Every Budget reflects the challenges of its time. During the Covid-19 crisis, the Budget focused on managing the pandemic's impact, while the 2011 Budget dealt with the Eurozone debt crisis. The 2025 Budget also comes with its own set of challenges, both domestic and global.
Finance Minister Nirmala Sitharaman's February 1 Budget is expected to address key economic challenges, particularly inflation. The Reserve Bank of India (RBI) works to keep inflation within its 2-6 per cent tolerance range.
India's economic growth for FY 26 is expected to be 6.7 per cent, according to government data released last week. Inflation has eased, dropping to 5.22 per cent in December and 5.48 per cent in November after peaking at 6.21 per cent in October.
It was primarily driven by moderating food prices. Despite this easing, the inflation rate remains above the RBI medium-term target of 4 per cent. The current figures suggest that inflation is still on the higher side of this range compared to RBI's tolerance band of 4 per cent.
Economists have noted that while the recent decline in inflation is a positive development, factors such as currency depreciation and global economic conditions could pose challenges to further reductions, Reuters reported.
Last month, former RBI Governor Shaktikanta Das urged policymakers to aim for a 4 per cent inflation target. This goal must be pursued gradually and sustainably to ensure long-term economic stability, he said.
Partha Chatterjee, Dean of Academics and Professor of Economics at Shiv Nadar University, Delhi NCR, said that for the Budget 2025, the finance minister's focus should be on boosting growth and restoring confidence in the Indian economy. A common strategy to achieve this is a countercyclical fiscal policy - cutting taxes and increasing government spending, he said, adding that it should be approached cautiously to avoid fiscal risks.
India's direct tax-to-GDP ratio is at 6.64 per cent, a 25-year high but far below global averages. Instead of cutting taxes, the focus should be on broadening the tax base and simplifying GST to boost consumer spending and economic activity. Tax reforms, not cuts, are the way forward, Mr Chatterjee said.
