Budget 2025: Big Moves, Bold Changes & Sector Shakes!

Finance Minister Nirmala Sitharaman will present the Union Budget on February 1, 2025, a critical milestone for the economy of India. Facing challenges like slowing growth, rising inflation, and global uncertainties, the budget is expected to outline immediate solutions while making the way for long-term development.

Stakeholders are looking for bold reforms, tax reliefs, and policies to boost demand, attract investments, and generate jobs. With consumer spending under pressure and private investments still recovering, this budget is seen as a chance to reignite economic momentum.

Sectors such as insurance, tourism, electronic vehicles (EVs), and infrastructure are hoping for focused initiatives to ensure sustainable growth. The government’s approach will be under close scrutiny for measures to enhance financial security, drive innovation, and promote self-reliance.

Listed here is an overview of sector-wise union budget expectations and their rationale.

1) Insurance sector

The life insurance sector in Budget 2025 anticipates tax incentives such as increased deductions under Section 80C or exclusive limits for term insurance and pension policies. These measures are essential to boost insurance penetration, where many families remain financially vulnerable to premature deaths or inadequate retirement savings.

Furthermore, implementing mandatory basic term insurance for formal employment would secure dependents in cases of untimely demise. Strengthening the insurance sector aligns with the broader vision of Insurance for All by 2047, ensuring financial security and promoting a culture of long-term savings.

2) Consumer spending and MSMEs

The retail and dining-out sectors have struggled due to softened consumer demand. Allowing input tax credit (ITC) for quick service restaurants (QSR) would enable businesses to reclaim taxes on inputs, freeing up capital for reinvestment in growth and job creation.

MSMEs, often the backbone of the economy, require measures to simplify compliance and reduce operational costs. Skill development initiatives and fiscal incentives for startups would foster innovation and encourage entrepreneurship, contributing significantly to job creation and GDP growth.

3) Tourism and hospitality

Granting industry status to tourism could unlock long-term investments and support infrastructure development in this high-potential sector. Rationalising GST rates and allowing GST input credit for hotel construction would reduce operational costs, making domestic tourism more affordable.

Addressing GST disparities for online travel agents (OTAs) would streamline their operations and level the playing field with global platforms. Further, allocating funds for an “Incredible India” campaign could boost international tourism, benefiting local economies and enhancing global appeal.

4) Electric vehicle (EV) industry

Simplifying the GST structure by applying a uniform 5% rate across EVs, batteries, and components would make electric vehicles more affordable for consumers. This measure is vital to drive mass adoption and meet India’s ambitious sustainability goals.

Resolving GST inconsistencies for spare parts and maintenance would further reduce ownership costs, supporting the government’s push toward green mobility. Such tax reforms would also encourage domestic manufacturing, creating jobs and reducing import dependency.

5) Railways and passenger safety

Indian Railways, the lifeline of the nation, requires urgent attention to safety and modernisation. The tragic Odisha train accident in 2023 and subsequent derailments in 2024 highlighted systemic flaws that need rectification.

Higher budget allocations for advanced signaling systems, better track maintenance, and robust safety protocols are critical to preventing accidents. Modernising rail infrastructure would also improve passenger experience, making rail travel safer and more efficient while boosting economic activity across regions.

6) Job creation

To address unemployment and bridge the talent gap, the government should invest in skilling and reskilling programs for high-growth sectors like artificial intelligence (AI), green technology, healthcare, and defense.

These industries have significant potential to create well-paying jobs but often face a shortage of skilled professionals. Simplifying employment incentive programs for businesses could encourage hiring on a larger scale. Such initiatives would not only provide immediate employment opportunities but also prepare a proper workforce for the future.

7) Retail and fashion

The retail sector seeks simplified compliance processes and incentives for sustainable practices. Tax relief measures to increase disposable income would drive demand for consumer goods, stimulating growth across allied industries.

Policies promoting digital transformation and support for MSMEs in this sector would enable them to compete globally and expand their reach. These steps are essential to empower the sector, which plays a critical role in employment and GDP contribution.

8) Infrastructure and innovation

Continued investment in infrastructure is vital to sustain long-term economic growth. Production-linked incentives (PLIs) for sectors like electronics, defense, and renewable energy would attract private investment and boost manufacturing.

Promoting sustainable practices, such as green energy and resource efficiency, is necessary for environmental and economic resilience. Encouraging innovation through research and development (R&D) incentives would enhance India’s global competitiveness and lay the foundation for a self-reliant economy.

Some key focus areas that are expected to witness some change

• Income tax reforms

Revising income tax slabs is a crucial step to increase disposable income for individuals, especially the middle class. With urban consumption showing signs of weakness, higher disposable income can stimulate spending on essential goods and services, thus reviving private consumption.

Enhanced spending would also have a cascading effect on private investment, which is critical for economic growth. Additionally, income tax relief can alleviate the financial burden on families managing home loans or other EMIs, further encouraging asset purchases.

• Tax rationalisation

Capital gains tax rationalisation remains a key focus area. Major demands include lowering long-term capital gains (LTCG) tax rates, revising LTCG thresholds, and enhancing indexation benefits. The government has historically aimed to strike a balance between encouraging investments and meeting revenue targets.

The finance minister is likely to evaluate the revenue implications of any changes against broader economic priorities, such as boosting consumption, creating jobs, and managing fiscal deficits. Budget announcements on tax rationalisation could also be tied to larger reforms aimed at supporting economic growth.

While it is uncertain if all demands for rationalisation will be met, the market anticipates some investor-friendly adjustments that could benefit long-term investment strategies.

Ending note

The Union Budget for 2025 is expected to address pressing economic challenges while setting the stage for long-term growth. Key sectors anticipate reforms to boost demand, create jobs, and enhance financial security.

Budget expectations include measures like tax relief, infrastructure investment, and support for industries like EVs, tourism, and MSMEs to drive sustainable development. Income tax and capital gains tax rationalisation remain crucial to increasing disposable income and encouraging investments.

With its potential to shape economic momentum, this budget could be pivotal in balancing short-term priorities and long-term aspirations, fostering innovation, self-reliance, and inclusive progress.