 "Growth, capex, and debt: Key numbers to watch in Union Budget 2025")
As the Union Budget 2025 approaches, all eyes are on the key financial indicators that will define India’s economic direction. From the fiscal deficit to defence spending, these numbers will reflect Finance Minister Nirmala Sitharaman’s strategy to balance fiscal prudence with growth ambitions. Amid global uncertainties and domestic challenges, this year’s Budget holds significant implications for India’s economic recovery and long-term stability. Here’s a closer look at the critical metrics shaping the country’s financial strategy.
Fiscal deficit
The fiscal deficit is a vital indicator of the government’s financial health. For FY25, it has already reached Rs 8.5 trillion, accounting for 52.5 per cent of the budget estimates by November 2024. This marks a slight increase from 50.7 per cent in the same period last year.
The government remains committed to reducing the fiscal deficit to 5.1 per cent of GDP in FY25, down from previous years, with an ambitious goal of achieving a 4.5 per cent target by FY26. These efforts reflect the delicate balance between maintaining fiscal discipline and fostering economic growth through public expenditure, something that will be in central focus in the 2025 Union Budget.
“Lower revenue deficit will allow for consolidation without compromising on expenditure. Measures will prioritise demand support, employment generation, ironing out capex capacity hurdles and support localisation of production. Gross tax revenue assumptions are likely to be conservative with a little more than 1x buoyancy. Direct tax collections are expected to compensate for slower non-tax receipts. RBI dividend transfer is a wildcard. We expect FY25 borrowings to be maintained, with FY26 dated issuance to be higher due to redemptions,” said senior economist Radhika Rao. Read Also: Budget 2025 LIVE
India’s debt levels
India’s debt levels, another crucial metric, reveal the scale of its fiscal responsibilities. The debt-to-GDP ratio for FY25 is projected at 56.8 per cent, encompassing the government’s total debt, including external borrowing and other liabilities. The overall debt is expected to rise to Rs 185 trillion during the fiscal year.
However, when factoring in sub-national government debt, the ratio escalates to around 80 per cent, significantly exceeding the Fiscal Responsibility and Budget Management (FRBM) target of 60 per cent for total government debt. While managing this high debt-to-GDP ratio is imperative for economic stability, experts stress that a focused approach on capital expenditure could foster growth and gradually improve the country’s fiscal health.
GDP growth projections in the limelight
Growth projections for FY25 suggest a moderate slowdown compared to previous years. Estimates for India’s economic growth vary widely, ranging between 6 per cent and 7 per cent. Deloitte projects growth at 6.5 per cent to 6.8 per cent, driven by strong domestic demand and sustained government spending, despite a slower start to the fiscal year.
Also Read
The Indian government, however, projects a more modest growth rate of 6.4 per cent, highlighting concerns over reduced investment and a potential loss of economic momentum. The International Monetary Fund (IMF), on the other hand, has revised its forecast upward to 7 per cent, citing optimism regarding rural consumption growth. These varying forecasts underscore the nuanced economic conditions and the challenges of sustaining high growth in a complex global environment. Read Also: Stock to Buy Budget Day
Expectations on capital expenditure
Capital expenditure (capex) has emerged as a cornerstone of the government’s growth strategy, yet challenges persist in achieving ambitious targets. For FY25, capex is expected to grow by approximately 10-15 per cent. However, projections suggest the government may fall short of its Rs 11.1 trillion target by about Rs 1 trillion, resulting in total capex of around Rs 10 trillion.
This shortfall is attributed to a decline in utilisation during the first half of the fiscal year, which saw a 12.3 per cent contraction in government spending compared to the previous year. By November 2024, only 46.2 per cent of the budgeted capex had been utilised, down from 58.5 per cent in the same period last year.
To meet the target, the government will need to significantly ramp up spending in the latter half of FY25, requiring an estimated 65 per cent increase in capex. Despite these hurdles, there is optimism regarding the second half of the fiscal year, as infrastructure sectors such as roadways, defence, and communications are expected to see increased allocations. Achieving these capex goals remains vital for sustaining long-term economic growth.
“We expect 10 per cent-12 per cent growth over last year’s capex budget for this year. The continued anchoring of the PLI-linked incentive ambit is expected as a part of the government’s manufacturing push. Private capex has been a laggard despite India corporations being in their best shape from a balance sheet deleveraging view. It’s the distorted demand outlook that continues to be a sore point and will have to be addressed in this budget,” said Pradeep Gupta, executive director and India head of investments at Lighthouse Canton, a global investment firm.
What about India’s debt and external financing?
India’s external financing outlook appears stable, bolstered by improving macroeconomic fundamentals, economists have highlighted. The current account deficit (CAD) is projected to improve to approximately 0.7 per cent of GDP in FY25, a marked reduction from 2 per cent in FY24. This improvement reflects a more favourable balance of payments situation, which strengthens external financing conditions. Additionally, foreign direct investment (FDI) inflows remain robust, supported by policies aimed at simplifying investment processes and increasing retail investor participation.
Foreign portfolio investments (FPI), which had witnessed net outflows in previous years, experienced net inflows of Rs 44.1 billion in FY24. This positive trend is expected to continue, driven by stabilising market conditions and renewed investor confidence.
Meanwhile, India’s foreign exchange reserves, as of March 2024, provide a sufficient buffer against potential global shocks, ensuring the country’s external financing needs are adequately managed. Together, these factors highlight a favourable environment for supporting growth through external financing in FY25.
Defence spending may see a pickup
Defence spending for FY25 stands at Rs 6.22 trillion, representing a slight decrease from Rs 6.24 trillion in FY24. Within this allocation, capital expenditure for defence has reached a record high of Rs 1.72 trillion, reflecting a 9.4 per cent increase compared to the previous year. This amount constitutes 27.7 per cent of total defence spending—the highest ratio in a decade—up from 25.2 per cent in FY24.
Despite this increase in capital expenditure, overall defence spending as a percentage of GDP has declined to 1.9 per cent, marking its lowest level in a decade. Analysts argue that this proportion may be insufficient given India’s evolving security challenges. They recommend raising defence spending to 2.5-3 per cent of GDP over the medium to long term.
Furthermore, the government has set ambitious goals, aiming to triple defence production to Rs 3 trillion by FY29 and boost defence exports to Rs 50,000 crore. These initiatives reflect a strategic push towards self-reliance in defence manufacturing, despite budgetary constraints.
“The Union Budget 2024 outlined a clear pathway to drive growth and innovation within India’s aerospace and defence sector. The defence budget allocation of Rs 6.21 trillion, representing 13.04 per cent of the overall Union Budget, signalled a strong intent to modernise defence capabilities. We are hopeful that Budget 2025 will further support indigenous manufacturing, strengthen public-private partnerships, and empower the private sector to deliver comprehensive solutions,” said Rishab Gupta, managing director at Rossell Techsys, an aerospace and defence solutions provider.