Takeaways from India's budget that slashes income tax on the salaried middle class to spur growth

Indian Prime Minister Narendra Modi's government recently presented its annual budget, which aims to appeal to the salaried middle class with tax cuts while stimulating economic growth through enhancements in agriculture and manufacturing. During her budget speech, Finance Minister Nirmala Sitharaman emphasized the government's commitment to increasing private investment and expanding funding for agriculture, designed to enhance the spending capacity of the middle class.

Sitharaman outlined the government's target for a fiscal deficit of 4.4% of GDP for the 2025-26 financial year, underlining the administration's goal of implementing inclusive economic policies. Despite being the world's fifth-largest economy, India is grappling with sluggish manufacturing, food inflation, stagnant job growth, and weak urban consumption, contributing to a forecasted economic growth rate of 6.3% to 6.8% for the upcoming fiscal year.

Key elements of the budget include significant reforms in finance, power, urban development, and taxation aimed at benefiting the middle class. The starting point for income tax was raised from $8,074 to $14,800, and Sitharaman stated that a new income tax bill will be introduced, expected to significantly reduce middle-class taxes, thereby boosting household consumption, savings, and investment.

To address the challenge of high youth unemployment, which stood at 7.5% in January, the government plans to launch programs aimed at enhancing employment opportunities. Initiatives include a nationwide agriculture program to promote high-yield crops targeting 17 million farmers, along with easing access to healthcare for gig workers and formally registering them in a national registry to include them in welfare initiatives.

Additionally, the budget highlighted plans to support startups and foster innovation through partnerships with the private sector. Infrastructure development aimed at increasing tourism-related employment, enhancing air connectivity to 120 new destinations over the next decade, and a Nuclear Energy Mission aiming for 100 GW of nuclear power by 2047 were also announced, marking a comprehensive approach to bolster the economy and promote clean energy.