Budget 2025 Expectations: Boosting Consumption, Driving Growth

As India gears up for the Union Budget 2025, the focus is set on addressing critical challenges that are hindering the nation’s economic momentum. Amid global uncertainties and slowing domestic growth, the upcoming budget is expected to focus on two key priorities: stimulating consumption and encouraging investments.

India’s economy, while resilient, faces significant headwinds. High-frequency economic indicators suggest that the growth trajectory is under pressure. The country’s GDP growth has slowed, and external factors, including inflationary pressures and global supply chain disruptions, are adding to the strain. With consumption levels sluggish and private investment growth stagnant, Finance Minister Nirmala Sitharaman is expected to present a strategy that can reverse this trend.

The government has worked to resolve the twin-balance sheet problem, improving the financial health of banks and corporates. However, this has not translated into a robust private capital expenditure cycle. According to the Reserve Bank of India's (RBI) Systemic Risk Survey, there is limited optimism regarding the revival of private investments, with over half of the respondents indicating that a recovery in capital expenditure is unlikely in the near term.

Although banks are in a better financial position, concerns over deposit growth and shifting savings patterns among individuals persist. A decline in domestic private investments further complicates the economic outlook. Data from the October-December 2024 quarter revealed a 1.4 per cent drop in new investments by private players, signaling a lack of confidence in the economic recovery.

The government has set an ambitious capex target for FY2025 of Rs 11.1 trillion, but a report by ICRA suggests that this target may fall short by Rs 1.4 trillion. This highlights the need for a recalibrated approach to public spending, ensuring that funds are efficiently deployed to stimulate growth without crowding out private investments.

The RBI’s latest report highlights the importance of rekindling consumer demand to fuel economic recovery. However, with inflation eroding real incomes, consumer confidence remains low. A report from Kantar forecasts subdued demand for goods in the coming year, complicating the task of stimulating growth. Moreover, the risk of over-reliance on easy credit to boost demand is evident, particularly in the microfinance and personal loan sectors, which have seen rising defaults.

To counter this, experts suggest that demand must be driven by job creation and increased employment opportunities. Chief Economic Advisor V. Anantha Nageswaran recently highlighted that businesses should focus on improving compensation for employees, as failing to do so could harm both workers and corporate profitability in the long run.

As India prepares for Budget 2025, there is growing pressure to provide tax relief for individuals. A pre-budget survey by Grant Thornton Bharat found that a majority of taxpayers are hoping for reduced tax rates and increased exemptions. With the global economy facing a potential reset, the Indian government has an opportunity to strengthen the domestic economy by implementing measures that promote resilience and diversification.

The upcoming budget will be a critical moment for India to set the stage for long-term growth. By focusing on boosting consumption, driving investments, and creating a conducive environment for private sector growth, the government can address the immediate challenges facing the economy and lay the foundation for a more prosperous future.

As expectations build for Union Budget 2025, all eyes will be on Finance Minister Nirmala Sitharaman to unveil measures that can reinvigorate the economy, enhance growth prospects, and ensure India’s position as a global economic leader.