Pradeep Gupta, Executive Director & India head of Investments, Lighthouse Canton shares a comprehensive overview of the recent Union Budget of India.
The Union Finance Minister has delivered her eighth consecutive Union Budget for the year 2025. The Economic Survey, which was tabled, projected a growth rate of 6.3%to 6.8% for the next financial year, envisioning India as a developed nation by 2047. The broader emphasis remained on maintaining fiscal responsibility, improving the quality of spending via growth-focused expenditures, and promoting enhanced disposable income & public-private investment.
With the fiscal belt at 4.4%, necessary attempts had to be provisioned to strike a balance between social welfare & investment led growth. The capex multiplier for India is roughly 2.5 times, and the current allocation, although largely unchanged, will continue to act as a key catalyst. The numbers look fairly competitive when grants to the states are included, with a capex increase of 17% after accounting for the same. Since the revenue expenditure was already at its lowest threshold, any potential scope to further downsize it was limited.
The glide path toward overall fiscal stringency was expected, as it had been the hallmark of the incumbent government. There is a structural effort to strengthen the case for a sovereign credit rating upgrade. On the other hand, net tax receipt projections appear to be in line with expectations. The Union Budget 2025 has set a target of INR 47,000 crore for miscellaneous capital receipts, including disinvestment and asset monetisation. For FY 2025, the revised estimates stand at INR 33,000 crore, compared to the budgeted estimate of INR 50,000 crore.
The government has also set a target of INR 69,000 crore from public sector dividends. This exceeds both the FY2025 budget estimate of INR 56,260 crore and the revised estimate of INR55,000 crore. The projected FY2026 target also exceeds the INR 65,381.65 crore collected in FY2024. However, we are not very optimistic regarding the overall execution due to the less ambitious approach observed in the past. The budgeted revenue from the Securities Transaction Tax (STT) increases from INR 50,000 crores in FY2025 Budget Estimate (BE) to INR 78,000 crores in FY2026, which appears to be challenging.
The gross and net borrowings announced for FY2026 are INR 14.8 trillion and INR 11.5 trillion, respectively. The net borrowing is lower on a year-on-year (YoY) basis. This can impact the 10-year government security (g-sec)yield due to passive inflows and renewed traction driven by an anticipated decline in US yields over time.
While rural consumption has shown signs of recovery, it was the urban consumption which continued to be bleak. Proposed changes in direct tax are likely to reduce the burden of the middleclass and increase disposable income, which in turn, will drive household consumption, savings and investment. Individuals with an income of up to INR 12 lakhs are likely to see a 4% to 6%increase in post-tax income.
The Finance Ministry’s move to hike the Foreign Direct Investment (FDI) limit to 100% from the current 74% is well poised to attract fresh capital from overseas investors. According to government data, since the FDI limit was raised to 49% in 2015 and subsequently increased to 74% in 2021, the sector has received close to INR 54,000 crore in FDI. However, we have to see how this move eventually unfolds, given the scarcity of capable and willing local entities. Additionally, there are few insurance entities where foreign players have utilized the existing limit of 74%, thus casting some doubts about the incremental appetite to do so.
The Union Budget 2025’s INR 10,000 crore Fund of Funds is a major boost for startups, adding to the INR91,000crore commitments under Alternative Investment Funds (AIFs). This strengthens capital access, fostering innovation and entrepreneurship.
The focus on easing compliance and enhancing the ease of doing business is a welcome move, particularly for startups and investors.
Incentives announced in key areas such as agricultural, employment generation, revitalization of MSME, digital economy, healthcare, tourism, trade and clean energy are likely to be a long-term catalyst for inclusive growth.
Although Budget 2025 is in line with the government's medium-term objectives, market participants will closely monitor its effects on economic expansion, sustainable growth momentum, participation from the private sector, and continued fiscal prudence.
Government has led the path for now. Move over to RBI & MPC...!
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