 crore increase from the outlay for 2024-25 (revised estimate).The major chunk — Rs 1,09,037.05 crore — has gone to the central armed police forces (CAPFs) that are responsible for internal security, guarding borders and securing vital installations. 

• The allocation for border infrastructure, meanwhile, saw a sharp 87% rise — from Rs 2,794.57 crore to Rs 5,237.93 crore. This will be spent on the check posts along the international border and setting up surveillance infrastructure.

• The Budget also allocated just Rs 574.80 crore (Rs 572 crore in 2024-25) towards work related to the census — a clear indication that the decadal exercise will be delayed. The census was supposed to be carried out in 2020-21 but was postponed owing to the Covid-19 pandemic.

Key Points to Ponder:

• What is the ‘Neighbourhood First’ policy?

• Why has the Union Budget placed special emphasis on the ‘Neighbourhood First’ policy, continuing to allocate a significant amount from the Ministry of External Affairs’ budget to the country’s immediate neighbors?

• Which country is the largest recipient of foreign aid in the Union Budget for 2025, and why?

• Which ministry received the highest budget allocation and why? 

• Which ministry has decided to observe the year 2025-26 as the ‘Year of Reforms’?    

• Why does the Budget’s allocation to the Home Ministry reflect a focus on security, both internally and at the borders?

FROM PAGE-10: UNION BUDGET 2025-THE MACRO 

Marking new fisc anchor: Debt-GDP ratio 

• IN A significant shift from having fiscal deficit as the only operational target for fiscal consolidation, the central government has detailed the shift towards “debt-GDP ratio” as the fiscal anchor beginning 2026-27 financial year. It has targeted a declining debt-GDP ratio to 50±1 per cent by March 31, 2031.

• The debt-GDP ratio for the central government is estimated to be 57.1 per cent in 2024-25 (revised estimate) and 56.1 per cent in 2025-26. “The choice of debt to GDP ratio as the fiscal anchor is in line with current global thinking. It encourages a shift from rigid annual fiscal targets towards more transparent and operationally flexible fiscal standards,” the government said in its ‘Statements of fiscal policy as required under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003’.

• A debt-GDP ratio as a fiscal target is a “more reliable measure of fiscal performance as it captures the cumulative effects of past and current fiscal decisions”, it said. “It is expected that the debt to GDP based fiscal consolidation strategy would help rebuild buffers and provide requisite space for growth-enhancing expenditures,” the government said.

• Debt to GDP ratio refers to the share of a country’s national debt to its gross domestic product. Rating agencies usually track total debt to GDP ratio that includes debt levels of both states and the central government. 

High-level committee to review non-financial sector regulations

• Finance Minister Nirmala Sitharaman on Saturday announced that a high-level committee for regulatory reforms will be set up for a review of all non-financial sector regulations, certifications, licenses, and permissions.

• The objective of the high-level committee will be to strengthen trust-based economic governance and take transformational measures to enhance ease of doing business, especially in matters of inspections and compliances. The committee is expected to make recommendations within a year. States will also be encouraged to join in this initiative.

Capex stays strong even as it falls short of FY25 target

• The government has projected a capital expenditure target of Rs 11.21 lakh crore for the next financial year 2025-26, a growth of 10 per cent over the revised estimate for FY25 and just around 1 per cent higher than the budget estimate for the current financial year. 

• This came on the back of the government undershooting its target for capital expenditure for FY25, meeting only 92 per cent of its target of Rs 11.11 lakh crore at Rs 10.18 lakh crore.

Subsidy bill set to fall to 6-year low

• The Centre’s spending on subsidies for 2025-26 is budgeted to fall to a six-year-low in absolute terms and a seven-year-low relative to the country’s gross domestic product (GDP). Also, much of the outgo pressure is now coming from fertilisers, as opposed to food subsidy.

• Finance Minister Nirmala Sitharaman has provided a total of Rs 426,216 crore towards all Central subsidies for the coming financial year, the lowest since the Rs 262,304 crore  of 2019-20. The reduced subsidy spend — from the peak of Rs 758,165 crore and 3.82 per cent of GDP in 2020-21 — are mainly on account of two factors.

• First, the discontinuation of the free, additional 5-kg per month extra foodgrains allocation to the 813.5 million public distribution system (PDS) beneficiaries. The extra rice or wheat — over and above the regular 5 kg/person/month PDS quota under the National Food Security Act, 2013 — was given during the post-Covid period from April 2020 to December 2022. That ended from January 2023. 

