Budget 2025-26: Looks Good, But What’s the Catch?

Every year, the Union Budget makes headlines with promises of economic growth, tax relief, and better opportunities, shaping the financial landscape of millions of households. The 2025-26 budget is no different, presenting a range of policy measures aimed at boosting various sectors, improving infrastructure, and easing the financial burden on taxpayers. On the surface, these announcements appear to be steps in the right direction, offering incentives, subsidies, and reforms that promise economic progress and stability.

However, as with any major policy framework, the true impact of these measures often lies beyond the headlines. A closer examination reveals subtle yet significant trade-offs that may influence household budgets, savings, and overall cost of living in ways that aren’t immediately obvious. Inflationary pressures, indirect cost burdens, and long-term fiscal implications are some of the factors that could offset the initial benefits of these budgetary provisions.

In this article, we dissect ten key budget announcements, highlighting their intended benefits while uncovering the less visible aspects that could shape your financial reality. By integrating real-world data, economic theory, and historical trends, we aim to provide a clearer and more balanced understanding of how these policies might play out in everyday life.

💰 1. More Money in Your Pocket? Maybe Not!

What was announced?
The government has decided to reduce taxes for the middle class, meaning people will have more take-home income (also called disposable income). The idea behind this policy is simple: when people have more money, they tend to spend more, which can help businesses grow and, in turn, boost the overall economy.

The hidden catch:
At first glance, tax cuts sound like great news. However, there’s an economic trade-off that people often overlook. When more people have extra cash and start spending more on goods and services, businesses experience higher demand. While this can be good for growth, it also puts pressure on prices.

Imagine this: If many people suddenly want to buy the same limited number of products—whether it’s groceries, electronics, or houses—businesses may struggle to keep up with the demand. To balance this, they might raise their prices, leading to inflation (a general increase in the price of goods and services).

This relationship between rising demand and inflation is explained by the Phillips Curve, an economic concept that suggests when people have more money to spend (and unemployment is low), inflation tends to go up. Historical data from previous government budgets shows that tax cuts like these often lead to a 2-3% increase in inflation, as measured by the Consumer Price Index (CPI) over the next few months.

So, while getting a tax cut might feel like a financial win, the increase in prices could offset the benefits. You might end up paying more for everyday essentials, meaning that the “extra” money in your pocket may not stretch as far as you’d expect.

🛒 2. Essential Goods Stay Expensive

What was announced?
The government’s budget aims to support industries and businesses by offering tax breaks and incentives. However, it does not provide any direct relief on the prices of everyday essentials like food, fuel, and medicines—things that every household needs to survive.

The hidden catch:
While supporting industries can help the economy in the long run, it doesn’t immediately lower the cost of basic necessities. If global prices for key goods like wheat, oil, or medicine increase, or if supply chain disruptions continue (such as shipping delays or shortages), the prices of these essentials may rise further.

This is particularly harder on lower-income groups because they spend a larger portion of their income on necessities. This idea is explained by the Engel Curve, which shows that as income decreases, the percentage of income spent on essential goods increases. For example, if someone earns ₹10,000 a month, they might spend 50-60% of it on food and fuel, whereas someone earning ₹1,00,000 may spend only 10-20%.

The concern is backed by recent data: food inflation has remained high at around 7% year-over-year, meaning the cost of groceries and other essentials has been consistently rising. Without targeted relief, families may struggle to afford the basics, making daily life more expensive despite broader economic growth.

🏠 3. Home Loan Troubles Despite Housing Push

What was announced?
The government has set aside funds to complete unfinished housing projects, aiming to make homeownership easier and boost the real estate sector. This move is expected to increase the availability of homes, particularly for middle-class and first-time buyers.

The hidden catch:
While this sounds promising, there’s a major issue that potential homebuyers still face—high home loan interest rates. Even if more houses become available, buying one requires a loan for most people, and borrowing is still expensive.

Currently, home loan interest rates are averaging around 8.5%, as per RBI data. With the central bank focusing on tightening monetary policy (meaning they are keeping interest rates high to control inflation), these rates are unlikely to drop soon.

Think of it this way:

• If you take a ₹50 lakh home loan at 8.5% interest for 20 years, your EMI would be around ₹43,000 per month.
• If the interest rate were lower, say 6.5%, your EMI would drop to around ₹37,000, making homeownership more affordable.

So, while the government is fixing supply-side problems (building more homes), the real challenge remains on the demand side—people still find it hard to afford loans. This means that even though there might be more houses available, many buyers may not be able to afford them due to high financing costs.

🚖 4. Gig Workers Get Benefits, But At What Cost?

What was announced?
The government has introduced a new scheme to provide social security benefits (such as health insurance, pension, and accident coverage) for gig workers—those working with platforms like Swiggy, Zomato, Uber, and Ola. This move aims to improve their financial stability and working conditions, which have often been uncertain due to the lack of traditional job benefits.

