India's 2025 Budget: Boosting Middle Class, Tech Spending, and AI Innovation

Will India's Budget Boost for the Middle Class Spur Tech Spending and Digital Inclusion?

Income up to ₹12 lakh will now be tax-free, owing to the removal of income tax in this bracket. The Union Budget 2025, presented by finance minister Nirmala Sitharaman, is both bold and forward-looking - especially as India enters the new AI wave. To realise the vision of an AI-first economy, Sitharam bet heavily on consumption expenditure - one of the important '3Cs' for the economy. The Budget reflects a focus on skilling and training, ensuring that India's workforce is equipped to utilise the transformative potential of AI across industries. Sitharaman also called India the "fastest-growing major economy", even as GDP growth is expected to slip to 6.3-6.8% from last year's 8.2%, as per the Economic Survey presented a day before the Budget. With middle-class relief at its core, the Budget aims to accelerate tech adoption and expand digital inclusion. By easing financial pressures on consumers and businesses, it sets the stage for increased digital investments, wider internet access, and a stronger push toward a tech-driven economy. The budget brings much-needed tax relief for the middle class, which has been waiting for concessions for years. One of the biggest takeaways is that income up to ₹12 lakh will now be tax-free, owing to the removal of income tax in this bracket. Moreover, an additional ₹75,000 standard deduction pushes the tax-free limit to ₹12.75 lakh. A direct impact of this push is an increase in middle class consumer spending, which fuels economic growth through demand-driven expansion. According to GV Joshi, an economist and former member of the Karnataka State Planning Board, the middle class's willingness to spend more, leading to a demand for various goods in the market, signals scope for the economy's growth. While expansion of the middle class can help reduce economic inequality, tax relief alone may not be enough to achieve this goal, Joshi added. Many remain optimistic that this will ultimately boost technology spending among the middle class. Sid Tipnis, technology leader at Deloitte India, highlighted that tax breaks and increased disposable income could drive greater investment in digital devices, including smartphones, laptops, and other tech products. He emphasised that digital devices have become essential in everyday life, positioning them as a key spending priority for households. "While tax cuts create a more encouraging economic atmosphere, they are not expected to cause a major increase in consumer spending. Only a tiny fraction of the population are income taxpayers, compared to significantly higher percentages in Germany, the UK, and the US," Joshi added. India's per capita income is $2,700 and one-third of its 1.4 billion population is considered middle class. However, according to data presented in the Parliament, only 1.6% (22.4 million) actually paid income taxes in 2023. Sitharaman announced that the government will establish five national centres of excellence (CoE) for skilling and a ₹500 crore AI CoE for education. These centres will focus on curriculum design, trainer training, and skill certification. Over the past decade, enrolment in IITs has doubled to 1.35 lakh. Moreover, additional infrastructure for five IITs built after 2014 will accommodate 6,500 more students. In the next five years, 10,000 fellowships will support tech research in IITs and IISCs. "The number of IITs being increased...[and] IITs being recognised as centres for promoting innovation is also good as they put India on the global map," Joshi further said. The Budget also announced the launch of IIT Patna as well. IITs hold a significant influence. Perplexity CEO Aravind Srinivas, an IIT alumnus, is expanding Perplexity Pro access to IITians to promote adoption. "We're launching a two-week event across all IITs. Students can unlock Perplexity Pro for their entire campus...I'll visit the IIT with the most Perplexity users later this year," he announced. AI adoption in the country is on the rise. Ahead of the Union Budget 2025, the chief economic advisor to the Indian government, V Anantha Nageswaran, discussed the impact of AI on employment and labour in the latest economic survey. President Droupadi Murmu, while addressing the joint session of Parliament ahead of the Union Budget session, emphasised the government's commitment to making India a global leader in innovation and digital technology. A ₹10,000 crore startup fund will provide early-stage capital, potentially boosting India's unicorn ecosystem. In addition, a scheme will be launched for 5 lakh women SC/ST first-time entrepreneurs. According to the Budget, MSME investment and turnover limits have also been doubled, which will aid small businesses in semi-urban and rural areas. "One important advantage of startups is that there can be a good degree of decentralisation of economic powers," Joshi added. He also highlighted that while Karnataka, especially Bengaluru, continues to be India's leading startup hub, other states are also experiencing a growing startup presence and expanding the country's entrepreneurial ecosystem. To overcome the urban-rural divide, in addition to the tax slabs being relaxed, the modified UDAN scheme will connect 120 new destinations. This will improve air connectivity in rural regions. Broadband access will be provided to all government secondary schools and primary healthcare centres to bridge the rural digital gap. "It has been encouraging both the rural and the urban people to purchase more and to, say, create a very encouraging atmosphere for increasing demand. As you know, there has been sluggish demand all these years, and that is being done," Joshi said. He added that systemic issues must change - rural infrastructure needs improvement, and educational facilities must expand for growth and inclusivity.

Can India's Budget transform the economy & create 100 mn middle-class consumers?

