NEW DELHI, Jan 24 – As India gears up for the unveiling of its Union Budget 2025-26, experts are urging the government to articulate a long-term economic vision amidst slowing domestic growth, a weakening currency, and global geopolitical uncertainties. This will be the first full-year budget of the new administration, raising high expectations for decisive action.
One of the key recommendations ahead of the budget is to link interest-free capital expenditure (capex) loans to states with fiscal discipline. Critics have highlighted the rise of welfare schemes, such as PM-KISAN and various state-level stipends, which lack economic criteria and strain public finances.
“If states can afford cash transfers and welfare schemes, the need for interest-free central loans must be reassessed,” analysts suggest. Conditional loans tied to metrics like capex achievement and the ratio of welfare to capital expenditure could promote fiscal responsibility, they added.
Tax policy reforms, particularly on dividend and indirect taxes, are high on the wish list. Experts argue that the “double taxation on dividend income should be abolished” to streamline the system. Simplifying India’s Goods and Services Tax (GST) by reducing tax slabs and lowering indirect tax burdens is also being urged, as indirect taxes still account for 60% of total tax receipts despite efforts at modernization.
There are calls for the government to prioritize raising household incomes over boosting consumption. Strengthening the construction sector, which is India’s second-largest employer, and providing non-inflationary support to micro, small, and medium enterprises (MSMEs) are seen as crucial steps.
“Support for the informal sector, alongside formalization efforts, is essential for sustainable growth,” experts noted. India is expected to miss its FY25 capex target by ₹1 lakh crore, though the fiscal deficit target is likely to be met due to better-than-expected tax receipts. Analysts recommend maintaining fiscal discipline by targeting a fiscal deficit of 4.5% of GDP in FY26 and emphasizing capex growth of 10-15%.
The total spending-to-GDP ratio is projected to decline to a six-year low of 14.3% in FY26, reinforcing the need for spending restraint. As fiscal consolidation continues, experts are urging the government to establish a clear debt-to-GDP target range for the coming years. With high expectations from the 2025-26 Budget, experts emphasize the importance of balancing short-term demands with a strategic, long-term economic approach.