The hidden catch:
While this is great for gig workers, these benefits come at a cost—and that cost may be passed on to consumers. Companies like Swiggy, Uber, and Zomato operate on thin profit margins, so if they are required to contribute more towards worker benefits, they may increase service charges to cover these expenses.

For example:

• Food delivery fees might go up by ₹10-₹20 per order.
• Cab fares could rise, especially during peak hours.

Economic studies on labor market economics suggest that when worker benefits improve, businesses often raise prices to maintain profitability. This means that while gig workers gain more financial security, customers may end up with less disposable income because they have to spend more on everyday services.

Therefore, even if the policy is well-intentioned, it could make food deliveries and ride-hailing services more expensive, impacting both frequent users and the broader economy.

⚡ 5. Electric Vehicle (EV) Push, But Higher Maintenance Costs

What was announced?
The government is expanding subsidies for electric vehicles (EVs) to promote eco-friendly transportation. The goal is to encourage more people to switch from petrol and diesel cars to EVs, which can help reduce pollution and long-term fuel costs.

The hidden catch:
While EVs save money on fuel, they come with hidden expenses that many buyers overlook. One of the biggest costs is battery replacement, which can be very expensive.

• EV batteries make up nearly 40% of the vehicle’s total cost, according to a study by the International Energy Agency (IEA).
• Depending on the model, replacing a battery can cost anywhere from ₹5 lakh to ₹10 lakh, making it a major long-term expense.

Another issue is charging infrastructure—unlike petrol stations, EV charging stations are still limited in many cities, and home charging setups can be costly. Additionally, EV maintenance costs (such as battery cooling systems and software updates) can be higher than expected.

Therefore, the government’s subsidies make EVs more affordable upfront, but high battery costs and limited charging infrastructure could make long-term savings less certain. While EVs are great for sustainability, buyers should carefully consider the total cost of ownership before making the switch.

📉 6. Government Borrowing Today, Higher Taxes Tomorrow?

What was announced?
The government is spending heavily on infrastructure, welfare programs, and economic stimulus measures, but without increasing personal income tax rates. This means people don’t have to pay more taxes—at least for now.

The hidden catch:
While avoiding tax hikes sounds great, the government still needs money to fund its spending. Since tax revenue isn’t increasing, the government is borrowing heavily, leading to a rise in public debt, which has now reached nearly 60% of GDP.
Why does this matter?

• More government debt today means it must be repaid in the future—either by raising taxes or cutting spending on welfare programs like healthcare and education.
• Economic theory suggests that sustained high borrowing can put pressure on future budgets, forcing the government to increase taxes later or reduce benefits that citizens rely on.

Imagine it like taking out a huge loan to fund your lifestyle today, knowing that eventually, you’ll have to repay it with interest—possibly by cutting down on expenses or increasing your income. The same principle applies to a country’s finances.

So, even if “no tax hike” today is a relief, future generations may bear the burden of today’s borrowing through higher taxes or reduced government support programs.

🎓 7. Skill Development Programs, But Slow Job Growth

What was announced?
The government has launched new skill development programs aimed at training young people to improve their job prospects. The idea is to help workers gain practical skills that match industry demands.

The hidden catch:
While skill development is crucial, it doesn’t immediately translate into more jobs. Learning new skills takes time, and even after completing training, finding a relevant job is not guaranteed—especially if the economy isn’t generating enough jobs.
Here’s the challenge:

• A World Bank study found that only 30% of skill development graduates find jobs related to their training within a year.
• If businesses aren’t expanding fast enough, even highly skilled workers may struggle to find employment.

Think of it like getting an advanced driving license—it’s useful, but if there aren’t enough cars to drive, the skill won’t lead to income. Similarly, training workers without job creation leads to underemployment or unemployment.

Hence, even when these programs are valuable for the long term, they won’t immediately solve the issue of unemployment unless more job opportunities are created alongside them. Surprisingly, this is a point that is acknowledged by the government but with the introduction of this program it is possible that skilled labor and their respective job opportunities will not grow in the same pace.

🏥 8. Healthcare Infrastructure Boost, But No Relief on Medical Bills

What was announced?
The government is increasing spending on healthcare infrastructure, which means more hospitals, medical colleges, and better healthcare facilities across the country. This is aimed at improving access to medical services, especially in rural and underserved areas.

The hidden catch:
While building more hospitals sounds great, it does not directly lower medical costs for individuals. Most Indians still rely on private healthcare, which accounts for nearly 70% of total healthcare spending in the country.

• Medical inflation is currently running at 8-10%, meaning that hospital bills, consultation fees, and medicine prices are rising faster than general inflation.
• Without direct regulations on healthcare costs, people may still face high out-of-pocket expenses, especially for treatments in private hospitals.

Think of it like building more airports—it improves accessibility, but if flight tickets remain expensive, people still struggle to afford travel. Similarly, better hospitals don’t automatically mean cheaper medical bills.

Thus, the investment in healthcare infrastructure is a long-term improvement, but without cost regulation, many families may still struggle with rising medical expenses.

