With Finance Minister Nirmala Sitharaman all set to table the Union Budget 2025 in the Lok Sabha on February 1, experts are hoping for the government to increase their capital expenditure growth while also ensuring domestic demand pick up and rise in investment rate. Earlier in September, the Finance Ministry issued a budget circular to kick off the budget exercise for fiscal year 2025-26. On January 6, the finance minister finished her month-long consultations with industry and sector stakeholders that started on December 6, 2024.
Per Deloitte, the first quarter data pointed to a notable increase in private consumption and a modest improvement in investment activity. Rumki Majumdar, Economist, Deloitte India, said that the expectation from the Budget is that these two remain to be the fundamental growth pillars as global uncertainties weigh on net exports. With the conclusion of the elections, Deloitte anticipates a pick up in government spending, supporting growth in the coming quarters of FY25.
India’s economic growth: Setting the context
In terms of economic status, per a report by the Ministry of Statistics, the first advance real gross domestic product (GDP) growth estimate for FY25 has been maintained at 6.4 per cent, which is significantly lower than 8.2 per cent growth in FY24 and marginally below the RBI’s FY25 projection of 6.6 per cent. RBI had lowered its projection from an earlier 7.2 per cent forecast. The OECD (December 2024) projected India’s real GDP at 6.8 per cent in FY25 and 6.9 per cent in FY26. As per the IMF (October 2024), India is projected to lead global growth, with an average annual real GDP growth of 6.5 per cent in the medium term.
A report by EY maintained, “In the medium term, the real GDP growth target should be 6.5 per cent or above. This would call for an aggregate real investment rate (GFCF) of 34 per cent with an ICOR of about 5.2.” While acknowledging the global economic uncertainties, EY said that India’s growth will largely depend on domestic demand. GoI, it added, should ensure robust investment demand and persuade state governments also to increase their capital expenditure growth.
Furthermore, during April-October FY25, Center’s gross tax revenues (GTR) grew by 10.8 per cent and EY said, a growth of 10.9 per cent is required in the remaining five months of the fiscal year for meeting the FY25 budget target. “If nominal GDP growth remains well below the budgeted level of 10.5 per cent, the growth of government tax revenues may be subdued unless neutralized by higher buoyancy,” it said.
According to CGA data, GoI’s capital expenditure contracted in the first seven months by (-)14.7 per cent and for realising the budgeted annual growth of 17.1 per cent, GoI’s capital expenditure would need to grow by 60.5 per cent in the remaining five months of the fiscal year, EY maintained.
EY said, “The GoI may do better than its budgeted fiscal deficit target of 4.9 per cent of GDP in FY25. EY estimates it at 4.7 per cent. This would facilitate reaching the fiscal deficit target of 4.5 per cent of GDP in FY26. GoI’s debt GDP ratio is also likely to fall to 54.4 per cent, with external debt estimated at market exchange rates and net of lending to states. Even so, this debt-GDP level is well above the FRBM target of 40 per cent. In the medium term, the GoI should aim to bring its fiscal deficit down to 3 per cent of GDP.”
Meanwhile, here are a few policy recommendations for the upcoming Budget, as outlined by Deloitte:
Recommendation 1
To boost job creation and skilling, Deloitte said that the government is expected to target incentives to boost labour-intensive manufacturing sectors or sectors that can push the rural economy. It also recommended allocations of resources to enable technology innovations that enhance the quality of blue-collar jobs while helping to formalise the economy. Rumki Majumdar from Deloitte India said that the government should also extend financial support to employers and employees to facilitate skill development, while also developing a comprehensive database to address skill gap challenges and align the skills the market requires with available talent.
Recommendation 2
For Budget 2025, Deloitte said, controlling inflation will be a priority. Long-term initiatives, such as value chain development projects, could be introduced to address the sudden surge in food prices and reduce post-harvest losses. Per Deloitte, the government could initiate policies that develop a network of cold storage facilities and warehouses at the district and village levels, promote digital marketplaces that expand platforms such as eNAM (National Agricultural Market) to provide farmers direct access to buyers, reducing dependency on intermediaries, ensure that food distribution programmes work efficiently, introduce direct marketing, facilitate collaborations with private companies or even bring in Public-Private Partnerships (PPPs) to modernise supply chain infrastructure, and promote technology innovations and solutions.
Recommendation 3
Exporters will need support in times of global uncertainty, the Deloitte report stated. “The further extension of schemes such as Interest Equalisation and the Remission of Duties and Taxes on Exported Products (RoDTEP) would play a crucial role in reducing costs and enhancing the price competitiveness of Indian exports,” it said. Deloitte also suggested that the government can incentivise the exporting of high-value manufactured goods such as electronics, precision machinery and medical devices, which is already seeing a rise in the share in exports. GoI, it said, to provide access to credit, expanding credit guarantee schemes and providing concessional export financing to exporting MSMEs, which often face liquidity challenges.
Recommendation 4
And lastly, Deloitte said that the finance minister’s focus should be on building physical, digital and social infrastructure. “India should also shift focus to emerging markets and diversify its export markets to reduce dependence on the West. This can be done by promoting digital trade and e-commerce platforms. Providing incentives to start-ups will be helpful,” the report maintained. Further, it also advocated for allocation of resources towards affordable healthcare, increasing budget allocation for training and hiring healthcare and education professionals, especially in rural and remote regions, incentivising private-sector participation in medical education to address the shortage of doctors and paramedics, and enhancing funding for R&D and vaccine research and programmes tackling diseases such as cancer and diabetes.