In an interview with ETMarkets, Doshi said: “Markets will particularly scrutinize the quality of spending and revenue assumptions to gauge the government’s commitment to fiscal consolidation during this political transition,” Edited excerpts:
The month of January started on a roller coaster note ahead of the big domestic event – Union Budget 2025. Do you see some recovery in the market post the event? (we are down over 10% from highs)
We have witnessed among the fiercest, longest and broadest market move, since the 2020 pandemic. The roller coaster has navigated uncertainties of pandemic, wars, and sharp supply shocks.
The near terms softness comes from concoction of multiple developments of softer economic recovery in India, changing political and economic scenario post 2024-elections, high valuations, sustained domestic liquidity and changed stance of the FIIs given slow but steady resurgence of China in the investing canvass globally.
The valuation band though in the fair zone, is certainly being challenged given slower demand growth on ground. The changed balance in domestic macro, possible softening of interest rates, make earnings an important driver for any recovery.
As regards budget as an event, it has indeed become less of a market-moving event since structural reforms like GST have fundamentally altered the fiscal architecture.
With the GST Council now handling most indirect tax decisions and rates throughout the year, the budget’s traditional role of announcing major tax changes has diminished significantly.However, it remains relevant for announcing capital expenditure plans, direct tax policies, social sector spending, fiscal deficit targets, and broader economic vision.The shift represents a more mature policy framework where major tax decisions are made through a federal consensus in the GST Council rather than as surprise announcements in the annual budget exercise, making the overall system more predictable and consultative.
What are your big expectations from Budget 2025?
The transition back to coalition politics after a decade marks a watershed moment in India’s governance framework, introducing nuanced complexities into the policy-making landscape.
While the development and reform agenda has been the bedrock of governance, we’re now likely to see a calculated shift towards welfare economics as coalition dynamics necessitate broader consensus-building.
This delicate balancing act between growth-oriented policies and social welfare measures will require careful navigation, potentially affecting both the pace and scope of structural reforms that markets have grown accustomed to under single-party rule.
The near-term economic landscape presents a challenging matrix of headwinds that demand strategic consideration.
Elevated crude prices are straining India’s external balance, while currency weakness and persistent inflation have complicated the monetary policy outlook, delaying anticipated rate cuts.
These macroeconomic challenges are further intensified by domestic political events like the Delhi Elections and the unpredictable policy stance of the newly installed Trump administration.
While these factors have introduced a layer of caution in market sentiment, investors continue to maintain conviction in India’s long-term growth trajectory.
The key focus remains on how effectively the new political framework can balance populist pressures while maintaining fiscal discipline and reform momentum.
What are the key priorities for the government in Budget 2025 to ensure long-term economic growth?
Ahead of the Union Budget announcement, India faces several macroeconomic challenges, including a decline in corporate profits, lagging private capital expenditure, and dipping household earnings and spending sentiment.
The erosion of market capitalization by INR 68 trillion since September 2024, which is 1.4 times larger than the FY25 budget, further complicates the situation.
The central government’s ability to address these structural and cyclical issues is crucial, especially given the rising ruralization and dependence on the agricultural sector, which could lead to prolonged lower growth rates.
A sub-9% nominal GDP growth, lower than the usual budget assumption of 10.5%, could have serious implications for fiscal calculations, including tax buoyancy and debt sustainability.
The intense supply-side fiscal strategy over the past 7-8 years, including corporate tax cuts and heavy infrastructure outlays, has not succeeded in crowding in private capital expenditure or generating employment.
With corporate profits now contracting, private investment may further diminish, challenging the justification for high government capital expenditure.
Additionally, the lack of positive externalities from this strategy and high public debt have led to peak tax incidence on households and reduced subsidies, resulting in weak demand.
The provisional data for FY25YTD indicates that fiscal containment has led to the lowest spending growth in 20 years, with significant curtailment in capital allocation and higher revenue spending.
Budget priorities are likely to focus on sustaining infrastructure momentum through strategic sector allocations, providing measured support to rural demand, and maintaining fiscal prudence to aid disinflation.
The key challenge lies in balancing these economic objectives with coalition dynamics. Markets will particularly scrutinize the quality of spending and revenue assumptions to gauge the government’s commitment to fiscal consolidation during this political transition.
Any specific sectors that could see increased spending in Budget 2025?
India is at an inflection in terms of per capita income, demography and manufacturing renaissance. This coupled with the 25-year vision of evolving onto a developed economy makes the budget more a statement of intent.
We expect some of the strategic sectors to retain focus in the overall scheme of things.