• The second major reason for the Centre’s lower subsidy provision is fertiliser. The fertiliser subsidy peaked at Rs 251,339 crore in 2022-23, which resulted from high global prices following Russia’s invasion of Ukraine.  

Key Points to Ponder:

• What is the debt-GDP ratio?

• What is the difference between capital expenditure and revenue expenditure ?

• Why has the Union Government shifted towards using the debt-GDP ratio as the fiscal anchor instead of solely focusing on the fiscal deficit? 

• Why has the Union Government aimed for a declining debt-GDP ratio to reach 50±1 percent by March, 2031?

• The Centre’s spending on subsidies for 2025-26 is budgeted to fall to a six-year-low in absolute terms. What is the reason behind it?

FROM PAGE-11: UNION BUDGET 2025- INFRA

Small reactors, big nuclear leap: 20,000-crore R&D mission  

• In one of the biggest moves to expand the nuclear energy sector, the government on Saturday set up a new mission to develop small modular nuclear reactors, and set a target of operationalising at least five such reactors in the next eight years.

• In her budget speech, Finance Minister Nirmala Sitharaman also promised to amend the Atomic Energy Act and the Civil Liability for Nuclear Damage Act to accelerate private sector participation in building and operating nuclear power plants.

• She said the government would set up a Nuclear Energy Mission worth ₹20,000 crore for research and development of small modular reactors (SMRs), and promised that at least five such indigenously developed SMRs would be operationalised by 2033. 

• SMRs, as the name suggests, are small nuclear reactors that typically produce less than 300 MW of electricity. Conventional nuclear reactors, the kind which are currently installed in India and elsewhere, usually have capacities to produce 500 MW of electricity or more.

• However, it is their relatively simpler and modular design — enabling their components to be assembled in a factory instead of being constructed on-site — lower costs, and flexible deployment that has made SMRs a much more attractive proposition in recent years.

• The government is pushing for indigenous development of SMRs — sometimes even referring to them as Bharat SMRs — and this is where the new ₹20,000 crore mission is supposed to make a difference.

• Unlike renewables like solar or wind, nuclear energy offers a reliable source of on demand electricity generation, and is not susceptible to weather-related interruptions.

Rs 1 lakh crore to boost urban infra, cities to cover cost of projects via bonds, PPPs  

• Finance Minister Nirmala Sitharaman Saturday announced the establishment of an Urban Challenge Fund in the Union Budget 2025 to mobilise Rs 1 lakh crore, which will incentivise cities to raise funds through municipal bonds, public-private partnerships (PPPs) and loans.

• Under the fund, while the government plans to give Rs 10,000 crore, cities are expected to get the remaining Rs 40,000 crore from floating municipal bonds, entering into private-public partnerships, and taking loans, according to a Ministry of Housing and Urban Affairs source. Cities would be asked to submit their proposals for the three kinds of projects.

• To boost incomes for the urban poor, Sitharaman announced a revamp of Prime Minister Street Vendors AtmaNirbhar Nidhi (PM SVANidhi), the existing small working capital loan scheme for street vendors, in her Union Budget 2025 speech.

• PM SVANidhi was launched in 2020 when the Covid-19 pandemic and the lockdowns hit street vendors. Under the scheme, vendors can avail themselves of loans of Rs 10,000, Rs 20,000, and Rs 50,000. As many as 95.84 lakh loans worth Rs 13,741 crore have been disbursed so far.

No hike in Budget, but road and rail among govt’s top capex drivers

• Railways and Road Transport continue to be among the ministries for which the government has allocated the highest share of capital expenditure in the Budget even though the allocated amount is the same as last year’s.

• In the Union government’s Budget for the financial year 2025-26, presented on Saturday by Finance Minister Nirmala Sitharaman, the Ministry of Railways was allocated Rs 2.65 lakh crore for capital expenditure.

• The Budget also allocated Rs 2.72 lakh crore to the Ministry of Road Transport and Highways for capital expenditure.

Key Points to Ponder:

• What are small modular reactors (SMRs)?

• How are SMRs different from Conventional nuclear reactors?

• What is Prime Minister Street Vendors AtmaNirbhar Nidhi (PM SVANidhi) ?

