2025 Union Budget: Balancing Fiscal Prudence with Growth Ambitions

The 2025 Union Budget, slated for February 1, is poised to balance fiscal discipline with growth strategies. Key focuses include boosting investments through increased capital spending, fiscal deficit reduction, and enhanced allocations for social programs. New initiatives aim to spur private investments amid global economic headwinds.

The forthcoming 2025 Union Budget, set for presentation on February 1, aims to delicately balance fiscal discipline with measures to foster economic growth, as highlighted in a recent report by Bank of Baroda. To stimulate private sector investments, the government plans to significantly raise capital expenditure to Rs11-11.5 lakh crore for FY26, up from Rs10 lakh crore in FY25.

Despite challenges such as global economic slowdown, a robust US dollar, and potential trade barriers under President-elect Donald Trump, the government remains committed to maintaining India's strong growth trajectory. This includes strategies to bolster domestic consumption, fuel private investment, and sustain initiatives like PM-KISAN and MGNREGA.

The budget also anticipates a fiscal deficit reduction to 4.3-4.4% of GDP in FY26 from 4.8-4.9% in FY25, reflecting fiscal prudence despite the proposed expenditure increase. Aided by stable revenue growth and nominal GDP expansion of 10.5%, the allocation of resources will prioritize infrastructure, social welfare, and skill development initiatives.

In response to signs of reduced real GDP growth and urban consumption, the budget will focus on rural and urban revitalization. Increased funds for programs like MGNREGA, PM-KISAN, and affordable housing, along with new measures such as incentives for MSMEs and expanded EV infrastructure, are anticipated.

Tax reforms are also on the table, including heightened standard deductions and alterations to encourage sustainable tourism. The total subsidy expenditure is projected to slightly decline, primarily in food subsidies, even as fertilizer subsidies remain significant due to currency fluctuations.

Revenue stabilization is expected in FY26, bolstered by robust indirect tax collection, particularly GST. The government's borrowing program will stay relatively consistent, with anticipated net borrowing of Rs10.8 lakh crore, aided by savings from reduced expenditure.

Capital expenditure, as a core focus, will underpin investment in critical infrastructure and technologies, aligning with the government's vision of 'Viksit Bharat.' Modest growth in revenue expenditure will support schemes like PM-Awas Yojana, with allocations aimed at comprehensive development.

(With inputs from agencies.)