The quest for equitable growth

The government continued its march towards fiscal consolidation in Union Budget 2025, comforted by a broad-based recovery in the Indian economy. It set a target of reducing the fiscal deficit to 4.9% of the gross domestic product (GDP) this fiscal, from 5.6% in the previous one. It also reiterated its commitment to bring the fiscal deficit below 4.5% of GDP by fiscal 2026.

Though real GDP growth was at a healthy 8.2% in the previous fiscal, it is expected to be somewhat softer this fiscal, reined in by moderating fiscal support and the lagged impact of the Reserve Bank of India’s (RBI) monetary policy tightening.

In this milieu, the budget has tried to strike some balance between fiscal consolidation and equitable growth — it is continuing to focus on capital expenditure and concurrently providing scope for employment generation. Moreover, it has also announced measures to increase disposable incomes of the salaried class by reducing their tax burden.

How the budget announcements impact the macros

Growth remains at the core of this budget, the first one from NDA 3.0. The government has continued to maintain its focus on capex with an aim to create long-term durable economic growth.

CRISIL expects real GDP growth at 6.8% this fiscal, lower than the 8.2% in fiscal 2024. Despite the moderation, growth will remain above the pre-pandemic decadal average of 6.6%.

Consumption growth, which was lagging till fiscal 2024, is expected to pick up this fiscal, buoyed by better agriculture incomes, expected decline in food inflation and enhanced government funding for rural-focused schemes.

On the investment front, the government’s continued emphasis on the Production-Linked Incentive (PLI) scheme helps private investment in strategic areas. The budget has also tried to incentivise employment generation in the economy, which should over time spur consumption demand and act like an indirect support to push up private investments.