Editorials/Opinions Analysis For UPSC 03 February 2025

Content:

1. Beyond tax cuts, a closer read of the Union Budget
2. Crisis in Congo
3. A Budget that is forward-looking and growth-oriented

 Beyond tax cuts, a closer read of the Union Budget

The Union Budget 2025-26 was presented against the backdrop of economic challenges, including fiscal pressures, sluggish manufacturing, and external vulnerabilities. While it outlines ambitious reforms, its execution and long-term sustainability require careful scrutiny.

Relevance :GS 3 (Economy)

Practice Question : The Union Budget plays a critical role in addressing macroeconomic challenges. In light of the 2025-26 Budget, critically analyze its approach towards fiscal consolidation, manufacturing growth, and external sector resilience. (250 words)

Fiscal Consolidation and Revenue Targets

• Target: Fiscal deficit of 4.4% of GDP by FY26.

• Challenges:
  • Over-ambitious revenue projections—11.2% growth in total tax revenues and 14.4% increase in income tax revenues despite tax cuts.
  • ₹11.54 lakh crore in net market borrowings may crowd out private investment.
  • Asset monetisation plan (2025-30) uncertain due to past underperformance.

• Way Forward:
  • Strengthening tax administration and compliance.
  • Strategic asset monetisation with improved execution.

Personal Income Tax Reforms and Sustainability Issues

• Relief Measures:
  • Income up to ₹12 lakh exempt under the new regime.
  • Reduction in tax liabilities for middle-income taxpayers.

• Concerns:
  • ₹1 lakh crore in foregone tax revenue, reducing fiscal space for developmental initiatives.
  • Household savings declining—18.4% of GDP in FY23.

• Long-term Risks:
  • Tax-base erosion amid increasing government expenditure.
  • Trade-off between consumption boost and investment in infrastructure/social welfare.

Manufacturing and MSME Sector Support

• Initiatives:
  • National Manufacturing Mission to boost ease of doing business.
  • MSME classification revised—investment limit raised by 2.5x, turnover thresholds doubled.

• Challenges:
  • Manufacturing remains stagnant at ~17% of GDP.
  • Low innovation capacity (R&D expenditure at 0.64% of GDP).
  • Regulatory inefficiencies and infrastructure deficits persist.

• Way Forward:
  • Higher investment in industrial R&D to compete with China and Germany.
  • Deeper structural reforms for competitiveness and sustainability.

Agriculture

• Key Measures:
  • Prime Minister Dhan-Dhaanya Krishi Yojana for productivity enhancement.
  • KCC loan limit raised from ₹3 lakh to ₹5 lakh.
  • Targeted interventions in 100 low-productivity districts.

• Challenges:
  • Focus on credit may perpetuate debt dependency without addressing price volatility.
  • No concrete measures for improving market access and agricultural exports.
  • Missed opportunity to strengthen India’s position in millets and natural farming.

External Sector and Export Diversification

• Current Trends:
  • Services exports growing at 10.5% CAGR.
  • Persistent trade deficits due to limited diversification.

• Budgetary Initiatives:
  • Bharat Trade Net (BTN) for trade facilitation.
  • Export credit support for MSMEs.

• Challenges:
  • Insufficient fiscal push for high-value exports (pharmaceuticals, renewable energy, electronics).
  • Currency depreciation and forex reserve depletion pose risks.

• Way Forward:
  • Strategic focus on value-added sectors to strengthen global supply chain integration.

Climate Action

• Positive Steps:
  • Incentives for lithium-ion battery recycling.
  • Duty exemptions on critical minerals.
  • Support for domestic solar PV and battery manufacturing.

• Gaps:
  • No significant investment in energy storage and grid modernisation.
  • Lack of comprehensive industrial decarbonisation strategy.

• Way Forward:
  • Stronger investment in clean energy infrastructure for sustainable transition.

Budget’s Overall Trade-offs and Execution Credibility

• Balancing private enterprise growth with inclusive development.
• Boosting consumption without compromising national savings.
• Sustaining growth while ensuring macroeconomic stability.
• Success will depend on effective execution and mid-course corrections.

Crisis in Congo

Background of the Conflict

• The Democratic Republic of the Congo (DRC) has faced decades of civil conflict, worsened by ethnic tensions and external interventions.
• The latest escalation involves the M23 rebel group, which has captured Goma, a mineral-rich city, challenging the Congolese government.
• M23 is a Tutsi-led rebel group, named after the failed 2009 peace agreement between the Congolese government and Tutsi rebels.
• The group claims to fight for the rights of the Tutsi minority in Congo.

Relevance : GS 2(International Relations)

Practice Question: Examine the root causes of the ongoing conflict in the Democratic Republic of the Congo and suggest measures for long-term peace in the region. (250 words)

Role of Rwanda in the Crisis

• Congo and UN experts accuse Rwanda of backing M23, a charge Rwanda denies.
• Rwandan President Paul Kagame has historically intervened in Congo, citing security threats from Hutu militias involved in the 1994 Rwandan genocide.
• Unlike in 2012, when international pressure forced Rwanda to withdraw support for M23, Kigali now operates from a stronger position.
• Rwanda has modernized its economy and military and holds strategic ties with Western nations.

Historical Context: The Rwandan Genocide and Its Spillover

• The 1994 Rwandan genocide saw nearly 800,000 Tutsis massacred by Hutu extremists.
• The aftermath led to mass displacement, with Hutu refugees and militias fleeing to Congo, triggering local Tutsi self-defense movements.
• Rwanda has repeatedly accused Congo of sheltering genocide-linked Hutu armed groups.

