Budget 2025-26: Key Announcements to Enhance NPS Vatsalya and Agricultural Lending Schemes
India’s Finance Minister, Nirmala Sitharaman, introduced a series of measures in the Budget 2025-26 aimed at strengthening the nation’s financial security programs. A major highlight is the tax exemption of up to Rs 50,000 for contributions to NPS Vatsalya, a scheme designed to help parents and guardians secure the financial future of minors. Additionally, enhancements to the Kisan Credit Card (KCC) lending framework and the introduction of a Partial Credit Enhancement Facility for corporate bonds were unveiled. These initiatives aim to provide both short-term financial support and long-term wealth accumulation strategies.
NPS Vatsalya: A Scheme for Minors' Financial Future
NPS Vatsalya, introduced in the Union Budget 2024-25 and launched on September 18, 2024, enables parents and guardians to contribute to minors' accounts. The scheme aims to secure a dignified financial future for children, providing opportunities for wealth growth through compounding.
Tax Exemption: Contributions of up to Rs 50,000 annually will be eligible for tax exemption under the old tax regime.
Eligibility: All Indian citizens under the age of 18 are eligible. The account is opened and managed by a guardian on behalf of the minor until adulthood.
Account Conversion: Upon turning 18, the account can be converted into a regular NPS account or transferred to another financial scheme.
Scheme Progress and Performance
Since its launch, NPS Vatsalya has attracted 89,475 subscribers with an Assets Under Management (AUM) of Rs 61.98 crore. With the added tax benefits announced in the budget, subscription rates are expected to grow further.
How to Subscribe
Parents and guardians can subscribe to NPS Vatsalya either online or by visiting authorized banks or post offices.
Minimum Contribution: Rs 1,000 to open the account.
Annual Contribution: Subscribers must contribute at least Rs 1,000 every year to maintain the account.
Kisan Credit Card: Enhanced Lending Limits for Farmers
In a move to support farmers, fishermen, and dairy farmers, the Finance Minister announced a limit increase under the Kisan Credit Card (KCC) scheme.
The loan ceiling has been raised from Rs 3 lakh to Rs 5 lakh under the Modified Interest Subvention Scheme (MISS).
Purpose: The scheme facilitates short-term agricultural loans for 7.7 crore eligible farmers, providing access to capital for farming operations and related activities.
Interest Rate Benefits
To make borrowing more affordable, the government provides an interest subvention under MISS:
A base interest rate of 7% applies to loans up to Rs 3 lakh.
An additional 1.5% subvention further reduces the effective borrowing cost.
Farmers who repay loans on time receive a further 3% interest reduction, effectively lowering their rate to 4% per annum.
These measures are aimed at improving liquidity for rural agricultural stakeholders, fostering productivity and sustainability across the sector.
Partial Credit Enhancement Facility for Infrastructure Bonds
The Finance Minister also announced that the National Bank for Financing Infrastructure and Development (NaBFID) will introduce a Partial Credit Enhancement Facility for corporate bonds. This initiative aims to boost infrastructure financing by making it easier for corporations to raise funds through the bond market.
Key Objectives of the Facility
Reduced Risk: The facility will provide partial guarantees to bondholders, thereby lowering the perceived credit risk for investors.
Increased Investment: By enhancing credit ratings, the initiative encourages broader participation from institutional investors in infrastructure projects.
This move aligns with the government’s broader strategy to accelerate infrastructure development across India by leveraging corporate funding channels.
Comparison of Key Budget Measures
The table below highlights the core features and objectives of the budget announcements:
| Scheme | Key Announcement | Objective |
|---|---|---|
| NPS Vatsalya | Tax exemption up to Rs 50,000 | Encourage long-term wealth accumulation for minors |
| Kisan Credit Card | Loan limit increased to Rs 5 lakh | Provide affordable short-term credit for farmers |
| Partial Credit Enhancement | Guarantee facility for infrastructure bonds | Boost corporate bond investments in infrastructure |
Implications and Future Prospects
The budget measures reflect a clear focus on both financial inclusion and infrastructure development. By enhancing the appeal of NPS Vatsalya, the government aims to promote long-term savings and security for future generations. Similarly, the increased KCC loan limit and interest subvention incentives provide vital support to rural communities, ensuring that farmers can access affordable capital to sustain and expand their operations.
The introduction of a Partial Credit Enhancement Facility is expected to stimulate the infrastructure sector by attracting private investment, ultimately contributing to India's economic growth.
Budget for Inclusion and Growth
The 2025-26 Budget introduces well-rounded measures targeting financial stability and rural development. The expansion of NPS Vatsalya, improvements to the KCC scheme, and infrastructure funding initiatives underline the government’s commitment to fostering financial empowerment and national growth. Investors, farmers, and parents alike stand to benefit from these forward-looking reforms. As these programs take shape, their success will be instrumental in driving India's broader economic ambitions.
