Budget 2025: Striking a balance between investment and consumption in Modi 3.0 regime

the government aims to sustain manufacturing-led growth, job creation, and long-term economic competitiveness.

The Union Budget for FY26 reflects a strategic recalibration in economic priorities, marking a shift from the overwhelming capital expenditure (capex) focus of Modi 2.0 to a more balanced approach between investment and consumption under Modi 3.0.

This nuanced strategy aims to sustain economic growth while enhancing domestic demand, ensuring fiscal prudence, and strengthening India’s macroeconomic fundamentals.

A key highlight of the budget is the planned capex expenditure of Rs 11.2 lakh crore, representing a growth of 10.2 percent over the previous fiscal year. This allocation is strategically spread across critical sectors, including defence, infrastructure, and housing, alongside capex loans to states. By ensuring continued investment in high-impact areas, the government aims to sustain manufacturing-led growth, job creation, and long-term economic competitiveness.

This reinforces the administration’s commitment to infrastructure-led development while ensuring states have adequate resources for their respective growth agendas.

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However, the most noteworthy aspect of the budget is its increased focus on consumption, which emerged as an unexpected yet welcome development. The government’s decision to allocate Rs 1 lakh crore — equivalent to 0.3 percent of GDP — directly into the hands of consumers is poised to provide a significant boost to domestic demand. This measure is expected to drive increased spending, particularly in sectors such as retail, automobiles, and consumer goods, thereby supporting broader economic expansion in 2025.

By emphasizing consumption alongside investment, the government is ensuring a more inclusive growth trajectory that benefits a wider cross-section of the economy.

Importantly, this recalibrated spending approach does not come at the cost of fiscal discipline. The fiscal deficit target for FY26 has been set at 4.4 percent of GDP, aligning with the government’s long-term goal of fiscal consolidation. This prudent approach not only reassures investors and credit rating agencies but also strengthens India’s prospects for a sovereign rating upgrade in the medium term. By maintaining a delicate equilibrium between economic stimulus and fiscal responsibility, the budget reinforces confidence in India’s economic management.

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In conclusion, the Union Budget FY26 successfully strikes a fine balance between investment and consumption, ensuring that the economy continues to grow while maintaining fiscal stability. With a well-structured expenditure plan that supports both long-term development and immediate demand stimulation, Modi 3.0 is steering India towards a sustainable and resilient economic future.

The author is President & Chief Investment Officer- Equities of Edelweiss Asset Management

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