1) Healthcare: – Possible funding increases raising the allocation to ~5% of GDP. Possible roadmap on urban and rural healthcare infra and embedding technology and support in telemedicine and diagnostics
2) Agriculture and Rural Development: – possible mechanism to address crop pricing stability, improve subsidies architectures for fertilizers, expanding outlay towards irrigation and increasing support for organic farming, agri-tech adoption, and better post-harvest management
3) Green Energy and EV Adoption: – Investments in renewable energy, particularly solar and wind projects, extended support for green adaptation at retail level (rooftop/ pumps, etc.), rooftop solar, and initiatives to scale green hydrogen are likely. Simplified GST structures for electric vehicles and tax incentives for battery manufacturing and charging infrastructure to accelerate EV adoption. The increased digitization, and AI also make data centers as a high growth private capex space.
4) Hospitality and Tourism: – Focus on facilitating investments in tier II and III cities to boost regional tourism and job creation. Infrastructure investments to remain targeted to improve connectivity in these targeted regions to current hubs.
5) Water and Sanitation: – focus on sustainability and resilience in water distribution and sanitation infrastructure is expected, building on previous progress in terms of water to each home, river interlink, etc.
6) Self Sufficient (Atma Nirbhar) Infra – Defense, Railways, Marine – expect a decent commitment and allocations here, possibly a high double digit growth allocation
Is there a specific sector you’re particularly interested in?
We feel a sustained push on green energy, focus on sustained digitization, revival in rural consumption simplification of taxation and benefits to consumer makes consumption a latent space of consistent growth in an economy of 1 billion + consuming constituents of multiple at-scale cohorts.
Despite near-term challenges, medium-term opportunities remain intact, supported by strategic policy interventions and sectoral strengths.
We remain bullish on opportunities to navigate transformative megatrends, including digitization, aspirational consumption, financialization, formalization, home improvement, manufacturing renaissance, and the emerging capex cycle.
These trends are expected to drive sustainable growth and create significant investment opportunities in the coming years.
Do you see any specific measure coming in the Budget to boost consumption which is showing signs of slowing down? (focus on govt Capex)
Given these constraints, the upcoming budget is likely to focus on fiscal consolidation while using extra-budgetary instruments to support the economy.
Expected measures include rebalancing the spending profile by lowering capital outlay growth, refocusing on the rural economy, and easing income tax incidence.
Additional GST slabs on luxury goods may be introduced. Public sector entities might be used to support employment generation and dividend payouts, while PSU banks could be directed to increase rural lending.
Do you see any changes in direct tax structures which middle-class taxpayers expect in Budget 2025? Are there plans to simplify tax provisions for capital market products further, such as long-term capital gains tax or securities transaction tax?
The recent efforts of taxation on trivial items like popcorn does suggest that the regime is keen to scrape the bottom of containers of revenue collections wherever possible.
Therefore, expectations of relief might be unwarranted as of now. However, given the strained thread of consumption a soft relief for individual taxation is likely in terms of better slabs are possible.
We feel the tough times demand willingness to think differently. It is time the regime does something out of box where the taxation structures co-opt soft relief for complying tax players when it comes to taxes such as GST.
There have been instances from Asian tiger economies in late nineties where co-opting tax reliefs for capped GST returns or credit-card spends in taxations have resulted in demand revival on ground.
In India sheer numbers are so high that any small initiative can deliver a strong output velocity on such counts.
How does the projected fiscal deficit of 4.5% provide the government with the headroom for increased public spending?
Policymakers face a challenging balance between currency, interest rates, and fiscal policy. With limited room for excessive spending, demand growth is crucial for domestic revenue.
Amid macro uncertainties like geopolitical tensions and inflation, the central government is under pressure to maintain GDP growth around 6.5%.
The government is likely to focus on reviving public capital expenditure (capex), leveraging its high multiplier effect (estimated at 2.45%). They may also incentivize states to take long-term (up to 50 years) interest-free loans (₹1.5 trillion) by relaxing norms around capex project completion at the state level.
Fiscal consolidation in FY26 (targeted at 4.5% of GDP) is expected to come from reductions in current expenditure, particularly food subsidies. An increase in the RBI dividend (estimated at ₹2.1 trillion) will also provide fiscal space, easing pressure on tax collections.
What role will Budget 2025 play in accelerating India’s journey towards a $5 trillion economy?
US$ 5 Trillion is a passe according to us. A milestone that we are staring at in the coming 2-3 years. INR strength remains very important for that goal.
Also, for an economy to grow, money must keep coming from external sources to participate in its growth story – something that currently is witnessing a hump in a mildly unstable macro. How the Indian manufacturing story unfolds will remain critical to this journey.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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