FROM PAGE-12: UNION BUDGET 2025- PERSONAL FINANCE

How sweet is the sweetened New Tax Regime

• Finance Minister Nirmala Sitharaman announced several changes that brought cheer to the middle class. Starting from raising the limit of rebate from Rs 7 lakh to Rs 12 lakh under the New Tax Regime (NTR), Sitharaman also tweaked the tax slabs in a manner that would benefit taxpayers in higher salary brackets as well, effectively leaving more money in their hands.

• A rebate means that income up to that limit will not lead to any tax liability, which effectively means that anyone with an annual taxable income of up to Rs 12 lakh, or a monthly income of up to Rs 1 lakh, will not be required to pay any income tax under the NTR.

• However, if the annual taxable income breaches Rs 12 lakh, it will be subject to tax as per the prevailing tax slabs for the entire income. All taxpayers who have persisted with the OTR due to heavy deductions would do well to revisit their tax computations under both tax systems and make an informed choice.

FDI in insurance hiked to 100%, paving way for entry of foreign giants

• Union Finance Minister Nirmala Sitharaman Saturday announced a significant hike in foreign direct investment (FDI) in the insurance sector — from 74% to 100% — paving the way for the entry of global insurance giants, substantial foreign investments and tough competition in the Indian market.

• The government will hopes this major reform boosts insurance penetration in the country, which, as per an IRDAI report, was at 3.7% in 2023-24. The global insurance penetration at the same time was 7%.

• With the 100% FDI, foreign insurers will have full autonomy to operate in India, bringing in sophisticated risk management practices, advanced technology and innovative products, say experts.

• Foreign investments will also provide much-needed capital to the Indian insurance sector, enabling insurers to offer better products and services. Of the world’s top 25 insurance firms, as many as 20 are not present in India now. This move is expected to attract them to the country.

Key Points to Ponder:

• What is foreign direct investment (FDI)?

• What are the different routes of FDI?

FROM PAGE-13: UNION BUDGET 2025- SOCIAL

Battling cancer closer home: Daycare centres in all district hospitals in 3 years  

• Union Finance Minister Nirmala Sitharaman announced on Saturday a major upgrade to the country’s medical infrastructure— the establishment of day-care centers for cancer treatment at district hospitals. This initiative aims to improve access to essential cancer treatments at the district level while also easing the heavy patient burden on large tertiary care hospitals in metropolitan cities.

• Saturday’s Union Budget announcement is significant, as India has a vast network of at least 759 district hospitals, which serve as crucial access points for tertiary healthcare at the district level.

• The decision also carries significant public health implications. First, cancer cases are on the rise in India, with one in nine people likely to develop the disease in their lifetime. 

• Second, as cancer cases continue to increase, these day-care centers— which typically provide chemotherapy, administer essential medications, perform minor procedures such as biopsies, and manage complications— will enhance access to critical treatments at the district level. This is particularly beneficial for rural populations, who will no longer have to travel to large cities where treatment costs are significantly higher, once the day care centres are set up.

• Challenges in setting up these Centres are: Infrastructure limitations, challenges related to patient trust and demand.

₹9k cr booster for health, gig  workers to get PMJAY cover  

• The total outlay for health in this year’s budget has increased by over ₹9,000 crore, with the increase going to several of the government’s key programmes such as its mission to increase infrastructure, Ayushman Bharat, as well as allocation for All India Institute of Medical Sciences-Delhi. 

• The total outlay for the ministry of health has increased to ₹95,957.8 crore from the previous year’s revised estimate of ₹86,582.5 crore. Meanwhile, Union Finance Minister Nirmala Sitharaman announced Ayushman Bharat coverage for one crore gig workers. Last year, the government expanded the coverage of the flagship health scheme to all citizens over the age of 70 years, irrespective of their economic status.

• Saturday’s budget also saw an increase of ₹1,000 crore allocation under the PM Ayushman Bharat Health Infrastructure Mission (PM-ABHIM), increasing from ₹3,200 crore to ₹4,200 crore. 

With hike in outlay of schemes, tribal affairs budget up 45% 

• The central government on Saturday increased the budget allocation for the Ministry of Tribal Affairs by 45.79% compared to last year, allocating more funds to bridge infrastructure gaps in tribal-dominated areas across the country.

• The Union Budget 2025-26 has allocated Rs 14,925.81 crore for the Ministry of Tribal Affairs, up from Rs 10,237.33 crore (revised estimate) in 2024-25.

