Finance Minister Nirmala Sitharaman’s budget for 2025-26 identifies four engines of development, viz. Agriculture, MSME, Investment, and Exports. A few days later, the RBI announced a 0.25% cut in the repo rate, which is the rate at which RBI lends to the banks. The repo rate cut aims to reconcile economic growth while pegging inflation at 4.2% for FY 2025-26, in check.
The revised income tax limits and relief, along with the injection of one trillion rupees, should allow the economy to maintain its current GDP growth rate. Unlike the “animal spirits” Dr Manmohan Singh unleashed, Ms Sitharaman’s budget focuses on the “spirit of nyaya”. Nyaya literally means justice, equity, or fairness.
A key advantage of this tax reform is higher disposable income. Lower taxes will give middle-class families more financial freedom to save, invest, or cover essential expenses. Increased liquidity can lead to sustained financial stability and stimulate wealth creation via higher investments in assets such as mutual funds, fixed-income securities, or real estate. The government also expects greater household consumption, which would boost business, leading to increased production and investment. Consequently, more jobs would be generated.
The RBI lowered its repo rate to 6.25%, a decrease of 0.25 percentage points. This decision should lower borrowing costs, benefiting individuals and businesses. Lower monthly payments on home and personal loans would ease their financial burdens. Reduced loan repayments may free up consumer spending, resulting in higher demand for goods and services. This can boost economic activity and create a more dynamic marketplace. Better market sentiment and increased liquidity from the rate cut should facilitate corporate borrowing, aiding their expansion plans. Spending and investment would increase, thus accelerating economic growth.
The Role of Agriculture, MSMEs, and Education in India’s Economy
Although the finance minister has identified four engines of growth, we shall examine three critical sectors: Agriculture, MSMEs, and Education. Their distinct but connected roles shape the nation’s economic landscape. Agriculture provides industries with raw materials; MSMEs generate jobs and foster innovation; education develops a skilled workforce, boosting productivity.
Agriculture: Pulses
India’s economy heavily relies on agriculture, which employs about half its workforce. It improves food security, thus lessening poverty and hunger. Agriculture’s contribution to the GDP is about 18%. To maintain agricultural progress, there is a need to focus on improving productivity, and market access, and make the sector immune to climate change threats. Here, let us focus on two important crops – pulses and cotton.
India produces approximately 25% of the world’s pulses but accounts for 27% of global consumption. So it has to import heavily. During 2023-24, India saw a near doubling of pulse imports, increasing from 2.45 million metric tons to 4.5 million. This underscores the ongoing disparity between food production and consumption in India, and its reliance on imports to ensure food security.
There have been notable ups and downs in India’s pulse production. 2021-22 output was 23.02 million metric tons, which rose to 27.5 million metric tons by 2022-23. But, estimates for 2023-24 show a drop to 23.4 million metric tons. Erratic weather, such as unusual rainfall and temperature swings, has caused this volatility. The government plans to focus on developing and distributing high-yield, pest-resistant seeds that thrive in various climates. Masoor, Urad, and Tur pulses will receive special attention. It’s also suggested that farmers receive better prices thanks to improved post-harvest storage.
Cotton
India contributes about 23% of the world’s cotton supply. But lately, cotton production and acreage have fallen. Production fell from 35 million bales in FY21 to 32 million bales in FY24. The reasons for this decline include rising costs of production, unpredictable market returns, and heightened vulnerability to pests and diseases. This has burdened the cotton farmers and the textile industry.
Improving both the quality and quantity of cotton is essential for the livelihoods of millions of cotton farmers and the future of the textile industry. Moreover, India needs to boost cotton production sustainably to stay competitive internationally. Targeted interventions and strategic policy measures are required to address these concerns.
The government has initiated a five-year National Mission for Cotton Productivity to address these challenges. It intends to give farmers greater support for raising productivity and improving sustainability. So, the focus is on producing high-quality, extra-long staple (ELS) cotton, which would fetch premium market prices. There are provisions for technological aid, like high-yield and climate-resilient hybrid seeds, to boost farmers’ crop yields. The mission should revitalize India’s traditional textile industry and help cotton farmers improve their yields.
Makhana
Makhana is high in protein, fibre, vitamins, and essential minerals. Thus it’s a popular health food. It is primarily grown in India. Bihar accounts for over 80% of the country’s production. Makhana farming boosts the livelihoods of 5 lakh farmers in Bihar. Given its rising demand in domestic and international markets, efforts are being made to enhance its cultivation, processing, and export potential. To strengthen makhana farming and processing, the government has established a Makhana Board in Bihar, which will focus on improving production, value addition, and marketing. This board will also provide training to farmers and facilitate their organization into Farmer Producer Organizations (FPOs).
