Budget 2025: Measures likely to consider to revive economic growth

Finance Minister Nirmala Sitharaman will present the Union Budget 2025 on February 1 and all eyes will be on her on the measures to boost growth amid the challenges of rising inflation and the need to keep fiscal deficit within the target.

Ahead of the Budget presentation, there are high expectations for measures to aid economic growth and reduce inflation. With a fiscal deficit target of 4.9% of GDP for FY25 and plans to reduce it to 4.5% by FY26, the government faces the task of balancing fiscal discipline with growth-oriented initiatives.

Tax reliefs and incentives

One important aspect of Budget 2025 will be policies to increase disposable income. Experts across sectors have been appealing to the government to adjust income tax slabs and increase the basic exemption limit to provide relief to taxpayers. Improving deductions under Section 80C of the Income Tax Act, 1961 and revising tax brackets in the new tax regime could be among the expected announcements.

GST rationalisation to stimulate demand

GST rationalisation on select goods and services, particularly in the consumer durables and automobile sectors, may be considered to improve demand. Given that GST collections are projected at ₹10.62 lakh crore for FY25, any recalibration must be carefully structured to maintain revenue stability.

Support for MSMEs and cheaper credit access

Access to cheaper credit will be important for businesses, particularly MSMEs. With gross borrowing estimated at ₹14.01 lakh crore for FY25, easing financial burdens on small enterprises through credit guarantees or subsidised lending could drive economic activity. Also, incentives for sectors like real estate and infrastructure are expected.

Capital expenditure to drive growth

Despite potential election-related spending delays, capital expenditure (capex) outlay was ₹11.1 lakh crore for FY25. According to experts, the continuation of capex-led initiatives in roads, bridges, and urban development projects will generate more employment and stimulate private investment.

Role of disinvestment and asset monetisation

Disinvestment and asset monetisation will also help fund growth plans. The government set a ₹50,000-crore target for FY25, and more announcements on monetisation plans for FY26 could provide details on future revenue strategies.

Balancing demand stimulus with inflation control

While stimulating demand is needed, managing inflation remains a priority. With nominal GDP growth projected at 10.5% and real GDP at 6.4% for FY25, inflationary trends will be monitored. The government is likely to introduce plans to stabilise food and essential commodity prices, including import duty adjustments on key items such as edible oils and pulses.

To counter rising fuel costs, the budget may propose excise duty rationalisation on petroleum products, which could ease inflationary pressures.

Fiscal discipline and growth balance

India’s debt-to-GDP ratio stood at 57% in 2024, with a plan to contain it within 60% by FY27. The key will be achieving fiscal consolidation without stalling growth. The government’s adherence to its fiscal roadmap, despite challenges such as slower consumption growth, has been strengthened by strong tax collections and RBI dividends, projected at ₹2.33 lakh crore for FY25. With the Centre’s fiscal deficit reaching 52.5% of its annual target by November 2024, the government remains on track to meet its fiscal goals.

Key findings from Household Consumption Expenditure Survey

The Household Consumption Expenditure Survey (HCES) 2023-24 revealed key findings about consumption patterns. It highlighted a continued reduction in the rural-urban consumption gap. The average monthly per capita expenditure (MPCE) was ₹4,122 in rural areas and ₹6,996 in urban areas, excluding social welfare benefits. When including subsidised goods, MPCE rose to ₹4,247 in rural areas and ₹7,078 in urban areas.

The rural-urban consumption gap narrowed to 70% in 2023-24, down from 71% in 2022-23, with improvements across all 18 major states. Kerala had the smallest gap (18%), while Jharkhand had the largest (83%). Household expenditure grew in all major states, with Odisha leading rural MPCE growth at 14%, while Punjab topped urban MPCE growth at 13%.

Food consumption remained the largest expenditure category, accounting for 47% in rural areas and 40% in urban areas. Beverages, processed food, milk products, and vegetables dominated food spending, while conveyance, medical costs, and durable goods led the non-food expenses.

Middle class hopes for relief amid high inflation

Rising inflation is burdening household budgets, with essential goods becoming more expensive. From food and healthcare to daily consumer items, price rises reduce buying power. Urban FMCG sales have grown by just 0.5% in the last quarter. Overall FMCG growth is also slow at 3%. Input costs are forcing companies to pass on price rises, with staples such as tea, edible oil and wheat flour increasing by up to 40%.

Private consumption, an important driver of GDP, slowed to 6% in Q2 FY24, down from 7.4% the previous quarter. Urban demand, especially in metro cities, has declined for five consecutive quarters.