• Three crucial initiatives of the ministry — Eklavya Model Residential Schools (EMRS), Pradhan Mantri Janjati Adivasi Nyaya Maha Abhiyan (PM JANMAN) and Dharti Aaba Janjatiya Gram Utkarsh Utkarsh Abhiyan (DA-JGUA) — saw increase in outlay in the Union Budget.

• The government has set a target of making 728 Eklavya Model Residential Schools functional by March 2026 for 3.5 lakh tribal students.

• The Dharti Aaba Janjatiya Gram Utkarsh Utkarsh Abhiyan scheme, targeted towards saturation coverage of government schemes in health, infrastructure, education and livelihood, saw its allocation quadruple — increasing from Rs 500 crore to Rs 2,000 crore.

• The Budget for Pradhan Mantri Janjati Adivasi Nyaya Maha Abhiyan, aimed to improve the socio-economic conditions of the Particularly Vulnerable Tribal Groups has been doubled from Rs 150 crore (revised estimate) to Rs 300 crore for 2025. 

5 IITs set up after 2014 to add 6,500 seats over 5 yrs

• The Union Government on Saturday announced a significant increase in student intake across five Indian Institutes of Technology (IITs) over the next five years and an additional 10,000 seats in medical colleges and hospitals over the next year.

• The government will develop infrastructure to facilitate the education of another 6,500 students across five third-generation IITs (set up after 2014) – IIT Palakkad, Dharwad, Jammu, Bhilai, and Tirupati. Permanent campuses have been established for these IITs over the past couple of years.

Key Points to Ponder:

• How the announcement of the establishment of day-care centers for cancer treatment at district hospitals is major upgrade to the country’s medical infrastructure?

• What is PM Ayushman Bharat Health Infrastructure Mission (PM-ABHIM)?

• Read about the Pradhan Mantri Janjati Adivasi Nyaya Maha Abhiyan (PM JANMAN) and Dharti Aaba Janjatiya Gram Utkarsh Utkarsh Abhiyan (DA-JGUA).

FROM PAGE-16: UNION BUDGET 2025- EXPLAINED

Big Picture: Context of historic tax cut, impact it may have on the economy

• The Union Budget 2025-26 has been presented at a time when India’s economic situation faces some formidable challenges.

• Notwithstanding the structural reforms carried out over the past few years — such as the introduction of Goods and Services Tax (intended to simplify the indirect tax regime), several ease-of-doing-business measures (such as the Insolvency and Bankruptcy Code), and a historic tax cut for companies in 2019 — the Indian economy has lost momentum over the past few years.

• The biggest representation of this loss of momentum has been a slowdown in personal consumption by the average Indian. That, in turn, has been a representation of the tepid job creation in the economy.

• The poor job creation was a consequence of the government’s policy focus that concentrated too closely on capital-intensive production, with very little attention paid to employment generation. For instance, labour intensive sectors such as textiles and leather industries or MSMEs continued to suffer while the government heavily subsidised big companies through Production-linked incentive (PLI) schemes.

• In 2019, the year before the pandemic hit, India’s GDP grew by less than 4%. The government reacted by cutting corporate tax, the tax that companies pay on their income. The hope was that this cut would incentivise companies to make new investments with the extra money in their hands, thus creating new jobs and prosperity. To “crowd in” such investments, the government also ramped up its capital expenditure to historically high levels.

• Saturday’s Budget announcement of a massive income tax break is an acceptance by the government that more than anything else, the private sector investments require robust consumer demand.

• Almost everything else — corporate income tax and interest rates and the condition of roads — is secondary.

• A tax cut will have a positive effect on the overall economy, said Prof N R Bhanumurthy, head of the Madras School of Economics and author of an academic paper on “multipliers” — or how government decisions affect the overall GDP. The multiplier for a personal income tax cut is 1.01. That is, a Re-1 cut in personal income tax grows the GDP by Rs 1.01 as people spend the money.

• “Of course, that multiplier is for normal periods. Given that the consumption cycle is down, it will perhaps have an even higher effect,” Bhanumurthy said.

• It is quite possible though, that some of the money will not be spent. Even then, the move will have a positive impact. Here’s how: More savings will allow the financial system to bring down the cost of new loans (that is, the interest rate). Lower interest rates will incentivise more loans and economic activity.

