As the first full-year budget of the NDA’s third term, the Union Budget 2025-26 is expected to chart a path for structural reforms and strategic policy shifts, prioritizing long-term growth over mere fiscal balancing, according to a report from Motilal Oswal Financial Services.
The report highlights how, over the past decade, the NDA government has shifted from a ‘consumption push’ to a supply-side reform approach.
Key reforms, including the introduction of GST, digitization, financial inclusion, affordable housing, and expansive social initiatives, have shaped the economy. The emphasis on infrastructure-led investments has created a strong foundation for economic resilience and growth.
“Nominal GDP has posted a 10% CAGR (FY14–FY24), while inflation has moderated, fostering a stable macroeconomic environment,” the report notes.
These reforms have also driven market growth, with the market capitalization of the listed universe growing at a 15% CAGR, reaching Rs 302 trillion by January 2025 from Rs 80 trillion in July 2014. Meanwhile, aggregate PAT expanded at a 12% CAGR (FY14–FY24), climbing to Rs 12.5 trillion from Rs 3.9 trillion.
The report suggests that any allocation for capital expenditure above Rs 11 trillion, supported by a compelling commentary, could surprise the market positively.
However, after several state elections marked by promises of freebies, there are concerns that Finance Minister Nirmala Sitharaman may be tempted to lean toward easier handouts.
Given current consumption trends and soft corporate commentary, markets anticipate some relief measures to boost consumption, particularly in urban areas.
“We believe that the government will focus more on improving household income growth through slab adjustments. Further, indirect taxes on items deemed non-essential consumption may be raised to fund forbearance on items of middle-class consumption,” the report says.
In a shift from previous years, the budget could ease up on long-term and short-term capital gains taxes from equity markets.
The report also notes that the FY25 fiscal deficit could be lower than the budgeted 4.9%, possibly providing additional leeway for the FY26 Union Budget.
