5 min read • Published 28 Jan 25
Union Budget 2024-25: What to Expect
Table of Contents
Finance Minister Nirmala Sitharaman will present the budget for financial year 2025-26 in parliament on 1st February 2025. The market buzzes with talks about changes in taxes and money given to different sectors.
To grasp how the government plans to spend money in the 2025-26 fiscal year, we need to understand the budget. This article sheds light on what people think the Union Budget expectations are.
Economic Growth and Fiscal Deficit
The trends and expectation for GDP growth are:
- The real GDP growth rate for the second quarter of FY 2024-25 was 5.4%.
- RBI estimates that the real GDP will grow by 6.6% for FY 2025.
- The Organization for Economic Co-operation and Development (OECD) believes India’s real GDP will grow by 6.9% in FY 2026.
To reach this goal, the market thinks the government might lower taxes and spend more. Even with lower taxes (which means less money for the government) and more spending, analysts estimate the government will do better than its planned fiscal deficit of 4.9% in FY25. Analysts also estimate the deficit will reach 4.5% in FY26. This shows that the government wants to balance spending with keeping its finances in check.
Taxation Changes
Here are the the union budget expectations regarding changes in taxation:
- Trade groups and taxpayers are advocating for lowering tax rates or increasing the tax slabs. This would put more money in people’s pockets leading to increased spending and GDP growth. It would also help salaried people, whose spending power has taken a hit from recent bouts of high inflation. As of 2024 budget, an income of Rs.3,00,000 or below is not taxed and above this level taxation begins from 5% and increases with rising incomes.
- Stakeholders are seeking simplification in the capital gains tax rules. A host of changes were introduced in the capital gains tax rules in the interim budget of FY 24 – 25 that introduced a lot of complexity. Investors are seeking uniformity in holding periods of assets and tax rates across various asset classes.
- Stakeholders are also expecting certain Goods and Services tax (GST) reliefs for businesses especially for MSME businesses.
Sectoral Spending Boost
The budget for 2025 – 2026 financial year is expected to benefit various sectors as follows:
- Railways: Stakeholders are expecting that railways could see an allocation increase of 18% from previous year. The aim of this allocation would be to increase safety and betterment of infrastructure. In the 2024 budget the railways sector was allocated a record Rs. 2,62,200 crores.
- Infrastructure: With a continued investment in the National Infrastructure pipeline (NIP) to reach the infrastructure target of Rs. 111 trillion, budget 2025 is expected to maintain its focus on infrastructure development.
- Construction and Real Estate: Experts are also expecting that the government might boost capex and introduce certain reliefs for the real estate and construction sector. Construction was allocated Rs. 11,11,111 crore in 2024 budget that was 3.4% of the GDP. Supply chain disruption and inflation has led to rise in input costs that have in turn increased the cost of real estate. Thus, the government is expected to give certain benefits to this sector.
- Insurance: Along with these industries, the insurance sector might also see some tax (GST) exemptions as the government wants to increase the growth and penetration of insurance across all income groups and geographies across India. The government introduced a 2% TDS exemption for policyholders to boost the insurance sector in the 2024 budget.
- Others: The government is also expected to increase its focus on green energy, AI, electric mobility and data centers through tax exemption and focused capital expenditure. There are also reports around increased infrastructure for the hospitality and tourism sector to promote tourism off beat locations.
Support for Manufacturing and Exports
The government has an aim that the Indian economy must cross the $7 trillion mark by 2030. A key role will be played by the manufacturing sector. The 2025 budget is expected to provide PLI schemes and import reduction schemes to boost the manufacturing sector.
As of November 2024, Indian exports have reached a one year low of $32.11 billion. Recognising the importance of exports the government might also make schemes to boost exports and reduce import dependence.
Startups and Micro Small and Medium Enterprises (MSMEs) might also get some tax incentives for focusing on biodegradable packaging, environment friendly approach. This will help in reaching larger ESG goals and boost job growth and incomes.
Agriculture Sector
The Indian agriculture sector employs nearly 45% of the population and contributes 15% to the GDP. The 2024 budget allocated Rs. 1,52,00 crores to agriculture and allied sectors. The union budget expectations includes proposals around agriculture for raising the subsidies and cash handouts to farmers and increased focus on rural agricultural infrastructure to stimulate economic growth in rural areas.
Automotive Sector
The automotive sector is seeking government support in the form of tax cuts for developing EV infrastructure, service centers, and green technology. Priority sector lending for charge point operators and incentives for upskilling technicians for EV technology are being expected from the union budget 2025 by the industry bodies.
Medical Industry
The medical industry is seeking reduced custom duties on some medicines, and advanced robotic and radiotherapy equipment. The medical industry is also seeking a push in medical infrastructure such as hospitals and medical specialists. Experts also recommend infra-linked PLI schemes to boost healthcare accessibility and affordability, alongside reforms to manage escalating healthcare costs and improve facilities to meet the growing population’s needs.
ConclusionThe budget is always kept secretive until it is read by the finance minister in the parliament. All the union budget expectations are based on industry wide estimates, think tanks and expert opinions, research papers etc. These estimates may not be accurate and can deviate from real budget spending numbers. The real numbers will be revealed on the budget day itself and would give the road map of India’s economic growth for the next financial year.
Q: What impact does the Union Budget have on inflation?
A union budget that focuses more on spending on infrastructure and increasing disposable incomes of people can increase inflation. Since, these measures boost demand for goods and services that in turn boost their prices. Whereas, a government always tries to balance growth and inflation.
Q: How does the union budget support environmental sustainability?
The government through its budget can introduce tax benefits for environmentally safe practices and products by businesses. The budget can also boost the environment by increasing spending on green energy generation facilities, electric mobility, etc. This allocation is important for long-term environmental protection.
Q: Does budget play a role in attracting foreign investments?
When a budget focuses exclusively on infrastructure development and capital expenditure it attracts foreign investment in two major ways. First foreign investors invest money in Indian companies to benefit from the growth opportunities. Secondly, foreign companies try to expand their operation in India or set up manufacturing facilities.
Q: How does the budget help in the upliftment of poor sections of society?
The budget might involve investment in rural areas by infrastructure development or introducing certain unemployment schemes or subsidies. The government can also allocate cash handouts to poor sections of society. The focus can also be placed on job creation by giving big companies incentive to set up their manufacturing in backward areas.
Q: How does the union budget impact the stock market?
When the government allocates money to various sectors. The companies belonging to these sectors directly benefit from these schemes. These companies also get contracts from the government for various projects. Thus, boosting their earnings and share price.