Makhananomics: Budget dives to harness potential of a Bihar industry 

• Union Finance Minister Nirmala Sitharaman while presenting the Union Budget on Saturday (February 1) said that a “Makhana Board” will be set up in Bihar.

• In recent years, the once humble makhana has skyrocketed in popularity around the world as a “superfood” of choice among fitness enthusiasts. This has prompted the government to focus on marketing makhana in order to commercially harness its popularity.

• In 2022, ‘Mithila Makhana’ was conferred a Geographical Indication (GI) tag, a certification that signifies that a product can only be grown in a particular geographical location, and as a result, has unique characteristics (like Darjeeling’s tea or Mysore sandal soap).

• The state of Bihar contributes to roughly 90% of India’s makhana production. However, low productivity, absence of food processing units, and slow growth of efficient marketing chains has meant that Bihar, which is the largest producer of makhana in India, has been unable to take advantage of the growing demand in both the domestic and the international market.

• Low productivity is another major problem in makhana cultivation in Bihar. Currently, cultivating makhana is an extremely arduous and labour heavy process, which pushes up the overall input cost.

Key Points to Ponder:

• What are the major structural reforms implemented in the Indian economy in recent years? 

• Why has the Indian economy lost momentum despite these reforms?

• Read about the fox nut (Makhana).

FROM PAGE-19: UNION BUDGET 2025- MANUFACTURING

Rs 25,000 crore push for maritime development

• Finance Minister Nirmala Sitharaman on Saturday announced a Rs 25,000 crore maritime development fund for the shipping industry among other incentives. This follows complaints from Indian exporters against alleged “arm-twisting” by foreign shipping lines over freight rates amid the ongoing Red Sea crisis.

• A fresh push for the shipping industry, however, comes after the Union Cabinet in 2019 approved the disinvestment of Shipping Corporation of India (SCI), India’s largest shipping company operating around one-third of the Indian tonnage.

National Manufacturing Mission for small, medium, large industries soon

• The Central government will set up a National Manufacturing Mission for small, medium and large industries with a focus on clean tech manufacturing, Union Finance Minister Nirmala Sitharaman said in her Budget speech on Saturday.

• The mission’s mandate will include five focus areas – ease and cost of doing business, upskilling for in-demand jobs, MSMEs, availability of technology, and quality products.

• Under the mission, clean tech manufacturing will be supported to improve domestic value addition in solar PV cells, electric vehicle (EV) and grid-scale batteries, electrolyzers, wind turbines, and high voltage transmission equipment.

Presumptive taxation for non-residents may give a boost to chip manufacturing

• In her budget speech Saturday, Finance Minister Nirmala Sitharaman announced a new presumptive taxation regime for non-residents providing services in India’s electronics manufacturing sector that experts said could significantly slash the tax burden on their income in India.

• The move could give a fillip to foreign technicians and entities working in the electronics sector in India, and help the country’s aspirations of becoming a semiconductor manufacturing base. As companies move to set up manufacturing operations in the country, including in sectors like chips, it would require foreign companies and their technicians to stay in India for a prolonged period in order to install and run capital goods, like machinery.

Key Points to Ponder:

• Read about the MSME Sector. 

• What are the challenges faced by the MSME sector?

FROM PAGE-20: UNION BUDGET 2025- EMPLOYMENT 

Definition of MSMEs widened, credit guarantee limit increased

• Giving new definitions for micro, small and medium enterprises (MSMEs) and announcing a slew of initiatives to help such businesses, Finance Minister Nirmala Sitharaman on Saturday termed them the second power engine for development.

• In her Budget speech, she said the investment and turnover limits for classification of all MSMEs will be increased 2.5 and two times respectively.

• This means the investment limit to be classified as a micro enterprise goes up to Rs 2.5 crore. For small enterprises, this limit goes up to Rs 25 crore, and for medium ones, it becomes Rs 125 crore. Similarly, the turnover limit for these classifications goes up to Rs 10 crore for micro enterprises, Rs 100 crore for small ones, and Rs 500 crore for medium enterprises.

• Sitharaman also announced the launch of a new scheme that will provide term loans up to Rs 2 crore during the next five years for first-time entrepreneurs who are women or belong to the Scheduled Castes and Scheduled Tribes.

• She also announced the enhancement of the credit guarantee cover from Rs 5 crore to Rs 10 crore for micro and small enterprises, and from Rs 10 crore to Rs 20 crore for startups. As part of the initiatives for MSMEs, she announced that a National Institute of Food Technology, Entrepreneurship and Management will be established in Bihar.

