Union Budget 2025-26 Explained: Fiscal Strategy, Sectoral Growth & Market Analysis

• 1316
• 

Today's headlines read, "Union Budget 2025-26" is here and it's packed with reforms aimed at driving India’s growth towards becoming a “Viksit Bharat” (developed India). With the new tax regime under which no tax is payable up to an income of Rs.12 lakhs, the new budget 2025 will protect your Mutual Funds in India from global headwinds.

Are you eager to see the next 5 years of India as "Sabka Vikas", built on the motto, "a country is not just its soil but its people".

This analysis will give you an expert's take on the new budget, highlighting budget impact sectors and providing you with the best-performing mutual funds under each sector.

Let's start with the most asked question. Read on to find out what it is.  

What is Budget 2025-26?

The Budget 2025-26 is the government’s financial plan for the year. It includes reforms in agriculture, healthcare, technology and infrastructure, with a special funding package of Rs.1.5 lakh crore. The Union Budget shows how the government plans to earn and spend money to support the country’s economic growth India 2025.

Don’t miss: Union Budget 2025-26 Highlights: What’s New for Taxpayers?

What are the Key Objectives of Budget 2025?

Here are the three major objectives that the new budget 2025 brings to you:

1. Fiscal Management

Fiscal strategy 2025-26 is how the government manages its money. The budget allocation 2025 targets maximum revenue collection, at least overhead costs, meanwhile also being aware of not burdening the citizens and taxpayers. The revenue comes from sources such as taxes, fines, fees, borrowing from institutions, etc. The goal is to use this money wisely without overloading taxpayers.

2. Growth Planning

The budget helps plan for the country’s growth by supporting businesses, infrastructure (like roads and airports) and creating jobs. The budget makes provisions for planning growth in the economy; some examples are the PLI schemes, the SEZ, GIFT city, Subsidies and incentives provided to various businesses, freebies to people experiencing poverty, planning infra projects such as ports, airports, highways, industrial estates, etc. The government spends money to encourage economic development and improve the overall economy.

3. Right Allocation of Resources

In a world where resources are limited, it is imperative to ensure they are allocated properly and promote sustainability so you do not run out of resources in the long run. The government takes into account the holistic scenario of the resources and the complete economy the demand and supply and the needs of the citizens and makes schemes accordingly. There has been a focus on green energy initiatives India, pollution reduction and waste management in the budgets, which highlights the intent on the allocation of resources.

Budget 2025 Expectations: Will It Bring Back the Confidence in Market?

The market has high expectations for the budget, hoping for measures that will support long-term growth while addressing current challenges. Some of the key highlights investors were hoping for include:

• Capex Focus India: The government is expected to keep investing in capital expenditure (Capex), especially in infrastructure, defence and energy sectors.
• Tax Reforms: There is a strong demand for a revision in income budget tax slabs in 2025, Fiscal responsibility India, especially for the middle class, to boost disposable income and consumption.
• Infrastructure Investments: The railway budget might see a hike, especially for upgrading stations and modernizing trains.
• Subsidies and Incentives: More focus on the electronics manufacturing sector through PLI schemes could make India a major player in global manufacturing.
• Simplified Tax Law: A new, simpler direct tax law could make it easier for individuals and businesses to pay taxes and stay compliant.

Pro Tip: Do a quick check of your tax returns using Tax Calculator in seconds.

How the Budget 2025 Will Affect India’s GDP Growth?

The following points cover the impacts of the union budget 2025-26 globally and economically:

1. Globally

• IMF's global economic growth projection is 3.30% for 2025-56.
• This projected growth is below the average for 2000 to 2019.
• Global inflation is expected to decline.
• Elevated levels of global policy uncertainty leading to mid term growth risk.

2. Indian Economy Growth 2025

• Real GDP Growth projection 2025-26 is 6.40%, nominal GDP growth rate 9.70%.
• Pvt final consumption expenditure to grow by 7.30%.
• Gross fixed cap formation growth estimate at 6.40%.
• From the supply angle, gross value-added growth is 6.40%.
• Better kharif outputs and good rabi crop prospects, thus agriculture reforms India to grow 6.20%.
• The service sector growth projection is 7.20%.
• Inflation moderated from 5.40% to 4.90% due to nonfood and nonfuel inflation trends.
• This means food and fuel inflation is still an issue.
• The GDP growth rate has declined.

Outcomes of Union Budget 2025-26

Here are the outcomes that occurred with the launch of this year’s union budget 2025-26:

Looking at the above table, if you compare the major expenditures of both years, we find the highest increase in home affairs; the majority of expenditure in home affairs goes towards funding police, border infra, defence and internal security. The defence budget has also increased by a good margin.

