In a few days, the finance minister will present the 2025–26 Budget. Judging by past trends, much of her speech will elaborate on development programmes and schemes to be implemented by other ministries. Last year’s speech had 165 paragraphs, with the first part—mostly focused on expenditure proposals—accounting for around 70% of the content. These proposals were largely driven by other departments responsible for their execution.

However, the Budget speech should ideally highlight expenditure patterns from the perspective of public finance management to ensure macroeconomic stability, rather than focusing primarily on sectoral programme financing. Publicising a wide range of development initiatives has become a characteristic feature of Budget speeches in recent years, but this needs to change.

More attention should be given to actions assessed and decided by the finance ministry itself—particularly how resources will be raised and their impact on growth. This includes managing and developing the financial intermediation system and following up on the outcomes of major announcements from the previous Budget.

Currently, the biggest growth challenge is the slowdown in both current and long-term potential of the manufacturing sector. While fixed investment has rebounded post-Covid—reaching 31.3% of GDP in 2023–24—it remains below the 34.3% peak from 2011–12. The share of fixed investment in manufacturing and mining has declined from 6.4% of GDP in 1990–91 to 5.3% in 2022–23, and the manufacturing sector’s share in GVA has fallen from 21% to 16% over the same period.

By contrast, fixed investment in the services sector rose from 4.5% to 9.2% of GDP between 1990–91 and 2022–23, reflecting the post-liberalisation growth of service enterprises, including IT, e-commerce, and e-finance.

Another shift has been from public sector-led investment to private corporate investment post-liberalisation. However, this transition hasn’t been accompanied by a commensurate increase in the corporate sector’s capacity to mobilise investment. Budgetary resources have shifted from fixed investment to subsidies and handouts, as seen in the decline in Central government assets as a proportion of liabilities—from 100% in the 1960s to 42% in 2023–24.

Despite a reduction in corporate tax rates from 30% to 22% in 2019, corporate investment hasn't picked up meaningfully. What truly drives corporate investment is demand growth and competitive pressure—both of which can be influenced through policies under the finance ministry’s control.

This year’s Budget should focus on stimulating demand growth and assessing how tax and spending policies impact national and global competitiveness. While personal income tax rates are currently reasonable, future changes should primarily serve inflation adjustments. These changes mostly affect the salaried middle class and small entrepreneurs.

Yet, for meaningful demand growth, policies must target lower-income groups outside the tax net. This means stimulating small enterprise growth, which is key for non-agricultural employment—especially in backward regions—and for building national value chains.

Last year’s Budget included initiatives to support MSMEs. This year, there must be clarity on progress made—especially in northern states where non-farm employment is needed most. MSME development, as a direct finance ministry responsibility, plays a vital role in reducing poverty and inequality.

To spur innovation and ambition in the corporate sector, the government must strengthen incentives for product and process development. This includes reducing tariff protection, promoting foreign direct investment, and building on India’s competitiveness in areas like e-commerce.

The Budget also announced a major R&D support programme for the private sector last year. Updates on its implementation are essential. Another key priority is developing financial intermediation—an area that supports private sector-led growth. Recent progress in NBFCs, internet-based finance, and UPI are positive signs. But more needs to be done, especially in promoting domestic venture capital for startups, which are vital for employment.

In sum, the finance minister should focus more on areas under her direct control—budget management, financial intermediation, and innovation incentives—rather than reiterating schemes run by other departments.