Union Budget 2025 focuses on urban ecosystems, boosting economic activities

For the last five years, the frenzy around the Budget speeches has been about capital investment, specifically allocating more money for various infrastructure developments to cater to the demand for urbanisation and middle-class outlook or meeting the middle-class voters’ aspirations.

This time, Finance Minister Nirmala Sitharaman changed gears to a different aspect of the middle class demand by slashing the income tax rebates  to unanticipated levels.

The growth in the rural economy had overtaken the urban front in the last few quarters, causing jitters to the broader expectations. While the limitations of the absorptive capacity of the State on the capex side are very well understood by the government, hence reflected in the Budget with a meagre but still substantial increase to the base of revised estimates, the middle class would be pleased to see the income tax rebates.

One needs to wait and watch how the urban middle class will increase consumption to increase the demand in the economy. There was an expectation that the capex in infrastructure development would be rationalised towards the productivity increase in both rural and urban sides by giving them easy-to-access and reliable transport options in existing infrastructure. It looks like the government missed that important component again.

The Budget maintains the metro rail expansion as in the past. Still, it is disappointing with the mere 1,000 bus fleet augmentation, including the approved and sanctioned, in the outcome estimated for the year 2025-2026 under the PM e-bus sewa scheme. There should have been thousands of buses and other small vehicles for the reliable and efficient movement of the public.

Smart cities are not given any more funds for budget outlays, and it seems the government is planning to introduce new schemes. It would have been better if the speech indicated the government’s plans, though urban challenge funds have been announced. In the context of the proposed funds, the government must go for capacity building and empowering the urban local government — which is, of course, outside the budget preview — to realise the potential benefits. Yet, an allocation would have given a positive message. At the same time, the government should have indicated the transfer or institutionalisation of the knowledge of the existing smart city teams in various cities. One hopes the urban challenge fund becomes holistic, accommodative to the local needs and aspirations, and inclusive, rather than forcing to follow a standard guideline imposed at a national level.

The UDAN scheme further needs scrutiny, though it can contribute to development aspirations and urbanisation. The previous years’ assessments do not provide much to celebrate on this front. The civil sector needs further deregulation and opening to promote low-cost carriers and budget airports to boost economic activities and save investor capital. 

The announcement of social security for gig workers is a welcome sign as it can stimulate economic activities in urban areas and generate more employment. Yet, the regulatory aspects of the labour market at the state level need to be revamped to reap the full potential of this market.

The tourism sector has got the government’s attention. Still, the fall in the arrival of tourists needs to be examined to understand the real-time reasons for coming up with redress measures at the Union and state levels. The funds for the smaller nuclear module research are a welcome step as India is rapidly urbanising and facing power shortages.

The maritime sector has received a big push in the past decade. The announcement to earmark Rs 25,000 crore for maritime development is a welcome step. The ports and related infrastructure will boost urban development, but it depends on the states and Centre-state co-ordination. The continued thrust on PMAY, water sanitation, etc, is laudable. At the same time, announcements such as transit-oriented development schemes for 13 cities in the July Budget did not find any mention or recall this time, leading one to bother about the effective utilisation of the funds and the schemes this time around.

The repeated mention of “work with the states” can be taken as a positive step towards fulfilling many of the proposed measures.

D Dhanuraj is chairman, Centre for Public Policy Research, Kochi.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH)

Track Budget reactions LIVE

Union Budget 2025 | Nirmala Sitharaman, as Finance Minister, presented her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', the Modi govt gave income tax relief for those making up to Rs 12 lakh per year in salaried income. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.