By Nilesh Shah, Managing Director at Kotak Mahindra AMC
As the Finance Minister prepares to deliver her eighth budget in a row, she must be aware of the expectations from different sections of the society and industry.
She has a Herculean task of walking the fine line between fiscal prudence and growth. This budget will be presented at a time when the world moves from globalisation to protectionism and tariffs are becoming an integral part of the policy. Expectations from the Budget 2025 are also quite high as the GDP growth from September 2024 and December 2024 was subdued.
Fiscal Prudence at the core
The country should continue on the path of fiscal prudence the previous budget has charted. It is the conservative management of the economy that has differentiated us in the face of global economic headwinds. The Finance Minister had committed 4.5% fiscal deficit for FY26 that should be honored.
Catalysing Capital Expenditure and Consumption Growth
The consumption sector remains subdued for last several months, especially the urban consumption space. Some sort of tax exemptions and EMI subvention at the lower and middle parts of the pyramid would help propel the consumption engine. Further, the government should also look at ways to get more people in the tax net. This would further boost revenues.
The load of capex has to be borne by the government as the private capex has remained subdued for various reasons. Like last year, a little bit of shortfall in the capex is expected. But not withstanding that, we should set a higher target as it will act as a catalyst for private capex.
Creating Foundation for Future Technologies
The budget should also focus on investing in future technologies while providing ample resources for Indian entrepreneurs. As of today, the AI (Artificial Intelligence) programmes and foundations are foreign owned. We need to invest in these technologies.
While there are pros and cons of having our own AI foundation, we should provide capital for investments in these technologies of the future. If you use someone else’s road, you will always pay the toll, but if you own the road you can collect the toll from the traffic.
When industrial revolution happened, it bypassed India. We had zero growth for next 200 years as a result. We cannot make that mistake during this AI revolution.
Challenges result in Innovations
Maintaining fiscal prudence, boosting urban consumption and disinvestment is a difficult ‘Triveni Sangam’. This would call for innovative solutions by the finance minister.
The divestment receipts have remained way below their potential. This may be the year we can increase it through the strategic divestment of non-core PSUs.
Also, there is a fair amount of Indian savings which is tied in accounted Gold in safe deposit lockers and mostly in parallel economy. It is time that we mobilise these frozen savings and for the benefit of investments and growth.
Finally, one thing that can be considered is the exit tax. We have seen many Indians changing their residency and moving abroad. Countries like the US have a concept of Exit Tax, which taxes individuals who decide to give up their citizenship or residency status. We can look at levying similar tax for those leaving India.
Between divestment, exit tax and monetization of unaccounted gold, the Finance Minister can increase revenue through which we can raise investments, support urban consumption and yet maintain the path of fiscal prudence.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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