IT & Telecom budget allocation has seen a major reduction, which could affect the IT Industry.

Energy & commerce and industry have also witnessed a government push.

The addition of scientific departments and urban development in the major expenditure section tells us the government's rising focus on research and development and the recent ISRO funding 2025 missions are proof.

The scientific department budget could balance the reduction in the IT & Telecom budget and the government’s initiative towards science is a good indication.

Here are a revised tax slabs and tax rates under the new tax regime 2025:

On popular demand, the government has made changes in the income tax slab, prioritizing a reduction in taxes so the population could allocate that money towards consumption.

How the New Income Tax Slabs Work:

1. Income up to 4 lakh:

   • No tax.

2. Income between 4 lakh to Rs.8 lakh:

   • 5% tax.

3. Income between Rs.8 lakh to Rs.12 lakh:

   • 10% tax.

4. Income above Rs.12 lakh:

   • 15% tax on Rs.12 lakh to Rs.16 lakh.
   • 20% tax on Rs.16 lakh to Rs.20 lakh.
   • 25% tax on Rs.20 lakh to Rs.24 lakh.
   • 30% tax on income above Rs.24 lakh.

Example for Rs.12 Lakh Income:

• No tax on the first Rs.4 lakh.
• 5% tax on Rs.4 lakh to Rs.8 lakh = Rs.20,000.
• 10% tax on Rs.8 lakh to Rs.12 lakh = Rs.40,000.
• Total tax = Rs.60,000, but with deductions and rebates, this can be reduced to zero.

Savings for Higher Incomes:

• 12 lakh income:You save Rs.80,000 in tax, meaning no tax is paid.
• 18 lakh income:You save Rs.70,000.
• 25 lakh income:You save Rs.1.1 lakh.

Other Points:

• Old tax regime:Still stays the same, with the basic exemption at Rs.5 lakh.
• New Direct Tax Bill:The government schemes 2025 plans to introduce a new tax law to make things simpler and reduce legal issues.
• Goal:The idea is to put more money in the hands of taxpayers to encourage spending and investment.

Impact on Key Sectors: What to Expect from Union Budget 2025-26?

Several sectors are expected to see growth  because of the 2025 budget:

• Consumption Sectors Growth

  With lower taxes and more money in people’s pockets, industries like retail, FMCG (fast-moving consumer goods), and automobiles may see higher demand.

Here are the 5 top Consumption Funds in India to begin your SIP with:

Top Consumption Funds

• Infrastructure and Power

  A large portion of the budget is being used for infrastructure projects like railways, highways, and energy. This should boost the infrastructure development budget and power sector reforms 2025, especially clean energy.

Here is a list of 5 best Infrastructure Mutual Funds for SIP investment India (Systematic Investment Plan):

Top Infra & Power Funds

• Chemicals and Pharma

  The chemical sector will benefit from a push to increase manufacturing, while the pharma sector will likely see growth from government policies that help drug exports and pricing.

The following is a list of 5 best Healthcare Mutual Funds in India:

Top Pharma & Healthcare Funds

• IT and Financials

  Although the IT Sector faces some budget cuts, the financial sector is expected to grow due to tax reforms India and a more stable financial environment.

Here are the 5 best Technology Mutual Funds India to invest via SIP:

Top IT Funds

• Agriculture & Textiles

  The government continues to give its support to the agriculture sector (supporting andata i.e. farmers) and with added incentives for the textile industry, these sectors are likely to do well.
  
  Here is a list of the best mutual funds in these two categories:

Top Agriculture & Textiles Funds

Moving on, get ready to uncover the capital markets outlook for 2025.

Union Budget 2025-26 Explained: Capital Markets Outlook 2025

India’s capital markets are showing growth. From April to December 2024, Rs.11.1 lakh crore was raised through primary markets (debt and equity), a 5% increase. The number of Demat accounts has grown by 33%, indicating that more people are getting into the stock market. Mutual funds are also seeing more investors, with Rs.5.6 crore unique investors by the end of December 2024.

To Conclude the Union Budget 2025-26

In short, the union budget 2025-26 explained to you that it had put a great emphasis on fulfilling its fiscal responsibility and efficient resource allocation and boosting key sectors 2025 budget like infrastructure, agriculture and consumption. With tax reforms and economic policies aimed at driving demand and investment, the outlook for investors is positive.

For those looking to invest, this is a great time to consider starting an SIP (Systematic Investment Plan) to take advantage of the market’s potential. While some sectors may face short-term challenges, the overall sentiment is optimistic.