By Aniruddha Sarkar, CIO and Portfolio Manager at Quest Investment Advisors
The Union Budget 2025 reinforced government focus on inclusive growth, infrastructure expansion, MSME support, financial sector reforms, and a progressive tax structure while ensuring fiscal discipline. If I look at the budget clearly, three focus areas emerge.
Firstly, the government has made significant increase in the tax exemption limits for the middle classes raising the exemption limit from Rs 7 lakh to Rs 12 lakh. This would make almost more than 80% of the taxpayers currently registered, as beneficiaries saving anywhere between Rs 30,000 to Rs 1,10,000 per annum in tax savings. This would spur in consumption demand for discretionary items which had seen some slowdown in recent quarters due to rising inflation and lower income growth. Retail would be the biggest beneficiary since elasticity of demand is the highest in retail on account of lower price points. Other sectors to benefit from increased demand would be consumer durables and automobiles.
Also read: Old vs New: Which tax regime should you choose for FY26?
Secondly, the government has continued to focus on fiscal discipline with deficit target revised down for FY25E at 4.8% versus earlier estimate of 4.9% and to 4.4% for FY26, as against market expectation of ~4.5%. While the fiscal deficit in absolute terms in FY26 remains at similar level of FY25 at Rs 15.7 lakh crore, gross market borrowing has been increased to Rs 14.8 lakh crore versus Rs 14.0 lakh crore in FY25. The subsidy allocation has remained unchanged for broader heads. Government has kept a strict control on its subsidy allocation which for FY26 is estimates at Rs 3.8 lakh crore, flat on YoY basis, however down as a % of GDP basis to 1.1% of GDP in FY26 versus. 1.2% in FY25. Government has also broadly maintained allocation towards it flagship DBT (direct benefit transfer) schemes namely MGNREGA and PM-Kisan Yojna.
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Thirdly, the government focus on job creation and support for MSME continues. The finance minister rolled out various measures to boost domestic production, support MSMEs, and improve ease of doing business: (1) Revised classification criteria for MSMEs by raising their thresholds to at least 2x, to help them achieve better efficiency and capital access; doubled credit guarantee cover for them. (2) Additional Rs 10,000 crore government contribution for start-up AIFs. (3) New scheme for 5,00,000 first-time entrepreneurs from disadvantaged sections.
One area where the government has deliberately not ventured much is the Capex space because they have a lot of planned capex of last years to be yet done. The aggregate capital expenditure of Centre increased by 10% to Rs 11.2 lakh crore over FY25RE (Revised Estimates) of Rs 10.18 lakh crore. However, it remained flat over FY25BE (Budget Estimates) of Rs 11.1 lakh crore. There has been a muted growth in allocations for roads, railways and water sectors. Weak allocation growth in roads and water is reflective of slower project awards in FY24/YTDFY25. Award of highway projects is expected to pick-up albeit with greater focus on PPP mode (HAM and especially BOT-Toll) than in previous years. Defence sees relatively better growth in capex allocation. Push on renewable energy continues.
Overall, it was a very well-balanced budget and addressed all the pain points in the economy. We couldn’t have asked for more in the current economic environment.
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