Budget to offer blueprint of reforms under Modi 3.0

Union Finance Minister Nirmala Sitharaman. (PTI)
Union Finance Minister Nirmala Sitharaman. (PTI)

Summary

  • Finance minister will also outlinine measures that states must take to ease business environment, including stamp duty framework and licensing reforms for businesses, besides better financial management

New Delhi: The Union Budget for 2025-26 is expected to present a blueprint of reforms planned during Narendra Modi administration’s third term to boost investments and create jobs, besides outlining measures that states must take to ease business environment.

Finance minister Nirmala Sitharaman’s roadmap will cover all aspects of production and technology, building on the ‘next generation reforms’ promised in July 2024 budget, according to two people informed about the discussions, who spoke on the condition of anonymity. However, no changes are likely in corporate tax rates, the people said.

The blueprint will require Centre to work alongside states, said one of the people quoted above. The government will nudge states to reform their stamp duty framework, licensing regime for businesses and their financial management, the person said. Those lagging will be encouraged to adopt the best practices from fast-developing peers. 

To be sure, Central government has been using some of its fiscal support measures to states to nudge them to carry out reforms. The focus on state budgets also comes after a central bank's analysis in December flagged risks from state from farm loan waivers and free power to free transport and assistance to women.

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The focus on reforms shows the central government’s intent to continue rewiring the economy to open new growth avenues for businesses, build resilience against external shocks and ensure continued macroeconomic stability. The emphasis on reforms comes when India’s economic growth rate has been projected at 6.4% this year, below the average of 8.3% in the last three fiscals.

Sitharaman will announce specific milestones to be achieved by individual ministries, including the legislative measures needed, to achieve a long period of sustainable growth, said the person.

The budget is also expected to outline specific actions to be taken by different ministries, regulators and institutions with a strong commitment to jobs, skill, innovation, infrastructure and upliftment of the last person, the first person said.

Queries emailed on Thursday to the ministry of finance and to the Prime Minister’s Office seeking comments remained unanswered at the time of publishing.

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“The coming budget is likely to build on the announcements made last year and emphasise creation of hard and soft infrastructure, while addressing some concerns on the cost of doing business," said Rishi Shah, partner, economist at Grant Thornton Bharat, a professional services firm.

The Income Tax Amendment Bill, 2025 will be tabled in Parliament in the budget session, but the government will hold a round of public consultation before it is moved for passage later in this year.

It aims to remove redundant provisions and make the direct tax law easier to navigate for businesses and professionals. “However, established principles of taxation will not be unsettled, ensuring certainty in the tax regime," said the second person quoted earlier.

Avnish Arora, executive director, direct tax at Forvis Mazars in India, a professional services firm, said, “This overhaul is expected to reduce complexities, ensuring that both individuals and businesses can navigate the tax system with greater ease."

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While reforms will improve the business environment and cost of doing business, corporate tax rate will neither see a cut, nor an increase in the budget, said the person.

India levies 25% tax on businesses with sales up to 400 crore and 30% on the rest, excluding surcharge and cess, unless a 22% concessional tax regime without tax exemptions is opted for. A special regime of 15% tax for new manufacturing units introduced in 2019 expired last March.

Shah of Grant Thornton Bharat said strategic investments in infrastructure and targeted reforms to reduce business costs could enable the government to build a strong foundation for sustainable and inclusive growth. The budget is likely to propose significant capital expenditure in areas such as transportation, energy, and digital connectivity, alongside bolstering soft infrastructure, including education, healthcare, and skill development, he said.

Addressing the cost of doing business remains a critical concern, he said. “It is anticipated that the budget will introduce measures aimed at streamlining regulatory frameworks, simplifying tax structures and providing incentives for small and medium-sized enterprises (SMEs)," Shah said. “These are essential for fostering entrepreneurship, encouraging innovation, and enhancing the overall competitiveness of the Indian economy."

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