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Home Key points from India’s budget reducing income tax for middle-class workers to boost economic growth
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Key points from India’s budget reducing income tax for middle-class workers to boost economic growth

    Takeaways from India's budget that slashes income tax on the salaried middle class to spur growth
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    Published on 01 February 2025
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    BBC Gossip

    Indian Prime Minister Narendra Modi’s administration unveiled its yearly budget to Parliament, with a strong emphasis on attracting the working middle class through tax reductions and driving economic expansion by bolstering farming and manufacturing sectors.

    The Finance Minister, Nirmala Sitharaman, highlighted in her budget presentation the government’s commitment to promoting private investments to reinforce growth, allocating more resources to the agricultural industry, and amplifying the purchasing ability of India’s middle-income group.

    Emphasizing a collective approach, Sitharaman stated, “The budget’s focal point is to ensure all segments progress inclusively,” while also setting a target for the fiscal deficit to reach 4.4% of India’s GDP by the fiscal year 2025-26.

    The world’s fifth-largest economy is expected to post its slowest growth in four years due to a sluggish manufacturing sector, persistent food inflation, stagnant job growth and weak urban consumption. The country’s chief economic advisor, in a report released on Friday, forecast India’s economy would grow 6.3% to 6.8% in the next fiscal year.

    Here are some takeaways from the budget:

    Income tax cuts for the salaried middle class

    Sitharaman said her government will initiate reforms in sectors like finance, power, urban development and mining, with “transformative reforms in taxation.” She raised the starting point for income tax to $14,800 from $8,074 and said the government will introduce a new income tax bill next week.

    “The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment,” Sitharaman said.

    Modi, who is now in his third term as the country’s prime minister, has been under pressure to allay discontent among the country’s middle class and generate more jobs to help sustain growth. Many economists had suggested his government make tax cuts on individuals’ income and implement job creation programs to mitigate rising unemployment.

    According to the Center for Monitoring the Indian Economy, youth unemployment was at 7.5% in January, underscoring the challenge of delivering jobs in a country of more than 1.4 billion people.

    Agriculture sector and gig economy gets a boost

    To boost productivity across the agriculture sector, the Indian government will launch a nationwide program to push high-yielding crops, focusing on the cultivation of pulses and cotton production. Sitharaman said the program will target at least 17 million farmers and raise the limit for subsidized credit offered to them from $3,460 to $5,767.

    The government also plans to formally register India’s gig workers and ease their access to health care. Sitharaman said the government will issue them identity cards and maintain a national registry that will ensure their inclusion in welfare initiatives.

    India’s gig economy could employ more than 23 million people by 2030, according to estimates by government think tank NITI Aayog.

    Investments in new startup funds and energy sector

    Sitharaman announced a new fund for startups and said the government will provide more money to promote innovation in partnership with the private sector and launch programs to push manufacturing and exports. The share of manufacturing in India’s economy is close to 17%, short of its aimed goal of 25%.

    The government will infuse more money to increase tourism-led employment in several Indian states and help with building infrastructure and boosting air connectivity to 120 new destinations over 10 years, Sitharaman said.

    She also announced the Nuclear Energy Mission to drive India’s transition toward clean energy, with a goal of developing at least 100 GW of nuclear power by 2047.

    Copyright 2025 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

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