Current Situation and Its Implications

• M23’s resurgence since 2021 has destabilized eastern Congo.
• The fall of Goma signals a major setback for the Congolese government and raises fears of prolonged conflict.
• The crisis highlights both Congo’s military vulnerabilities and Rwanda’s geopolitical ambitions.
• The presence of valuable minerals in eastern Congo further complicates the conflict, as multiple armed groups compete for control.

Way Forward

• Diplomatic Engagement: The international community must pressure Rwanda to cease supporting M23 and engage in peace talks.
• Tutsi Inclusion in Governance: Congo must address the grievances of its Tutsi minority and ensure their security to prevent recurring insurgencies.
• Addressing Hutu Militant Presence: Kinshasa should take decisive action against genocide-linked groups on its soil to ease tensions with Rwanda.
• Strengthening Governance and Military: Congo must enhance state capacity to control its territory and prevent armed groups from exploiting its weaknesses.
• Economic Stabilization: Proper management of mineral resources is essential to reducing conflict incentives.

A Budget that is forward-looking and growth-oriented

The Union Budget 2025-26 presents a growth-oriented and forward-looking approach, aligning with the government’s long-term strategic goals of economic expansion, job creation, and fiscal prudence. The Budget reflects a concerted effort to drive economic activity across sectors while ensuring fiscal sustainability and macroeconomic stability.

Relevance : GS 3(Economic Development)

Practice Question:Critically analyze the Union Budget 2025-26 with reference to its focus on economic expansion, fiscal prudence, and sectoral growth. Discuss how the provisions in the Budget could impact the key sectors of manufacturing, agriculture, and infrastructure development.(250 Words)

Personal Income Tax Cuts

• Key Announcement: Exemption extended for individuals earning up to ₹12 lakh per year, with a ₹75,000 standard deduction for salaried taxpayers.
• Economic Implications:
  • Higher Disposable Income: The cut in personal income tax boosts disposable income for middle-class taxpayers, stimulating consumption.
  • Multiplier Effect: Increased consumption triggers higher demand, which benefits industries such as retail, real estate, and automobiles, thereby fostering business growth and employment generation.
  • Indirect Tax Boost: Greater consumption leads to increased indirect tax collections, further supporting fiscal expansion.

Capital Expenditure Allocation

• Key Announcement: ₹11.2 lakh crore allocated for capital expenditure (up by nearly 10% from the previous fiscal year).
• Economic Implications:
  • Infrastructure Development: This increased allocation will drive the development of infrastructure—a critical pillar for long-term economic growth and industrial development.
  • Job Creation: Boosted capital expenditure generates employment opportunities, especially in construction, transport, and related sectors.
  • Sustainability: Infrastructure improvements will catalyse long-term growth by enhancing logistics and industrial backbone, ensuring India’s competitiveness in the global economy.

National Manufacturing Mission

• Key Announcement: Establishment of a National Manufacturing Mission to promote “Make in India.”
• Economic Implications:
  • Manufacturing Growth: By targeting small, medium, and large industries, the initiative aims to enhance domestic production capabilities and reduce dependency on imports.
  • Attracting Foreign Investment: The initiative provides an enabling environment for foreign direct investment (FDI) and streamlines regulations, fostering global competitiveness.
  • Sectoral Transformation: It has the potential to position India as a global manufacturing hub by offering policy support, incentives, and execution road maps.

Focus on Labour-Intensive Sectors

• Key Announcement: Focus on sectors like tourism, food processing, and leather.
• Economic Implications:
  • Employment Generation: These sectors are labour-intensive and have historically been significant job creators in India. Targeted incentives and regulatory reforms can boost productivity and competitiveness.
  • Export Potential: These industries also contribute substantially to India’s export earnings, thus promoting foreign exchange inflows.
  • Inclusive Growth: These sectors provide economic opportunities across urban and rural India, supporting inclusive development.

Maritime Development Fund

• Key Announcement: Creation of a new Maritime Development Fund to boost the marine economy.
• Economic Implications:
  • Coastal Growth: This will benefit coastal States by promoting trade and the blue economy, opening up new opportunities for economic activities like shipping, fisheries, and port development.
  • Regional Economic Growth: Strengthening maritime infrastructure is expected to increase the economic potential of emerging coastal regions.

Prime Minister Dhan-Dhaanya Krishi Yojana

• Key Announcement: Focus on agriculture and rural development through the Prime Minister Dhan-Dhaanya Krishi Yojana.
• Economic Implications:
  • Targeted Support for Farmers: The scheme aims to enhance agricultural productivity in low-productivity areas, increase crop diversification, and improve access to credit and irrigation.
  • Rural Incomes: By improving rural livelihoods and agricultural productivity, the scheme is likely to elevate rural purchasing power, thus benefiting the consumer goods and agriculture supply chain sectors.

Fiscal Deficit Reduction

• Key Announcement: Reduction of fiscal deficit from 4.8% (2024-25) to 4.4% (2025-26).
• Economic Implications:
  • Inflation Control: Lower fiscal deficit helps stabilize inflation, ensuring a more predictable macroeconomic environment.
  • Investor Confidence: A reduced fiscal deficit sends a positive signal to global investors, enhancing India’s economic credibility and attracting foreign investments.
  • Sustainable Growth: It supports public finance management, which is essential for maintaining long-term economic stability.

Ease of Doing Business

• Key Announcement: Rationalisation of duties and removal of seven tariff rates.
• Economic Implications:
  • Simplified Tax Structure: Streamlined taxes improve predictability, reducing compliance burdens for businesses.
  • Boost to Trade Competitiveness: Reforms, like addressing the inverted duty structure, will enhance India’s participation in global supply chains, improving its trade balance.
  • Enhanced Business Environment: These reforms contribute to a more favorable business environment, attracting both domestic and international investments.