Finance Minister Nirmala Sitharaman indicated in the budget document on Saturday that boosting consumption expenditure and bolstering private sector investment with fiscal prudence is her prime focus.

She is aware of the New Deal policy and the Keynesian prescription that resuscitated the American economy from the quagmire of depression in the 1930s by boosting high consumption by the poor and the middle class, thereby triggering private sector investment.

She is also aware that India’s poor have already received several large benefits from the government. Around 810 million people receive 5 kilos of free grain with a budgetary allocation of Rs 2 lakh crores annually through the programme. The Pradhan Mantri Kisan scheme, meanwhile, benefits nearly 110 million farmers, costing the exchequer around Rs 1.22 lakh crores.

The budget has now turned its attention to the middle class.

The reduction in tax rates announced on Saturday will benefit approximately 400 million people – nearly 31% of India’s population considered middle class by the People’s Research on India’s Consumer Economy Economy non-profit group. Pensioners will benefit from the higher relief on interest income of Rs 1 lakh.

While the government will forego around Rs 1 lakh crore revenue in the process, there is a sense of elation in middle-class India, a sentiment rarely noticed earlier. With the Delhi assembly elections due this week, Modi’s budget bonanza for the middle class could not have been better timed.

However, the budget does not offer a realistic road map to resolve the critical problems of unemployment, poor pay packages and underskilling.

Modi’s promise of a Viksit Bharat or Developed India by 2047 is predicated on a growth rate of 8% per year and an investment rate of 35%. At the present growth rate of around 6% and investment of 31%, this goal will not be realised.

Key parameters

Fiscal policy expert Richard Musgrave identified three parameters to judge the quality of a budget: its thrust towards distributive justice, its allocative priorities and its impact on job creation, containing inflation and fiscal discipline.

A careful reading of Sitharaman’s budget document shows that the allocation priority that should be given to the social sector is missing – particularly in respect to merit goods such as quality school education, good healthcare, and adequate nutrition that benefit society as well as individuals.

For the 2025-’26 financial year, social services account for only 6% of the budget, at an allocation of Rs 1.98 lakh crores. The allocation for education at Rs 78572 crore, down from Rs 81,000 crore allocated in 2023-’24.

The allocation for sanitation has dropped to Rs 26,000 crore for 2025-26 from Rs 64,000 crore this year, as per the annual financial statement of the budget.

For a country where 35.5% of children suffer from stunting and around 57%, of women suffer from anemia, the allocation for the Poshan 2.0 scheme to battle malnutrition and improve health, wellness, and immunity through community engagement, outreach, behavioral change, and advocacy has barely increased – to Rs 21,960 crore from Rs 21,200 crore this year as per the Annual Financial statement.

This flies in the face of the finance minister’s claim in the speech where she said that “the cost norms for the nutritional support of 80 million children, 10 million pregnant and lactating women under the Poshan 2.0 program will be enhanced appropriately”.

The gap between rhetoric and reality is glaring in social sector allocations.

To get a sense of the distributive justice dimension of the budget, it is worth looking at the trend in revenue collection. There is a clear deceleration in the collections of corporate tax compared to personal income tax.

In 2013-’14, corporate tax collection was Rs 4.28 lakh crore, while personal income collection was Rs 2.46 lakh crore – a ratio of 64: 36.

In 2024-’25, personal income collection increased to Rs 11.99 lakh crores while the corporate tax collection was only Rs 9.8 lakh crore, turning the earlier ratio upside down to 40:60 . This is due to the corporation-friendly tax policy of the government and slew of hefty tax refunds they have been receiving.

While the personal tax collection in 2024-’25 increased by 19%, from the previous year, in the case of corporate tax, the increase was only 7%. Distributive justice is heavily skewed against the captive personal income taxpayers.

Another element that throws light on the skewed distributive justice dimension of the budget is the regressive nature of the Goods and Services Tax regime. To help the poor, GST rates on essential food items, clothing, textiles, healthcare materials, and educational materials must be substantially lowered.

On the third parameter, economic stabilisation, Sitharaman has certainly stuck to her mandate to abide by the target set in the Fiscal Responsibility and Budget Management Act of 2003, aiming to reduce the fiscal deficit to 3% of the gross domestic product.

She has brought it down to 4.8% in 2024-’25 from 9.5% in 2020-’21 to 5.6% in 2023-’24 and aims to achieve 4.4% by the next financial year. She should reach the target of 3% by 2028-’29. The total Central government debt-to-GDP ratio is also likely to come down to 56.1% in 2025’26 from 57.1% in 2024-’25.

However, the total tax collection-to-GDP ratio is quite low – around 12% compared to 20% in China, 25% in the US and 34% in OECD countries.

Skill shortfalls

On another parameter of economic stability, the level of unemployment, the Modi government’s record is not edifying.

The production-linked incentive scheme launched in 2020, which focuses on specific sectors like automobiles, electronics and pharmaceuticals, has shown some promising results, with over 6.78 lakh jobs created.

Though exports of mobile phones have soared from $7 billion in 2022-’23 to $11 billions 2023-’24, the scheme seems to be dogged by the perception that the value addition is less than the subsidies being provided and the reduction in tariff on components, as per a study by former Reserve Bank of India Chairman Raghuram Rajan.

However, the employment-linked incentive scheme launched last year has not taken off as the allocation earmarked for it last year is yet to be touched. The private sector seems to be lukewarm to this bait of the government.

Neither has the promised upgrade of 1,000 Indian Institutes of Technology started. This is a serious setback to enhancing the skills of workers, which would be critical to improving their compensation package.

The CMIE’s last report in December puts the unemployment percentage at 7.8%. The India Employment Report 2024 noted that casual workers, who constitute 25% of the workforce, get a monthly wage of about Rs 4,712. Those in the self-employed category (who form 42% of the workforce) earn around Rs 6,843 per month.

For India to inch towards a growth rate of 8%, it will have to change in allocation priority towards human capability development, greater investment in education, and a big push to skilling to complement the handsome allocation the government has been making in economic infrastructure, spending nearly 23 % of the budget.

Free food grains for the poor, sops for farmers and tax cuts for the middle class may bring Modi a political dividend but his claimed goal of Viksit Bharat will not be realised.

Satya Narayan Misra is Professor Emeritus at Kiit University in Bhubaneswar.