To fuel AI ambitions, govt sanctions a fifth of IndiaAI Mission’s funds

• Finance Minister Nirmala Sitharaman has sanctioned Rs 2,000 crore for the IndiaAI Mission for 2025-26, which is nearly a fifth of the scheme’s total outlay of Rs 10,370 crore.

• The fresh allotment for the next fiscal year comes as the government has shortlisted 10 companies that will provide nearly 19,000 graphics processing units (GPUs) for setting up artificial intelligence (AI) data centres in the country, and fund building foundational models.

• The government will set up a new centre of excellence for AI for education with an outlay of Rs 500 crore, Sitharaman said during speech.

Govt targets creation of 21 lakh direct and indirect jobs in FY26 

• With the allocation earmarked to various government schemes under the 2025-26 Budget, the Union government is targeting the creation of more than 21 lakh direct and indirect employment opportunities in sectors such as fisheries, tourism, food processing, textiles, and electronics manufacturing, among others.

• Under the PM Vishwakarma Yojana, a scheme that provides support to artisans and craftspeople in India, the government is targeting that more than 61 lakh artisans including women, and those from the SC, ST and OBC communities, will attain self-employment.

• As per the Outcome Budget document, the maximum jobs target is for the Pradhan Mantri Matsya Sampada Yojana, which is aiming to employ 11 lakh people. 

• Under the Modified Special Incentive Package Scheme (M-SIPS), the government is targeting to create 30,000 jobs. The scheme was first announced in 2012 to offset disability and attract investments in Electronics System Design and Manufacturing (ESDM) Industries.

FROM PAGE-21: UNION BUDGET 2025- TAXATION

Import duty tinkering to see states receiving less

• The Union government on Saturday lowered the basic customs duty (BCD) on 37 tariff lines with no change in effective  rates. This could effectively mean, states’ share in the taxes collected on a number of imported  items such as certain motor cars and motorcycles could come down as cesses like  the Agriculture Infrastructure and Development Cess (AIDC) have increased.

• The AIDC is collected at the time of import or sale of goods by the central government to fund agricultural infrastructure in India. But basic customs duty is shared between the states and the centre.

• In Budget 2025, for many products, while the overall duty remains the same, the government has reduced BCD and transferred the difference to AIDC. 

Long-term capital gains tax on all FII income hiked to 12.5%

• After raising the long-term capital gains (LTCG) tax on listed equity shares, equity-oriented mutual funds and units of business trusts sold by foreign institutional investors (FIIs) to 12.5 per cent in the previous year’s Budget, the Finance Bill 2025 has proposed to hike the LTCG tax on income from certain remaining securities from 10 per cent to 12.5 per cent from April 1, 2026.

• Section 112A was inserted by the Finance Act 2018 to tax long-term capital gains from the sale of listed equity shares, units of equity-oriented mutual funds and units of business trust.

Recycling boost: Duty on waste EV batteries removed

• In a major fillip to domestic recyclers of critical minerals, the Union government has removed customs duty on the import of waste lithium-ion batteries and the scraps of 12 critical minerals including copper, tin, and molybdenum. In her Budget speech, Finance Minister Nirmala Sitharaman announced that a policy for recovery of critical minerals from mining waste will also be brought out.

• The decision to remove customs duty on critical minerals scrap, a long-standing demand of the recycling industry, comes after the Ministry of Mines announced a Rs 1,500 crore incentive scheme for recycling under the National Critical Minerals Mission (NCMM) on Thursday.

• Now, with customs duty waived off on the scraps of critical minerals recyclers will be incentivised to import scrap and increase the domestic availability of such minerals.

Key Points to Ponder:

• Read about the Agriculture Infrastructure and Development Cess (AIDC) 

• What is Long-term capital gains tax ?

• Read about the National Critical Minerals Mission (NCMM).

FROM PAGE-22: UNION BUDGET 2025- RURAL/AGRICULTURE

PM Dhan-Dhaanya, missions for pulses, seeds: What agri got

• Finance Minister Nirmala Sitharaman Saturday said that agriculture was one of the four engines driving India’s development journey and announced several new initiatives for the sector, including the Prime Minister Dhan-Dhaanya Krishi Yojana, in the Union Budget 2025-26. 

