Union Budget 2025 likely to focus on these 4 areas with fiscal prudence taking centrestage

Union Budget 2025

By Krishna Rao, MD & Co-Head - Equity Broking Group at JM Financial Services

Union Budget 2025-26 is garnering immense attention from various quarters, as it is expected to set the stage for boosting growth momentum amid muted GDP growth, slow-down in urban consumption, subdued domestic demand and global headwinds. Given the prevailing scenario, the budget will emphasis on four areas - reviving domestic consumption, maintaining capex agenda, providing personal tax relief under the new tax regime and achieving the fiscal deficit target of 4.9%/4.5% for FY25/FY26.

Let’s look at the capital expenditure aspect first. We expect a continued focus on capex in the upcoming budget. Although capex has picked-up in November/December but government is most likely to miss its FY25 capex estimate of Rs 11 lakh crore as national/state election as well as monsoons impacted capex (down 12% in 8MFY25 or 46% of budget estimate). The government is expected to continue with its capex agenda for FY26 (Rs 11 lakh crore) which will optically look appealing (15% YoY) from the lower base of FY25.

Fiscal consolidation is also on track and is likely to be modestly below 4.9% target for FY25. With strong growth in direct tax revenue, likely RBI dividend along with decline in capex would result in modestly lower fiscal deficit as compared to budget estimate of 4.9% of GDP for FY25 and most likely government could revisit its FY26 fiscal deficit target of 4.5%. Fiscal consolidation patch is important to reduce government debt in the medium term.

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Krishna Rao

Managing Director & Co-Head - Equity Broking|JM Financial Services

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In addition, all eyes are now on the budget with expectation of tax reforms or concessions which will revive domestic consumption. Amid high inflation and economic slowdown, it is widely anticipated that the government would undertake tax reform especially under the new tax regime in order to increase disposable income in the hands of the people of the country, which could act as a key catalyst to revive domestic consumption in FY26. Having said that, any kind of tinkering of capital gain taxes in the upcoming budget is least expected as it was done just 6 months back in July 2024.

All-in-all, in the upcoming Union Budget 2025-26, the government will continue its dual focus on fiscal consolidation and infrastructure push through capex in FY26 as well. Emphasis would also be on measures to boost consumption (through some tax relief under new tax regime), revive manufacturing activities and growth as it would be important to revive overall consumer/investor sentiments in the country.

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