The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, was a well-balanced budget, managing to tick many right boxes. This being the first full-year Budget of the current government's third term, held a lot of significance as it was expected to lay the overall roadmap for India becoming 'Viksit Bharat'. The government continued to follow the fiscal consolidation path, at the same time maintained its investment-led spending growth strategy, along with providing a strong boost to consumption.
The Budget, with the long-term picture in mind, focused on spurring agricultural growth, empowering farmers, supporting MSMEs and ensuring innovation while promoting exports. With the aim of inclusive development, it focused on poor, youth, farmers, and women development.
The fiscal deficit is pegged at 4.4 per cent of gross domestic product (GDP) for financial year 2025-26 (FY26), down from FY25's 4.8 per cent, in-line with the government's long term objective of bringing it below 4.5 per cent. The Government of India increased total government expenditure to Rs 50.6 trillion (7.4 per cent higher from FY25 RE). To fund this, it has increased its gross borrowing target for FY26 by 5.7 per cent to Rs 14.8 trillion. On the other hand, the total receipts has been pegged at Rs 11.8 trillion.
Capital Expenditure allocation of Rs 11.21 trillion for FY26 is a growth of 10 per cent on FY25 revised estimate – and is in-line with expectations. The effective capital expenditure, which also accounts for grants meant for capital asset creation, is estimated at Rs 15.5 trillion. This, along with an outlay of Rs 1.5 trillion in 50-year interest-free loans to states, reinforces the government's commitment to infrastructure-driven growth.
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The FM focused on MSMEs, which are the growth engine for India’s economy and responsible for 45 per cent of the country’s exports. The FM announced improvement in credit guarantee cover to Rs 10 crore from the current Rs 5 crore. FM also focused on startups as they have been a crucial sector for job creation.
In a major sentimental boost, it uplifted household income through income tax relief, thus enhancing the spending power of India's rising middle class. With almost 85 per cent of Indians falling within the income tax bracket of Rs 12 lakh, the finance minister announced tax relief for that bracket under the new regime along with various financial concessions. This could have a significant impact on boosting consumption and driving household savings.
For the corporates, various measures were announced in order to improve the ease of doing business. The FM announced speedy approval of company mergers, along with setting up a high-level committee for regulatory reforms in the non-financial sector. The Government also announced the launch of the National Manufacturing Mission to significantly push self-reliance in renewable energy. It also introduced a series of indirect tax measures aimed at strengthening domestic manufacturing and enhancing value addition across key sectors.
We believe the budget reinforces India’s strong macro-micro positioning in an increasingly fragile world. Equity markets would benefit from a long-term focus on fiscal consolidation and consumption boost. The Budget is likely to be positive for sectors like FMCG, Auto, consumer durables, EVs, Battery, Travel and Retail.
Disclaimer: Siddhartha Khemka is Head - Research, Wealth Management, Motilal Oswal Financial Services Ltd. Views expressed are his own.