• The scheme aims to increase agricultural productivity, adopt crop diversification and sustainable agriculture practices, improve post-harvest storage after harvest at the panchayat and block levels, improve irrigation facilities, and provide short-term and long-term credit, she explained, adding that it was likely to help 1.7 crore farmers. Sitharaman also announced an initiative for building rural prosperity and resilience. 

• While no separate allocation has been made for the Prime Minister Dhan-Dhaanya Krishi Yojana, Rs 1,000 crore has been allocated for the mission for pulses, Rs 500 crore for the mission for vegetables and fruits, Rs 100 crore support for the Makhana Board, Rs 100 crore for the mission on hybrid seeds, and Rs 500 crore for the cotton technology mission.

• Sitharaman said a National Mission on High Yielding Seeds will be launched. This mission aims to enhance the research ecosystem, focus on developing and promoting seeds with high yields, pest resistance, and climate resilience, and make more than 100 seed varieties, released since July 2024, commercially available, she added.

Jal Jeevan Mission gets extension till 2028 with outlay of Rs 67k crore

• Union Finance Minister Nirmala Sitharaman announced an extension of the Jal Jeevan Mission (JJM) till 2028, with an outlay of Rs 67,000 crore in the Union Budget 2025-26. However, the scheme saw a massive cut in allocation at the revised estimate (RE) stage during the current fiscal year 2024-25.

Grameen Credit Score to serve credit needs of self help groups

• Finance Minister Nirmala Sitharaman Saturday announced Grameen Credit Score, a framework to be developed by the public sector banks for the credit needs of the members of Self Help Groups (SHGs) and people in rural areas. The announcement is significant in view of property cards being distributed under the Centre’s SVAMITVA Scheme, which are expected to spur credit demand in rural areas.

• On January 18, Prime Minister Modi had said that these cards, once issued in all the villages of the country, will unlock economic activity worth over `100 lakh crore.

Job guarantee scheme outlay flat at Rs 86k crore, rural housing gets Rs 54k crore, little over FY25

• The Mahatma Gandhi National Rural Employment Guarantee Scheme (MG-NREGS) did not see any change in its budget, with the government keeping the rural job scheme outlay at Rs 86,000 crore in the Union Budget 2025-26.

• The Pradhan Mantri Awaas Yojana-Gramin (PMAY-G), which saw a drastic cut at the revised estimates (RE) stage, has also been allocated almost the same amount as the last year. This year, the allocation of MG-NREGS is lower as compared to the actual expenditure of Rs 89,153 crore during financial year 2023-24.

New urea plant to come up in Assam

• Finance Minister Nirmala Sitharaman on Saturday announced the setting up of a new urea plant with an annual production capacity of 12.7 lakh tonnes (lt) at Namrup in Assam. If this proposal in the latest Union Budget fructifies into investment, it would be the eighth new urea plant to come up in India since 2019.

• Six of these — with similar 12.7 lt capacity at Gapepan (Rajasthan), Ramagundam (Telangana), Panagarh (West Bengal), Gorakhpur (Uttar Pradesh), Barauni (Bihar) and Sindri (Jharkhand) — were commissioned between January 2019 and November 2022. The seventh 12.7 lt unit, at Talcher (Odisha), is about 65% completed. The total investment in the seven plants works out to over Rs 61,500 crore.

Do you Know: 

• Capital expenditure goes towards building assets that have long-term benefits and can potentially generate revenue. Revenue expenditure, on the other hand, refers to expenses incurred in maintaining daily operations and includes salaries, wages, rent, office expenses, and so on.

• PM Ayushman Bharat Health Infrastructure Mission (PM-ABHIM) was launched during the Covid-19 pandemic to strengthen health infrastructure at all levels, construction of health and wellness centres, diagnostic laboratories, and critical care blocks.

• Launched in 2018, the objective of the Eklavya Model Residential Schools is to set up residential schools for students from the Scheduled Tribes community with an aim to to provide them quality education.

