Union Budget Expectations: Tax Relief, Inequality, Infrastructure and Industry in Focus

As discussions around the Union Budget gather momentum, expectations among taxpayers rise sharply. Alongside them, industry bodies line up with long lists of demands, hoping the Finance Minister will address their concerns. However, the highest level of anxiety is usually seen among salaried income-tax payers, who keenly watch the Budget to see what relief, if any, awaits them. Their consistent aspiration is simple: to have a higher share of disposable income in hand. Over time, a growing sense of resentment has also taken root among individual taxpayers, who feel they bear a heavier tax burden than corporations.

There is no denying that since 2019, Finance Minister Nirmala Sitharaman has provided incremental relief to income-tax payers in successive Budgets, while also attempting to simplify tax compliance. A significant step came in Budget 2025, when substantial relief was extended to individuals. Under the new tax regime, taxpayers with annual incomes of up to ₹12 lakh were effectively made tax-free, marking one of the most generous reforms for the middle class in recent years.

Yet, income tax has another dimension that cannot be ignored—it starkly highlights income inequality in India. Barely 1.6 per cent of the country’s population pays income tax. Within this small group, the skew is even more pronounced: the top 1 per cent of taxpayers contribute nearly 50 per cent of total income-tax collections, while the top 9 per cent account for as much as 87 per cent of the government’s income-tax revenue. These figures underscore the depth of income inequality in the country. According to reports, the top 1 per cent of Indians control nearly 40 per cent of the nation’s wealth. Such extreme concentration of income and assets poses a serious challenge to sustainable economic development.

This inequality has far-reaching social consequences. A large section of the population remains deprived of quality education, healthcare, and housing. Malnutrition continues to be a persistent reality for millions. Over the last two to three decades, economic reforms carried out in the name of liberalisation have disproportionately benefited higher-income groups, leading to an unprecedented concentration of wealth in a few hands. While liberalisation has boosted growth, unchecked inequality eventually becomes a major obstacle to long-term development.

A comparison with China is often drawn in this context. China’s relatively lower levels of economic inequality have translated into better access to education and healthcare for its population. This, in turn, has helped the country emerge as a global leader in research and innovation. Addressing inequality in India is therefore not just a social imperative but also an economic necessity. For years, a section of economists has advocated the introduction of a wealth tax to curb excessive concentration of assets. Such a measure, they argue, could help reduce inequality and generate additional resources for social spending. In this backdrop, the likelihood of significant fresh relief for salaried taxpayers in the upcoming Budget appears limited.

The overall fiscal arithmetic of the next Budget will largely depend on how much government revenues grow. If total receipts rise by around 11–12 per cent, managing the fiscal deficit and keeping inflation under control should not pose major difficulties. Another closely watched aspect will be the government’s allocation for infrastructure spending. Under the Modi government, infrastructure investment has largely focused on roads and railways. While these sectors are important, the broader economic benefits have not been as substantial as initially expected.

There is a growing view that the time has come to reorient infrastructure priorities. Areas such as food security, public health, and basic social infrastructure may deserve greater attention. Spending in these sectors has remained relatively subdued, despite their critical role in improving human capital and productivity. A shift in infrastructure spending towards health, nutrition, and education could yield far more inclusive and long-lasting economic gains.

Agriculture and the rural economy also demand higher budgetary allocations. Strengthening these sectors would help raise rural incomes and stimulate demand, which remains the backbone of India’s economic growth. Increased rural purchasing power has a direct multiplier effect on manufacturing and services, making it a vital lever for overall economic expansion.

At the same time, the government’s ambition to position India as a global hub for artificial intelligence is likely to feature prominently in the Budget. Significant announcements can be expected to build a robust AI ecosystem, including investments in research, infrastructure, and talent development. To attract foreign investment in high-tech manufacturing and design, the Finance Minister may also unveil attractive incentives under the Design Linked Incentive (DLI) scheme.

Several traditional industries, however, continue to face serious headwinds. The textile, automobile, and real estate sectors are grappling with sluggish demand and rising costs. The textile industry needs targeted support to enhance competitiveness in global markets. The automobile sector is hoping for the announcement of the FAME-3 scheme and interest subsidies for electric vehicles to accelerate the transition to clean mobility. Meanwhile, the real estate sector, particularly affordable housing, has seen weak demand and is seeking interest-rate relief to revive buyer sentiment.

Both the textile and automobile industries are also calling for new and more comprehensive Production Linked Incentive (PLI) schemes. Such measures could help these sectors modernise, scale up production, and generate employment at a time when job creation remains a pressing concern.

In summary, expectations from the upcoming Budget are wide-ranging. While significant income-tax relief for salaried individuals appears unlikely, the focus may shift towards addressing structural challenges such as inequality, rural distress, and sectoral slowdown. A rethinking of infrastructure priorities, stronger support for agriculture and industry, and bold steps in emerging areas like artificial intelligence could define the Budget’s impact. Ultimately, the success of the Budget will be judged by how effectively it balances growth, equity, and fiscal discipline.

Key Points

• A change in infrastructure spending priorities is needed.
• Major relief in personal income tax is unlikely.
• Textile and automobile sectors require new and broader PLI schemes.