Budget 2025: ICRA Expects Balancing Act Between Growth, Fiscal Consolidation
Despite potential tax relief for personal income taxpayers, ICRA predicts a steady increase in revenues.
ICRA anticipates a balanced approach in budget 2025-26, prioritising fiscal consolidation while also pushing for infrastructure and manufacturing growth. Here's what the agency predicts:
Fiscal Deficit Target At 4.5%
ICRA projects the fiscal deficit for financial year 2026 to be reduced to 4.5% of the GDP from an expected 4.8% in fiscal 2025, aligning with medium-term fiscal goals.
Boost To Capex
Capital spending is likely to remain a cornerstone of the government's strategy, ICRA said, with a projected Rs 11-lakh-crore allocation for fiscal 2026, reflecting a 12-13% YoY increase, as per ICRA. Key highlights include:
Infrastructure Focus: Roads, highways, and railways will likely see sustained investment.
State-Level Support: Interest-free capex loans to states will continue, aimed at catalysing regional infrastructure growth.
Private Investment Catalyst: Higher public capex is expected, supporting overall economic activity.
Focus On Employment, Manufacturing
The government is likely to come up with:
Employment-Linked Incentives: A fresh allocation of Rs 30,000–35,000 crore for job-focused initiatives launched in the 2024 Budget.
PLI Scheme Expansion: Likely inclusion of more labor-intensive sectors under the Production-Linked Incentive scheme, fostering domestic manufacturing.
MSME Credit Flow: Continued operationalisation of measures announced in the previous budget to support micro, small, and medium enterprises.
Revenue Trends
Despite potential tax relief for personal income taxpayers, ICRA predicts a steady increase in revenues:
Gross Tax Revenue: Estimated to rise by 10.5% YoY, reaching Rs 42.5 lakh crore in FY2026.
Direct Taxes: Expected to grow by 11.8%, supported by a broadening tax base and stable corporate profitability.
Indirect Taxes: Moderate growth of 8.8%, with GST collections projected to rise by 10.5%, reflecting resilience in domestic consumption expected to rise by 10.5% YoY, supported by direct tax growth of 11.8%.
Non-Tax Revenues
ICRA predicts a 6-7% dip in non-tax revenues to Rs 5.1 lakh crore. However, the government's approach to dividends and profits, particularly from public sector enterprises, could significantly influence the fiscal space, they add.
