EY Report Urges 20% Capex Boost in Budget 2025 for Economic Revival

The EY Economy Watch January 2025 report advocates a 20% increase in capital expenditure for India's upcoming budget to revive domestic demand and stimulate GDP growth. It underscores a strategic focus on investment while maintaining fiscal discipline, estimating the fiscal deficit at 4.8% of GDP for FY25.

The EY Economy Watch January 2025 report emphasizes the necessity of a 20% increase in capital expenditure in the forthcoming budget to revive domestic demand, boost private consumption, and secure sustainable GDP growth. The report anticipates the government will adhere to its fiscal deficit reduction plan, aiming for 4.4% of GDP in FY26.

DK Srivastava, Chief Policy Advisor at EY India, highlighted the importance of balancing fiscal prudence with growth-oriented measures. He stated that enhancing capital expenditure and increasing consumer disposable incomes, specifically among urban households, is vital for bolstering domestic demand. Despite global economic uncertainties, Srivastava believes prudent fiscal policies and reforms can keep India on track to reach its target of a USD 5 trillion economy by FY30.

The report identifies four priority areas for Budget 2025-26: a 20% rise in infrastructure investment, reforms in personal income tax to raise disposable income for lower middle-income groups, rationalizing import tariffs to enhance domestic manufacturing, and maintaining stable inflation to allow for interest rate cuts and encourage private investment.

EY India projects a fiscal deficit of 4.8% of GDP for FY25, slightly below budget expectations due to reduced capital expenditure. Retail inflation (CPI) showed signs of moderation in December 2024, suggesting potential policy rate reductions that could further support private investment. The report also discusses equitable fiscal transfers to states, drawing on strategies from past Finance Commissions and proposing that the 16th Finance Commission incorporate similar equitable measures.

(With inputs from agencies.)