To increase productivity, there’s a push to use high-yielding strains such as Swarna Vaidehi and Sabour Makhana-1. Furthermore, upgraded processing infrastructure aims to minimize waste and improve product quality. Government efforts to boost exports include developing cargo infrastructure, trade partnerships, and branding. Moreover, improved farming techniques and pest management are being pursued through increased collaboration with agricultural universities and institutions.
It remains to be seen how far the Union Budget’s intentions translate to actual results on the ground.
MSMEs
Micro, Small, and Medium Enterprises or MSMEs employ over 110 million people. Approximately 30% of GDP and 45% of manufacturing output come from these enterprises. MSMEs contribute to industrial diversification by driving innovation, entrepreneurship, and competition, besides economic growth. But, presently, MSMEs struggle with limited funding, old technology, and market restrictions, hindering their global competitiveness. The Union Budget aims to boost this sector through expansion, improved finances, and technological upgrades. The investment and turnover limits for MSME classification have been increased by 2.5 times and 2 times, respectively.
Under the Credit Guarantee Scheme, the government raised the credit guarantee cover for micro and small enterprises from ₹5 crores to ₹10 crores. This should lock an additional ₹1.5 lakh crore in credit over the next five years. Also, now startups enjoy enhanced guarantee cover, which has doubled from ₹10 crore to ₹20 crore, with a reduced fee of 1% for loans in 27 priority sectors. The National Manufacturing Mission intends to improve the ease and cost of doing business, develop a skilled workforce, and promote the production of high-quality, technologically advanced products.
The Focus Product Scheme or FPS is expected to enable the footwear and leather industry to generate 22 lakh jobs, achieve a turnover of ₹4 lakh crore, and drive exports worth over ₹1.1 lakh crore. India aims to become a top toy producer through cluster development, skill enhancement, and ecosystem strengthening. Similarly, the food processing industry will benefit from the establishment of the National Institute of Food Technology in Bihar, which aims to boost farmer incomes while generating new employment and entrepreneurship opportunities.
Education
Human capital development hinges on strong education, empowering individuals with the skills and knowledge essential for economic advancement. Industrial and economic growth is driven by higher education and research, which fuel technological advancements and innovation. Besides, education advances social mobility, decreases inequality, and contributes to sustainable development.
Private institutions in India largely handle early childhood education, while government programs such as the ICDS or Integrated Child Development Scheme’s Anganwadi centres play a supporting role. These centres offer health, nutrition, and early learning programs for children from birth to age six. Government schools provide free, compulsory primary education as per the Right to Education Act. The National Education Policy was supposed to solve perennial issues through foundational literacy and numeracy, a reduced curriculum, and experiential learning. It also introduced multidisciplinary education in grades 6-12 in schools and eliminated long-standing divisions among arts, sciences, and vocational fields. However, inadequate infrastructure, teacher shortages, and poor learning outcomes have not allowed the benefits to fructify. Bridging gaps in access to better schools and colleges, improving infrastructure quality, and aligning education with industry demands is essential for building a skilled and job-ready workforce.
The NEP’s efforts to develop skilled workers, boost research and innovation, and improve job prospects have yet to show results. The workforce still faces significant skills challenges. The Skill India Programme has fallen short of its ambitious goals, training far fewer people than planned. Poor quality and irrelevant training programs result in low employment rates for graduates. Poor infrastructure and funding limit skill development program success, while employer reluctance to hire skilled workers arises from training costs and doubts about their preparedness. To overcome these shortcomings, collaboration between the government, businesses, and schools is crucial to create effective, relevant, and economically aligned skills training programs.
Conclusion
To conclude, targeted reforms, such as improving agricultural resilience, MSME financing, and aligning education with industry needs, will strengthen these sectors and ensure sustainable economic growth and development. The Union Budget 2025-26 marks a decisive shift from merely stimulating economic expansion to fostering equitable, sustainable, and inclusive growth. By giving priority to the economy’s three foundational pillars, which are agriculture, MSMEs, and education, the budget seeks to create a self-reliant and globally competitive India. While measures such as increased credit access, targeted sectoral interventions, and reforms in higher education signal intent, their success hinges on robust implementation and sustained policy support. Addressing structural inefficiencies, bridging skill gaps, and ensuring fair market access for farmers and small businesses will be crucial in translating these initiatives into tangible progress. Effective execution could transform India’s economy, fostering a balanced and just framework.
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