– By Suman Chowdhury
Union Budget 2025: Nowhere in the world does a Union Government Budget garner so much attention as in India. The expectations from the businesses and the communities run high on either tax cuts or higher budgetary allocations just before the budget presentation. For the government, it’s about balancing the current economic priorities with the need for fiscal discipline.
The first advance estimates for India’s GDP growth at 6.4% for FY25 point to a moderation in economic momentum after the strong post Covid revival when the economy grew by 8.3% (FY 21-24) on an average. With Q2FY25 growth reported at 5.4%, the signs of a slowdown have been distinct. While the latter can be partly attributed to the election factor and the weather-related disruptions, a weakness in urban demand and the lack of a pickup in private sector investments have played a major role. A good monsoon has led to stronger agricultural growth and improved rural demand in the current year; however, stagnant inflation-adjusted urban incomes along with a slower pace of retail lending may have limited the rise in private consumption.
There is, therefore, a fairly strong case for a consumption stimulus that will lead to broad-based consumption demand in the economy. This apart, the other budgetary priorities of the government are expected to be the following:
– Step up in private sector investments particularly in manufacturing which can generate employment
– Steady pace of sustainable infrastructure development
– longer term measures or reforms to improve the output and efficiency of the agricultural sector, amidst persistently high food inflation in India
Cheering the common man
We expect the government to enhance the disposable incomes of mid-income salaried taxpayers by realigning and reducing income tax slabs for incomes up to Rs 20 lakhs. This could boost urban consumption demand and support affordable housing projects. Given the continuing rise in health insurance premiums, the government may consider higher tax benefits on such payments.
While we don’t expect any significant increase in cash payouts, a steady commitment to the social sector will remain important for the Indian polity. In pursuit of Viksit Bharat, the allocation to the health and the education sector needs to see a steady rise. The health sector may witness increased funding for the Ayushman Bharat scheme along with investment in preventive healthcare campaigns and digital health solutions. In education, the focus will be on skilling the youth through vocational training programs to align with job market demands. PMAY (housing) will continue to see significant commitments.
Private Sector Investments
Private sector investments have been below expectations in the post Covid period. The Union Budget 2025 is likely to focus on the manufacturing sector, particularly in light of changing geopolitical dynamics and export opportunities from higher tariffs on Chinese goods by the US. The Production Linked Incentive (PLI) schemes and Gati Shakti Master Plan have shown some initial success, and we expect these to be strengthened and extended to include a wider array of industries. The focus is likely to be on areas of high technology such as electronics manufacturing services (EMS), alternative energies and medical equipment. There are expectations that specific PLI schemes may be introduced for the MSMEs to expedite private sector investments and also make it broad-based. Given the increased concerns on employment generation, the government may also consider linking production incentives with actual job creation.
Infrastructure and Sustainability
The infrastructure sector will continue to be an integral part of India’s development agenda. The government is likely to prioritize projects that lower logistics costs and improve supply chain efficiency – multimodal connectivity, dedicated freight corridors etc. Sustainable infrastructure, including green buildings and waste management under the Smart Cities Mission, will be encouraged to foster eco-friendly growth.
Agricultural Reforms
The budget is likely to witness a significantly higher outlay for agricultural R&D, aiming to grow it from less than 0.5% to at least 1% of agricultural GDP. Fertilizer reforms, promotion of natural farming, and support for biofuels and ethanol will be undertaken for productivity and sustainability. The budget will likely expand digital platforms such as AgriStack and e-NAM to streamline processes and ensure fair pricing for farmers.
Fiscal Discipline
Last but not the least, the government is likely to reiterate its commitment to fiscal discipline while balancing growth. The government has a target to lower fiscal deficit to 4.5% of GDP for FY26 with greater focus on asset monetization, improved tax compliance and tax reforms to widen coverage.
(Suman Chowdhury, Chief Economist and Executive Director, Acuité Ratings & Research.)
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