A Bank of Baroda report said the Union Budget for 2025-26, to be presented on February 1, 2025, would be a judicious mix between fiscal discipline and growth measures.
To encourage private investment, the government is likely to increase its capital expenditure to Rs 11-11.5 lakh crore in FY26, up from Rs 10 lakh crore in FY25.Despite challenges such as slowing global growth, a stronger US dollar, and potential tariff threats from the incoming US administration, the government is committed to ensuring that India’s growth path remains strong and resilient.
The key thrust areas would continue to focus on boosting domestic consumption, supporting private sector investments, and large programmes like PM-KISAN, MGNREGA, and Housing for All. The fiscal deficit is likely to decline further to about 4.3-4.4 percent in FY26 as compared to the estimated range of 4.8-4.9 percent in FY25, thus portraying a sustained course of consolidation by the government on the fiscal front.
The report suggests savings on the expenditure side will contribute to the fact that the fiscal deficit may turn out to be more or less achievable, at or below 4.9% of GDP. Thanks to a probable nominal GDP growth of 10.5 percent and steady growth in revenue led by a revived consumption and even more efficient subsidies, this is envisioned.
In turn, public expenditure per se shall be a priority sustainable resource allocation for infrastructural development, social programs, and skill enhancement whereby, with an anticipated deceleration in real GDP growth alongside urban purchases, it prepares for an agenda that embraces both rural and urban development through higher allocation to initiatives such as MGNREGA, PM-KISAN as well as schemes targeted at affordable housing.
There would be new schemes such as PLI for MSMEs, increased funding to the Skill India program, more infrastructure for EV and agricultural warehousing. The government is also expected to propose tax incentives in the form of increased standard deductions, increased limits under sections 80C and 80D, sustainable tourism, and reduced customs duty.
The overall subsidy burden is projected to fall off a slight bit in FY26, yet food and fertilizer subsidies will still occupy a significant place in protecting farmers and consumers. For subsidy allocation purposes, it is expected to reduce from Rs 4.2 lakh crore in FY25 to Rs 4 lakh crore, saving mostly on food subsidies. Despite higher costs for fertilizer imports due to a stronger dollar, the government will aim to stabilize retail prices.
Revenue receipts are likely to stabilize in FY26, buoyed by healthy indirect tax collections, especially GST. Direct tax collections might, however, grow at a slower pace, mainly due to lower corporate tax receipts.Non-tax revenues, with the surplus transfer from the RBI, would continue to be critical supports to the fiscal mathematics.
The government is likely to continue a steady borrowing program. Gross borrowing for FY26 would be at Rs 15 lakh crore.