India is on an exciting growth journey, despite challenges posed by geopolitics and the realignment of global economic priorities. We have a significant opportunity to boost the economy's growth and become a global economic powerhouse. This requires collaboration among GoI, large enterprises, SMEs and the young, ambitious workforce. The budget, as a step towards that goal, aims to drive economic growth through infra development, boosting consumption, upskilling the workforce and tapping growth opportunities using new-age tech. The continued focus on investment in public infra, along with tax reforms aimed at putting more money in the hands of the middle class, will drive domestic consumption and offer opportunities across industries. Skill development is the cornerstone of job creation and economic resilience. The success and adoption of AI are linked to the upskilling agenda of companies and the nation. With $83 bn invested in AI in 2023, growing at a 25% CAGR, AI/ML will be the biggest disruptor and opportunity in tech services. As the world's capital of tech talent, we can drive the next generation of jobs and wealth creation. The decision to set up a Centre of Excellence for AI in education needs to be commended. The budget promises further investment in India's STEM talent pool, which is key to unlocking opportunities in AI and other cutting-edge technologies and will help the country stay ahead of global competition. We also need to transition from a 'hire and train' model to a 'train and hire' approach. This involves collaborating with universities to integrate industry-relevant courses and create internship opportunities, ensuring students are ready to enter the workforce. The budget's emphasis on innovation and R&D highlights a strategic vision to make India a leader in emerging technologies like AI. India allocates less than 1% of its GDP to R&D while the world average is 1.8%. To address affordable healthcare, urban housing, malnutrition and clean air, water, and energy, we need to boost public and private R&D spending and focus on developing homegrown solutions. While increasing spending is important, what's also essential is how we utilise this spending -- by fostering an innovation ecosystem, improving education, strengthening IP laws and encouraging collaboration between government, academia and business. The creation of a deep-tech fund to support technological innovations is a significant step towards boosting the talent pool of highly skilled innovators. GoI's investment in the Atal Tinkering Labs, expansion of IIT capacity and fellowships for tech research also hold promise for the future. India has the digital infra and the talent to build an ecosystem of startups that can lead in innovation. By fostering a hotbed for experimentation, leveraging vast data and creating unique AI-driven business models, India can take the lead. To unlock this potential, we must provide capital and improve the ease of doing business to support the start As the fastest-growing large economy, India has a unique opportunity to drive domestic consumption in the face of increasing global economic uncertainty. Creating the next 100 mn middle-class consumers is critical to sustaining our growth momentum. The significant changes in the personal I-T threshold and slabs will help the middle class spend and save more. It is a strong move to put more money into the hands of consumers, boosting consumption and stimulating growth. The proposals regarding changes in transfer pricing assessment procedures and the rationalisation of TDS and TCS provisions are steps in the right direction for improving the ease of doing business. Overall, GoI's push to streamline regulatory frameworks demonstrates its commitment to making India ahub for global economic activity.

Budget 2025: Unleashing spending and entrepreneurial ambitions of a young India

The Indian budget strives to boost the economy by lowering personal income taxes and raising the non-taxable income threshold, stimulating middle-class demand. Key initiatives include an integrated MSME policy, a ₹10,000 crore startup fund, and a focus on AI capabilities, all fostering growth and global competitiveness.The budget comes at a crucial time for the Indian economy, balancing fiscal discipline with the need to stimulate consumer spending. The government's decision to lower personal income tax rates and raise the non-taxable income threshold to ₹12 lakh will boost disposable incomes. This tax relief is expected to invigorate middle-class demand, which has faced significant challenges due to high inflation. Enhanced support and increased allocations under schemes like MGNREGS can strengthen purchasing power in rural regions, thereby expanding the consumer base. By increasing the purchasing power of consumers, we hope to see a resurgence in private spending, which will also help to bridge the gap for the nation to deliver on its ambition to become Viksit by 2047. Recognising the importance of MSME contributions, the finance minister has proposed an integrated policy to help domestic manufacturing level up on the global stage, including a new national manufacturing mission to drive Make in India, with a clear focus on new clean technology including solar cells, batteries and wind turbines as well as shipbuilding, and other advanced industrial capabilities. The clear intent is to involve all stakeholders from micro-suppliers to industrial conglomerates for greater integration with global supply chains by increasing our domestic manufacturing footprint and building resilience in the supply chain. This will ease the cost of doing business, create a future-ready workforce and lower costs for consumers by reducing reliance on imports. Similarly, the decision to build a strong bedrock of domestic funding with another master startup fund of ₹10,000 crore (to be matched by the private sector) will also create thousands of new gig jobs and breed a new generation of youth entrepreneurs, given the success of the first fund. The intention of asking multiple ministries to focus on monetising national infrastructure assets worth ₹10 lakh crore is also indicative of this mindset. It is especially exciting to see the government focus on building India's AI capabilities. Digital innovations have the potential to transform industry from improving energy efficiency, reducing manufacturing costs and, most importantly, increasing convenience for customers. The budget's plan for the national framework for global capability centres will drive technological innovation, improve digital inclusion, and position India as a global tech leader. Beyond the impactful measures, what is reassuring is that the finance minister has carefully managed to calibrate a fine line between maintaining the nation's fiscal prudence and introducing diverse policies to boost GDP growth led by higher consumer spending, unleashing the entrepreneurial ambitions of the youth and building a more globally competitive economy with a focus on innovation and sustainability. (The writer is the executive Director, Godrej Enterprises Group)