Other Important Articles Covering the same topic:

📍Union Budget 2025 : Key highlights for UPSC and other competitive exams

📍Express View on Budget 2025: Betting big on the middle class

📍Union Budget 2025: Quick look at 5 basic terms every UPSC aspirant must know

Previous year UPSC Prelims Question Covering similar theme:

(1) Which of the following are the methods of Parliamentary control over public finance in India? (UPSC CSE 2012)

1. Placing Annual Financial Statement before the Parliament

2. Withdrawal of moneys from Consolidated Fund of India only after passing the Appropriation Bill

3. Provisions of supplementary grants and vote-on account

4. A periodic or at least a mid-year review of programme of the Government against macroeconomic forecasts and expenditure by a Parliamentary Budget Office

5. Introducing Finance Bill in the Parliament

Select the correct answer using the codes given below:

(a) 1, 2, 3 and 5 only

(b) 1, 2 and 4 only 

(c) 3, 4 and 5 only 

(d) 1, 2, 3, 4 and 5

(2) With reference to the Union Government, consider the following statements: (UPSC CSE 2015)

1. The Department of Revenue is responsible for the preparation of the Union Budget that is presented to the Parliament.

2. No amount can be withdrawn from the Consolidated Fund of India without the authorization from the Parliament of India.

3. All the disbursements made from Public Account also need the authorization from the Parliament of India.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only 

(c) 2 only

(d) 1, 2 and 3

(3) Consider the following statements:

1. Revenue expenditure does not result in the creation of assets for the Government of India.

2. Capital expenditure reduces the government’s liability or increases the government’s assets.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Previous year UPSC Mains Question Covering similar theme:

Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. (UPSC CSE 2021)

 

THE EDITORIAL PAGE

The delicate balance

Syllabus:

Preliminary Examination: Current events of national importance, economic development

Mains Examination: General Studies-II, III: Indian economy and Government budgeting.

What’s the ongoing story: Sajjid Z. Chinoy writes– “The first full budget of the government’s third term faced an unenviable task because it confronted two objectives ostensibly at odds with each other.”

Key Points to Ponder:

• What is the fiscal deficit? 

• What is tax-buoyancy?

• What is the impact of fiscal conservatism on economic growth and government spending? 

• Why is public capital expenditure essential for economic growth?

• How can structural reforms aid in balancing macroeconomic stability with growth?

Key Takeaways:

• “On the one hand, the global backdrop is getting more precarious. Markets are already under the grip of US exceptionalism, which has pushed up the dollar and kept US interest rates sticky. This has tightened global financial conditions and put relentless pressure on emerging market currencies.”

• “On the other hand, the domestic economy needs support. Growth has slowed in recent quarters and the ongoing earnings season suggests the recovery could take some time. A global trade war, and the uncertainty it unleashes, will only depress global growth prospects putting the onus squarely on domestic growth drivers.”

• “In the event, authorities choose conservatism. This year’s fiscal deficit is pegged at 4.8 per cent of GDP – lower than had been envisaged in July.”

• “The good news is this is a strong affirmation of the government’s commitment to macroeconomic stability. Fiscal credibility, alongside the war-chest of FX reserves, a benign current account deficit and inflation heading back to 4 per cent, should provide a cushion against external shocks.”

• “But conservatism is not costless. For starters, by over-delivering on this year’s fiscal deficit, the room for spending in the coming months is more constrained.”

• “Another area to watch out for will be tax-buoyancy. After clocking a tax buoyancy of 1.4 in 2023-24, buoyancy has slowed to 1.1 on slowing growth. Next year, the implicit buoyancy (after adjusting for the foregone revenue of the tax cut) that is budgeted is higher at 1.3. If, for any reason this is not achieved, it will be important that policymakers let the automatic stabilisers play out.”

• “Similarly, it will be important to ensure that public capex targets are hit next year…Public investment has been a key growth driver and it’s important we don’t take our foot of the pedal prematurely. This will inevitably involve increasing state capacity to execute higher levels of public investment.”

• “All this reveals the delicate balance between preserving macro stability and supporting growth. The only way to dramatically alter this trade-off is a sustained reforms push.”

Other Important Articles Covering the same topic:

📍Union Budget 2025 : Key highlights for UPSC and other competitive exams

📍Express View on Budget 2025: Betting big on the middle class

Previous year UPSC Prelims Question Covering similar theme:

(4) Along with the Budget, the Finance Minister also places other documents before the Parliament which include ‘The Macro Economic Framework Statement’. The aforesaid document is presented because this is mandated by (UPSC CSE 2020)

(a) Long standing parliamentary convention

(b) Article 112 and Article 110(1) of the Constitution of India

(c) Article 113 of the Constitution of India

(d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003

Previous year UPSC Mains Question Covering similar theme:

The public expenditure management is a challenge to the Government of India in the context of budget-making during the post-liberalization period. (UPSC CSE 2019)

 

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