With all eyes on Budget 2025-26 slated to be presented by Finance Minister Nirmala Sitharaman on February 1, 2025, Deloitte expects the government spending to pick up going forward, supporting growth in the coming quarters of FY2025. “The first quarter data points to a notable increase in private consumption and a modest improvement in investment activity. We expect these two to be the fundamental growth pillars as global uncertainties weigh on net exports,” Rumki Majumdar, Economist, Deloitte India, said.
Earlier in September, the Finance Ministry issued a budget circular to kick off the budget exercise for fiscal year 2025-26. The budget is likely to be presented on February 1 next year. This will be Nirmala Sitharaman’s eighth successive budget. Once the meetings with the central government and Ministries are over, the finance minister will meet various stakeholders, such as representatives of industry groups, economists, and trade unionists during the last week of December or early January. The finance minister will also convene meetings of States to seek their views on the Union Budget.
Deloitte pointed out four key expectations from the upcoming Budget and these pertain to employment generation and skill development, critical considerations to control looming inflation, measures to enhance the competitiveness of Indian products on the global stage, and increase in capital spending.
Here is a list of expectations from Union Budget 2025-26, as outlined by Deloitte:
Expectation 1
While the previous Budget emphasized on employment generation and skill development with initiatives such as Employment Linked Incentives and internship programmes, the Deloitte Pre-Budget Booklet said that the government is expected to continue to prioritise and enhance efforts towards skill development and employment generation, maintaining the positive momentum. “This would help harness the demographic dividend, drive economic growth from both supply and demand sides and boost consumption through higher incomes,” it said. According to the Periodic Labour Survey, the quarterly results for June 2024 show an increase in the Labour Force Participation Rate (LFPR) for both men and women, rising to 74.7 per cent and 25.2 per cent, respectively, from 73.5 per cent and 23.2 per cent in June 2023. Additionally, the unemployment rate has been steadily declining.
Expectation 2
With inflation remaining a crucial challenge for the economy for an extended period, Deloitte anticipated a focus on long-term solutions aimed at strengthening the agricultural value chain, incentivising production and addressing structural supply-side issues that add to the delivery cost. In the short term, it said, the government is expected to go with Direct Benefit Transfer (DBTs) and food coupons to support rural consumption, as rural inflation is higher and affects rural demand.
CPI inflation, based on the Consumer Price Index (CPI), in October had surged to a 14-month high of 6.21 per cent, driven by a sharp rise in food prices. While it showed some signs of easing with November CPI inflation down to 5.48 per cent, it remains a critical consideration for the upcoming budget. The Economic Survey 2024 recommended that India’s inflation targeting framework exclude food prices, as food inflation is primarily supply-driven rather than demand-driven. It suggested that the government should address food inflation through supply-side measures rather than relying on the RBI to manage it with demand-side tools.
Expectation 3
Following the US elections, the risk of volatility in global trade has increased, with potential measures such as higher import tariffs and tax cuts to promote manufacturing in the US. Further, the US President-elect Donald Trump has reiterated his stance on imposing reciprocal taxes accusing India of levying “high tariffs” on American goods and warning of similar measures from the United States. All these will affect global supply chains, thereby affecting Indian exports.
Deloitte said that in order for India to achieve its export target of $2 trillion by 2030, the government is expected to implement a range of measures to enhance the competitiveness of Indian products on the global stage. These may include tariff rationalisation, duty exemptions and remission schemes, which would help lower the cost of Indian exports. “Additionally, the government is likely to focus on simplifying export compliance procedures to reduce barriers and enhance exporters’ efficiency,” it said.
Expectation 4
Lastly, with the government, in recent years, placing a central emphasis on infrastructure development with increased capital spending, Deloitte said that the government is expected to maintain its strong commitment to infrastructure investment, recognising it as a key driver of broader economic growth. The central government has increased capital spending on infrastructure development from 1.63 per cent of GDP in FY2019 to 3.4 per cent in FY2025.
“As the government continues to enhance total factor productivity, infrastructure, as one of the fundamental pillars of productivity, will remain a high priority. We anticipate sustained growth in social, physical and digital infrastructure spending will be prioritised. The government is expected to expand road networks, develop multi-modal logistics parks and improve overall logistical infrastructure to support efficient economic activity. At the same time, the government will also focus on health and education, with a special focus on skilling,” the Deloitte Booklet stated.
Upside and downside risks to economy
While the Union Budget 2024-25 maintained a strong commitment towards balancing various objectives for achieving the vision of Viksit Bharat, continuing and deepening the reforms agenda on nine priorities outlined in the Union Budget 2024-25, will be crucial.
According to Deloitte, upside risks included:
Growth: India’s growth unexpectedly slowed to 5.4 per cent in the second quarter, primarily due to low capital formation and a weak export performance driven by geopolitical uncertainties and disrupted supply chains. However, consumer spending, specifically rural consumption, held up well.
Robust infrastructure spending: Capital expenditures grew by 28.4 per cent in FY24 (RE) and are expected to grow 17 per cent in FY25 (BE). However, during H1FY25, the centre’s capital expenditure is merely 37.3 per cent of full-year budget estimates, vis a vis 49 per cent of the budget estimate last year within the first six months.
Strong credit growth: Credit growth remains healthy despite the recent influence of higher policy rates and the RBI’s vigilance. Credit to the MSME sector saw strong growth in Q2 2025, with micro and small enterprises increasing by 13.4 per cent and medium enterprises by 20.5 per cent. This suggests that the MSME sector is increasing its investment to expand.
Strong resurgence in the services sector: The services sector performed well, with a robust 7.6 per cent growth in FY24. The sector is expected to continue its growth of 7.1 per cent in H1 FY25 as well, while services exports are projected to grow by an impressive 21.3 per cent year-over-year. This positive development is encouraging, given the sector’s significant contribution to India’s GDP and employment.
Further, downside risks included:
Inflation: India’s retail inflation has been volatile due to higher food prices. Barring two months, inflation has been above RBI’s target inflation rate of 4 per cent this year and in October 2024, CPI breached RBI’s upper tolerance (of 6 per cent), recording a growth of 6.21 per cent. The persistent rise in food prices is probably affecting even the core prices, which are edging up gradually. Despite the RBI keeping policy rates constant at 6.5 per cent since February 2023, inflation has continued to be a problem with temporary reliefs intermittently. A possible rise in inflation in the West could also result in higher import prices, pushing price pressures further up.
Geopolitical uncertainties: The geopolitical concerns weigh on global investors and policymakers. As the Israel and Iran war intensified in October, there was a brief impact on oil prices and a contagion impact on the global supply chains and economy. Emerging markets witnessed capital outflows after the stimulus announcements in China on 25 September, including India. Net FII investments declined sharply. The US election results will also imply changes in trade and investment relations with the West and impact on global supply chains. Volatile oil prices and the possibility of higher trade tariffs will likely have an adverse effect on India’s export growth and the current account balance.