Balancing consumption and capital expenditure, key tax reforms and industry incentives

As the Union Budget for the fiscal year 2025- 26 will be presented today, various sector stakeholders have articulated their expectations and recommendations. The budget is expected to balance capital expenditure with consumption initiatives, focusing on infrastructure development, agriculture, job creation and economic stability.

The first estimate for GDP growth in FY 2024-25 has been reduced to 6.4% due to challenges such as weakening rupee and heightened global uncertainties. Similarly, the fiscal deficit for FY2025 is projected to be between 4.6% and 4.8% of GDP, slightly lower than previous estimates due to anticipated shortfalls in capital expenditure and tax revenue.

Key focus areas

The government aims to maintain a fiscal deficit below 4.9% for FY25 and a long term target of 4.5% by FY26, balancing fiscal consolidation with growth initiative.

The budget is expected to stimulate consumer spending amid recent GDP slowdowns, to boost economic activity anticipated reforms include rationalizing GST rates and potentially altering income tax slabs to alleviate middle-class taxpayer burden.

The budget may introduce measures to encourage innovation through tax reliefs and increased deductions under various sections of the Income Tax Act. Expectation for increased funding for rural welfare schemes, including food and fertilizer subsidies, is expected to stimulate economic recovery and address inflation impact.

The budget is expected to prioritize job creation through government-led initiatives, focusing on small and medium enterprises (MSMEs) and digital infrastructure support for retailers. It is also expected to allocate a significant portion towards infrastructure projects, which are crucial for long-term economic growth and recovery from the pandemic's effects.

The government is anticipated to significantly reduce its disinvestment targets for FY25, with estimates ranging from Rs 30,000 crore to Rs 60,000 crore, citing past challenges in achieving these targets. This adjustment reflects challenges in executing planned sales of state-run firms.

Sectoral expectations

The main expectations of farmers include increased support for irrigation, crop insurance, and credit access, reforms in Minimum Support Prices (MSP) and market access initiatives. 

Similarly, among the industry and manufacturing sector’s main expectations are expanding the scope of the Production-Linked Incentive (PLI) scheme to cover more sectors with increased allocations, improved credit access and simplified compliance for MSMEs and enhanced export incentives to recover from pandemic-induced disruption.

The budget is expected to boost domestic manufacturing through subsidies and tax incentives, aligning with the 'Make in India' initiative, promoting innovation and sustainability. Start-ups are aiming for enhanced tax benefits, increased funding access and framework to promote AI and emerging technologies.

The Digital India program is likely to witness increased funding for broadband connectivity, digital literacy and cyber security measures. Regarding the health sector, the Ayushman Bharat initiative is expected to see enhanced allocation for healthcare infrastructure, disease prevention, and affordable medicines allocation.

Anticipated reforms in NBFC and banking sector include enhancing credit availability, addressing non-performing assets and promoting digital payments. Regarding education, it is anticipated that the budget would focus on increased education funding, up to 6% of GDP and is expected towards digital education, specifically in artificial intelligence and machine learning.The government might offer loans up to Rs 10 lakh for higher education-vouchers with 3% interest subvention, and increased scholarships to make higher education more accessible.

Industry leaders in real estate sector propose an increase in the affordable housing price cap from Rs 45 lakh in metropolitan areas to Rs 70 lakh, reflecting rising construction costs and urban inflation, and Rs 50 lakh for other cities.

The National Infrastructure Pipeline (NIP) is expected to receive increased budgetary support for roads, railways, and urban infrastructure project. The Automotive Industry, from its side seeks support for Electric Vehicles like interest-free loan, tax rebates and robust infrastructure. Their wish list further includes simplification of GST classifications for vehicles and components, reduction in GST rates for hybrid vehicles from the current 28%.

Manasvi Joshi - Research Analyst

Abhishek Das, Senior Research Analyst

Girish Basantani, Senior Research Analyst

Vikrant Chaturvedi, Senior Manager – Research