Budget 2025-2026: Setting up for Viksit Bharat 2047

The Union Budget for 2025-26 marks a significant step forward in revitalizing India’s consumption-led growth, addressing both immediate economic needs and long-term structural challenges. While it outlines several measures for the agriculture sector, the key highlight is the tax reforms designed to increase disposable income for the significant middle class of the country. This reform has long been a demand from the middle class, who make substantial tax contributions but often feel that the government does not provide adequate benefits in return.

By addressing these concerns, this Union Budget is expected to significantly boost consumption. The reduction in taxation is projected to result in the government forgoing more than 100,000 crores in direct taxes, which will ultimately enhance the disposable income of this demographic.

While the focus on tax reforms for the middle class is noteworthy, the commitment to capital expenditure remains strong. The capital expenditure for FY25 was budgeted at Rs 11.1 lakh crore. However, the government will significantly undershoot the target and achieve 10.2 lakh crore. Despite this dip, recent months have shown significant improvements. Looking ahead, the Capex budget for FY26 is set at Rs 11.2 lakh crore, marking a 10% increase compared to FY25.

When factoring in government grants to states, the total projected expenditure rises to Rs 15.5 lakh crore, reflecting a robust increase of 17.4% over the previous year. Combining the recent uptick in capital expenditure with promising growth prospects for FY26 means that capital expenditure should not pose a challenge. Despite a slight setback in public capital expenditure from the market, the chances of a positive outlook have increased substantially.

Moreover, even with the reduction in direct taxes and reasonable allocations for capital expenditure initiatives, the focus on fiscal consolidation remains. The fiscal deficit for FY25 is estimated at 4.8%, with a projection of 4.4% for FY26, supported by a nominal GDP growth rate of 10%. These estimates seem reasonable. The reduction in the fiscal deficit could open the door for a rate cut in the next RBI meeting, making a 25 basis points rate cut likely, which would not only support consumption but also positively impact the investment environment.

The budget also includes a wide range of measures for the rural and agriculture sectors, both of which require a mix of short-term and long-term capital support to facilitate their growth. Recognizing agriculture as a crucial growth engine, initiatives like the Prime Minister Dhan Dhaanya Krishi Yojana aim to boost crop yields, encourage crop diversification, and enhance irrigation facilities in 100 low-productivity districts. Additional measures, such as achieving self-reliance in pulses and reducing import dependence, are also positive long-term initiatives.The combination of rural and urban initiatives will significantly strengthen the overall consumption sector moving forward. Key beneficiaries of these measures include the Retail, Auto, Travel and Leisure, Hospitality, and FMCG sectors. Increased disposable income will also enhance long-term buying power, benefiting the BFSI sector in areas such as credit cards and lending.Overall, while the budget has a neutral outlook for the IT, Pharmaceuticals, and Infrastructure sectors, it presents some challenges for the Defense sector. However, it is decidedly positive for the consumer sector, particularly in Discretionary, Durables, Autos, Retail, and Staples segments. Furthermore, the Travel and Leisure sector also receives a substantial boost. The Union Budget 2025-26 is well-structured to benefit various economic segments in India and effectively addresses the growth challenges that have been a key concern for investors.

The Union Budget 2025-26 marks a historic milestone, laying the foundation for structural long-term growth. As a result, we anticipate a significantly positive market response over the medium term.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)