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With the Union Budget just around the corner, expectations are high about what Finance Minister Nirmala Sitharaman may uncover on February 1 to stimulate economic growth and enhance consumption.
Budget 2025 is anticipated to strike a balance between fiscal responsibility & fostering economic expansion. Amidst slowing manufacturing, weak urban consumption, & rising global protectionism, India needs a budget that prioritizes growth to move closer to its goal of becoming an economic powerhouse.
Experts at ICICI Bank have outlined 6 important themes likely to dominate the upcoming Budget.
Budget 2025: Key Expectations
1. Adjustments to Tax Rates: ICICI Bank suggests that the government may look to put more expense into consumers’ hands, given the moderate wage growth in corporate India & relatively high food inflation.
"We expect the government to tweak the income tax rates and announce measures to make the new tax regime even more attractive in the upcoming budget," the bank told.
The bank has also predicted further changes in customs duties to address the inverted duty structure and improve the competitiveness of Indian manufacturing.
2. Ongoing Focus on Rationalizing Revenue Expenditures: The ICICI Bank noted that since FY22, the government has been working on rationalizing the growth of revenue expenses and enhancing the quality of spending.
The bank has pointed out that revenue expenditures in sectors like Jal Shakti, Housing and Urban Affairs, MSME, Labor and Employment, and Electronics and IT are lagging behind long-term trends. Moreover, ministries such as Chemicals and Fertilizers, Communication, Home Affairs, and Railways have seen overspending.
3. PLI Allocation May Stay Modest: ICICI Bank expects the government to continue its focus on expanding the production-linked incentive (PLI) scheme, specifically in electronics and labor-intensive sectors like textiles, along with initiatives which are supporting MSMEs to foster job creation.
4. Employment Generation to Remain a Priority: ICICI Bank believes the government will continue to focus on schemes which provide better job opportunities, by considering India’s demographic dividend.
"In addition to job-linked incentives, the focus on skilling is also likely to continue to ensure faster employment for the youth of the country," the bank told.
5. Increased Allocation for Roads Ministry and Capex Loans to States: ICICI Bank expects the government to allocate ₹11.5 lakh CR for capital expenditure in FY26, that represents a 15% increase over FY25's actuals.
"This would take capex to 3.2 per cent of GDP, a tad higher than the level likely to be achieved in FY25 (3.1 per cent of GDP). In line with past trends, three major areas, viz. roads and highways, railway and defence, are likely to receive the lion’s share of the capex allocation," stated the bank.
6. Fiscal Deficit Target Likely to be 4.5% of GDP in FY26: ICICI Bank anticipates that the government is going to set a fiscal deficit target of 4.5% of GDP for 2026, with the actual number potentially even lower.
However, due to the economic slowdown, the bank expects the government to lessen the pace of fiscal consolidation this year to 0.3% of GDP.
"This implies a fiscal deficit of ₹16.1 lakh crore, net borrowing of ₹12.1 lakh crore and gross borrowing of ₹14.8 lakh crore. After this, it is very likely that the government moves to debt-to-GDP as an anchor of fiscal policy," told ICICI Bank.