1.Macro Indicators: Growth and Fiscal Deficit
- The GDP growth for FY25, as projected by the RBI, stands at 6.76, while the first advance estimates by the government anticipates 6.4%, a four year low. This budget will need to align its policies to reverse the recent slowdown and push GDP growth closer to the earlier aspiration of 7%.
- Fiscal deficit control remains critical. With the FY25 target at 4.9% of GDP, the upcoming budget is expected to tighten this further to approximately 4.3%. However, the depreciating rupee (₹86/$) could be a challenge, on account of the rising global pressures.
2.Infrastructure Spending
- The 2024 budget allocated ₹11.11 lakh crore (3.4% of GDP) to infrastructure, including roads, water, and urban development. For 2025, an even higher allocation is expected to sustain growth momentum. Efficient execution, however, will be the key monitorable factor, addressing delays caused by state elections in the previous year and other administrative challenges.
- Railways are expected to witness continued focus in what can be termed as Railway Capex 2.0, with investments in wagons, new routes, and high-speed rail projects and corridors driving long-term connectivity and economic benefits.
3.Retail Investors and Market Protection
- Retail investor participation in markets has surged, with monthly SIP contributions growing by more than 200% from ₹8,000 crore in 2019 to ₹25,320 crore in 2024. As Nirmala Sitharaman aptly pointed out in 2019, the retail investors’ should not be underestimated with their increasing role in India’s financial ecosystem.
- As the Finance Minister emphasized in earlier budgets, the government remains committed to protecting retail investors. This budget could see measures to further encourage systematic investments while curbing speculative activity with a strong word of caution, as over 93% of retail investors have lost money in the F&O frenzy in three years.
4.Private Sector Push and Capex Revival
Private sector capital expenditure remains below pre-pandemic levels, with a sharp 22% YoY drop in new project announcements. To address this, the budget could introduce:
- Incentives for R&D, such as a National Research Fund and targeted VC funding.
- Capex-linked tax breaks and enhanced depreciation benefits to stimulate investments.
Simplification of tax structures (e.g., lower surcharges and increased minimum tax slab under the new regime) could also spur disposable income and private capex.
5.Green Energy and Mobility
Execution is the buzzword for the EV sector, with policies that should focus on:
- Expanding EV charging infrastructure.
- Enhancing public transport electrification, such as interstate and intrastate electric buses.
Renewable energy storage, such as pump hydro storage, could also see targeted policy support.
6.MSMEs: Bridging Credit Gaps
Addressing supply-side constraints and improving access to formal credit channels remain priorities. Liquidity measures and tax benefits for MSMEs could ease their challenges and ensure their sustained contribution to the economy.
7.Water Infrastructure and River Linkage
- Long-pending projects, could see enhanced clarity on inter-state agreements and execution frameworks, like the ₹40,000 crore Ken-Betwa river linkage. Investments in water infrastructure may accelerate under a broader sustainability agenda.
The Union Budget 2025 is expected to strike a balance between fiscal prudence and growth. With a focus on infrastructure, green energy, and private sector revival, it may signal a pragmatic approach to addressing immediate challenges while laying the foundation for long-term economic progress. The Finance Minister’s commentary will be key in setting the tone for the next fiscal, emphasizing execution as the defining element for 2025. Although the market might see a short term volatility it will remain largely range-bound over the next three months, driven by a mix of cautious optimism, global headwinds and what is expected to be a tepid earning season.
– Hemant Shah, Fund Manager, Seven Islands PMS