Budget 2025: Nomura Sees Both Fiscal Consolidation And Growth Supportive Measures

The Government of India will likely opt for both fiscal consolidation and growth supportive measures in the upcoming Union Budget 2025-2026, Nomura said. This budget will come at a time when consumption is weak, rupee is depreciating, and threats of higher tariff from the US under Donald Trump's second administration persist.

Nomura expects India to exceed the target of fiscal deficit for the financial year 2025. It expects fiscal deficit to be at 4.8% of GDP compared to 4.9% estimated because of reduction in capital expenditure spending. For FY 2026, Nomura expects capex to be set at 4.4% of GDP, in line with medium-term commitment.

The Government of India will likely tweak the personal income tax slabs to support consumption, boost public capex growth by 12.5% year on year in financial year 2026. The administration may announce a concessional corporate tax rate for firms operating manufacturing hubs in India. The budget may have announcements to lower custom duties on intermediate inputs, increase agricultural investment, impose higher gold import duties, and increase foreign direct investment limit on insurance and encourage capital inflows to support the rupee, Nomura said.

Nomura expects gross market borrowing to be a little higher in financial year 2026 compared to ongoing financial year. It sees the number at Rs 14.4 lakh crore, compared to Rs 14 lakh crore. However, this amount may come down if there are more buybacks from the Government of India in the coming weeks.

Nomura expects net market loan at Rs 11.03 lakh crore, which is a drop of Rs 60,000 crore from financial year 2025. "Beyond bond supply, we assume lower small savings collections and positive Treasury-bill issuance of Rs 50,000 crore."

Nomura is positive on Indian government bonds. "A lot of the good fiscal news is already priced in; therefore, risks appear to be asymmetric from a budget announcement perspective."

Overall, the budget for financial year 2026 will be a balanced approach between boosting growth while retaining fiscal prudence. This approach will keep India's fiscal risk premia low and provide greater leeway to the Reserve Bank of India to begin lowering its policy rate at the February Monetary Policy Committee meeting.