Presented on February 1, 2025, the Union Budget for FY25–26 aimed to balance economic growth, fiscal discipline, and domestic demand. Targeted tax relief and sustained public capex showed the government’s intent to support growth without undermining macroeconomic stability.
The budget reaffirmed the medium-term fiscal roadmap. Priority areas included infrastructure, manufacturing, logistics, defence indigenisation, and energy transition, with public investment expected to attract private capital and rising revenue, including RBI surplus transfers, to help contain the fiscal deficit.
Over the past year, India continued to show relative resilience amid a challenging global environment. However, the composition of growth became increasingly uneven. Urban consumption softened, rural demand recovered only gradually, and revenue collections proved more volatile than initially projected. As attention now turns to the Union Budget for FY26–27, the key question is no longer one of policy direction, but of delivery and its impact on the broader economy.
FY25–26 Delivery Scorecard: Hits and Misses
Where Delivery Was More Visible
- Capital Expenditure Remained the Core Growth Lever
Public capex continued at a steady pace through the year, with allocations for roads, railways, defence procurement, and core infrastructure broadly tracking expectations. This sustained momentum supported sectors such as capital goods, construction, and cement. The consistency of infrastructure spending reinforced the government’s message of maintaining long-term development priorities despite external uncertainties. - Fiscal Discipline Was Largely Preserved
Despite revenue-side pressures, the government broadly adhered to its fiscal consolidation path. This helped contain bond market volatility and supported confidence among domestic and global investors. Growth support was pursued without a significant deviation from stated deficit targets. - Policy Continuity for Manufacturing and Strategic Sectors
The budget’s emphasis on domestic manufacturing, defence localisation, and clean energy translated into continued policy support through the year. This provided medium-term visibility for sectors such as defence manufacturing, capital goods, electronics manufacturing services, and renewable energy. - RBI Surplus Transfers Supported Fiscal Management
Higher surplus transfers from the RBI provided an important buffer. This helped manage fiscal arithmetic without resorting to abrupt spending cuts, allowing expenditure plans to remain largely intact through the year.
Where Outcomes Fell Short
- Tax Revenue Growth Undershot Expectations
Tax collections expanded at a slower pace than budgeted. Direct tax growth moderated, while GST collections did not accelerate as anticipated. This constrained fiscal flexibility and limited room for additional growth-supportive measures. - Disinvestment and Asset Monetisation Remained a Weak Link
Receipts from stake sales and asset monetisation again fell short of targets. Execution challenges persisted, leaving a key non-tax funding source underutilised and increasing reliance on other revenue streams. - Consumption Recovery Remained Uneven
The anticipated broad-based revival in consumption did not fully materialise. Urban discretionary spending softened, while rural demand improved only gradually. As a result, growth remained disproportionately dependent on public spending. - Private Investment Response Was Muted
While government-led capex stayed strong, private sector investment remained cautious. Many companies prioritised balance-sheet consolidation and incremental capacity additions over large-scale expansion. The absence of a decisive private capex cycle kept growth largely government-driven.
Looking Ahead: What to Watch in Budget FY26–27
Given the experience of the past year, the upcoming Union Budget is expected to adopt a calibrated rather than expansionary approach.
- Public Capex to Remain Central, with Measured Increases
Infrastructure investment is likely to remain the primary growth lever, though the pace of incremental increases may moderate due to fiscal constraints. Focus areas may include housing, transport, urban infrastructure, defence, power transmission, and green energy. - Greater Emphasis on Quality of Spending
Rather than large headline announcements, the focus may shift towards improving the efficiency and impact of expenditure, while protecting fiscal deficit targets. - Targeted Support Over Broad-Based Stimulus
Any measures to support demand are more likely to be targeted through rural schemes, housing initiatives, skilling programmes, and agriculture, rather than broad-based income tax changes. - Tax Simplification and Ease of Doing Business
Policy attention may centre on simplifying compliance, reducing litigation, expanding digitisation, and refining sector-specific incentives such as production-linked incentive (PLI) schemes.
Themes and Sectors Likely to Remain in Focus
Key Themes
- Employment generation through infrastructure development
- Scaling domestic manufacturing capabilities
- Energy transition and clean energy ecosystems
- Defence indigenisation
- Logistics efficiency and urban development
- Affordable housing
Sectors to Watch
- Capital goods and construction
- Cement and building materials
- Defence manufacturing
- Power and renewable energy
- Logistics and rail-linked ecosystems
- Select rural and agri-linked segments
- Manufacturing segments linked to PLI expansion
Conclusion
The experience of FY25–26 underscores a familiar pattern: policy intent remained consistent, but fiscal pressures increased and private demand recovery lagged expectations. As a result, growth continued to rely heavily on public investment.
The forthcoming budget is therefore likely to focus on fine-tuning rather than reorientation: reinforcing growth drivers already in place, while maintaining fiscal discipline in a more constrained environment.
Disclaimer: Investment in the securities market is subject to market risks. Read all the related documents carefully before investing. This content is purely for information purpose only and in no way is to be considered as an advice or recommendation. The securities are quoted as an example and not as a recommendation. Investors are requested to do their own due diligence before investing.
SEBI Reg No.: Broking – INZ000240532, Research Analyst – INH000020086, Depository Participant – IN-DP-416-2019, Depository Participant Number: CDSL – 12088800, NSE (90165), BSE (6707), MCX (57525), NCDEX (1315), MSEI (85300).
Registered Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019.
For complete Terms & Conditions and Disclaimers, visit https://www.paytmmoney.com.