🌾 9. Agricultural Support, But Food Prices May Stay High

What was announced?
The government is supporting farmers by providing incentives for high-yield crops and investing in agriculture to improve food security. These measures aim to increase farm productivity and rural income in the long run.

The hidden catch:
Even though this helps farmers, it does not directly lower food prices in the short term. There are several reasons why food inflation may remain high:

• Supply chain disruptions (such as transportation delays, fuel costs, and storage issues) can keep prices elevated.
• Climate change affects crop yields—droughts, floods, or heatwaves can reduce supply and push up prices.
• Minimum Support Price (MSP) increases help farmers earn more, but they also contribute to higher retail food prices for consumers.

For example, even if farmers grow more wheat or rice, if floods damage crops or transportation costs rise, food prices in markets may not fall as expected. So, supporting farmers is essential for long-term food security, but consumers may not see immediate relief on grocery bills, as external factors continue to influence food inflation.

📊 Inflation Trends: What the Data Shows

Despite India’s efforts to control inflation, food prices remain a key concern, fluctuating sharply over 2024. The chart below highlights the divergence between general inflation (CPI) and food inflation, showcasing their trends across the year.

Source: Generated by the author.

Note: The above data is compiled from various reports by the Ministry of Statistics and Programme Implementation (MoSPI). Specific monthly reports can be accessed through MoSPI’s official website.

🔹 Key Insights:

• 📈 Food Inflation Volatility – Food inflation, though briefly dipping in July, saw a sharp rebound in August – October, exceeding 10%. This suggests supply-side challenges, rising input costs, and possible weather-related disruptions.
• 📊 CPI Inflation Stability, but an Uptick in Q4 – General inflation (CPI) was more stable, remaining in the 4.5% – 5.5% range for most of the year. However, the increase from September – October indicates broader price pressures.
• 🌾 Agricultural Support vs. Rising Prices – While government policies aim to stabilize food inflation, external shocks like climate impact and global commodity prices still push food inflation higher. This suggests that budgetary allocations must focus on supply chain efficiency rather than just subsidies.
• 💰 RBI & Monetary Policy Implications – If food inflation remains high, the RBI might be forced to tighten monetary policy to control overall inflation. This could lead to higher borrowing costs, impacting economic growth and corporate lending in 2025.

While the budget introduces several positive measures—such as tax relief, housing support, and skill development—hidden challenges remain. Rising inflation, high borrowing costs, and supply chain inefficiencies could limit the intended benefits for households and businesses. Food and medical expenses may continue to strain budgets, and if inflation persists, the RBI may tighten monetary policy, further impacting economic growth. Ultimately, for these policies to truly uplift the economy, long-term structural reforms, efficient implementation, and inflation control will be crucial.

🔌 10. Energy Security Plans, But No Immediate Reduction in Electricity Bills

What was announced?
The government is investing in nuclear power and renewable energy to strengthen long-term energy security and reduce dependency on fossil fuels.

The hidden catch:
While these investments may provide energy stability in the future, they won’t lower electricity bills in the short term. Here’s why:

• Nuclear and renewable projects take years to develop and integrate into the energy grid.
• According to the Ministry of Power, renewable energy capacity additions typically take 5-7 years to impact electricity prices.
• In the meantime, the country remains dependent on costly fossil fuels, keeping power bills high.

Hence, the shift to renewable energy is a step toward long-term sustainability, but households may not see lower electricity bills soon as short-term reliance on fossil fuels continues to drive up costs.

📖 Conclusion: Read Between the Lines

At first glance, the Union Budget 2025-26 appears promising, offering tax relief, job programs, and economic growth initiatives. However, the hidden catches reveal that many of these benefits come with trade-offs. From inflation and rising costs to long-term tax burdens and expensive healthcare, households must navigate these complexities carefully.

Economic models like the Phillips Curve, Engel Curve, and debt sustainability theories provide insights into these policy impacts. The Phillips Curve, for instance, suggests that while job creation programs may reduce unemployment, they could also contribute to inflationary pressures, leading to a rise in the cost of living. Similarly, Engel’s Law indicates that lower-income households will feel the burden of rising essential goods prices more acutely, despite nominal income growth. Meanwhile, debt sustainability concerns imply that government borrowing for large-scale initiatives may translate into higher future taxation or reduced public spending on crucial services.

Historical data and global comparisons suggest that while these policies may offer long-term advantages, the immediate impact on everyday life could be more challenging than expected. Countries that have implemented similar fiscal measures have often seen mixed results, where short-term gains were offset by unintended economic consequences. Thus, while the budget introduces ambitious policies, individuals must remain vigilant, plan their finances wisely, and understand the underlying implications to safeguard their economic well-being.

Stay informed, plan wisely, and don’t let the fine print catch you off guard!

References

• India Budget 2025-26
• IMF eLibrary – What Can We Learn from Phillips Curves?
• Reuters – India unveils long-term programmes to boost pulses, cotton output
• AP News – Takeaways from India’s budget that slashes income tax on the salaried middle class to spur growth
• Munich Personal RePEc Archive – Phillips Curve Relationship in India