As the Union Budget of India 2025 approaches, Pradeep Gupta, Executive Director and India Head of Investments, Lighthouse Canton, highlights key themes including the expected 10%-12% increase in capex, the government’s continued focus on PLI incentives to boost manufacturing, and the need to address weak private capex driven by a distorted demand outlook.
The government will have its task cut out setting budgetary expectations amidst ongoing concerns towards lagging growth with full-yearFY25 GDP growth expected to settle around 6.4%, a 4-year low.
The RBI revised its inflation forecast for FY25to 4.8% from the earlier estimate of 4.5%. Add to it, a mixed domestic demand scenario with struggling urban pockets, global turmoil, INR depreciation, weak exports, etc. It will be interesting to see how policy balancing is approached given the current growth inflation dynamics.
To start with, we expect a continued emphasis on fiscal prudence with the government committed to maintaining a sub 4.5% fiscal deficit target for FY2026. We also expect continued momentum in areas of focus like public capex, infrastructure, and employment creation thus reflecting upon sustained improvement in quality of spending by the government.
Commentary around the nominal GDP numbers doesn’t appear to be encouraging enough for now. While one may still witness healthy growth in direct tax collections, indirect tax collections are likely to be impacted in case of an intensified tariff war globally. We may not witness a complete or significant overhaul of direct tax yet. Will reserve our view for now on any material relief around personal income tax. Likely, the overall thrust around boosting consumption could be a part of broader policy reform.
It is difficult to ascertain the extent of cushion one can expect from the RBI on account of its dividend payout in this fiscal. If it comes through, it will free up some part of fiscal space. As per the estimates, the government is likely to undershoot the capex outlay target for the ongoing fiscal by INR 1 trillion.
We expect 10%-12% growth over last year’s capex budget for this year. The continued anchoring of the PLI-linked incentive ambit is expected as a part of the government's manufacturing push. Private capex has been a laggard despite India corporation in its best shape from a balance sheet deleveraging view. It’s the distorted demand outlook that continues to be a sore point & will have to be addressed in this budget.
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