Budget 2025 expectations: Two critical areas FM Nirmala Sitharaman should focus on – The Times of India

By Bikash Narayan Mishra
Budget 2025 expectations: If India were a Formula 1 team, alarm bells would already be ringing. The track ahead is challenging, rival teams are growing more unpredictable, and it’s clear that execution and strategy need a serious overhaul.
With the growth story veering off track and high-frequency indicators showing signs of stress due to external factors, the upcoming Union Budget 2025 must prioritise two critical areas: boosting consumption and driving investments.
NEW UNBALANCED TWINS
Finance Minister Nirmala Sitharaman has consistently highlighted that the Indian economy has transitioned from a twin-balance sheet problem to a twin-balance sheet advantage, thanks to the government’s focused efforts. This shift indicates that banks are no longer burdened with bad loans, and corporates have deleveraged their balance sheets, positioning them well for expansion.
While non-performing assets in the banking sector have significantly reduced and corporates have posted stronger financials, this has not yet translated into a surge in private capital expenditure. Adding to the concern, the future appears uncertain. According to the RBI’s 27th Systemic Risk Survey (SRS), 52% of respondents do not foresee a revival in the private capex cycle within the coming year, while only 44% anticipate a possible revival in that timeframe.
Also Read | Budget 2025 income tax: From higher tax exemption limit to increased standard deduction – top 6 expectations of common man
Although banks are performing well in terms of profitability and remain well-capitalized, the strain on CASA and deposit growth is another concern. With a noticeable shift in savings behavior among individuals, it is essential to ensure that banks’ resources grow at a sustainable pace.
It is therefore imperative for the government to address the issue of subdued private capital expenditure with a new strategy rather than relying solely on rate cuts as a panacea. Recent data highlights the challenge: new investments by domestic private players declined by 1.4% in the October-December 2024 quarter. Meanwhile, a Moody’s report estimates that rated Indian companies’ capex will remain elevated at $45 billion-$50 billion annually over the next couple of years, though achieving this amidst global headwinds requires targeted efforts.
The 2023-24 Economic Survey rightly emphasised that underwhelming private capex in key infrastructure sectors cannot be resolved by central government policies alone. State and local governments must play a pivotal role. To catalyse private investments, the government should introduce measures that incentivise capex while accelerating public expenditure to create a multiplier effect.
A recent report by ICRA highlights that the government may fall short of its FY2025 capex target of ₹11.1 trillion by approximately ₹1.4 trillion due to lower-than-expected spending in the first eight months. This underscores the importance of improved strategy and execution to ensure efficient deployment of funds.
However, it is equally critical to strike a balance so that increased government capex does not inadvertently crowd out private investments. A well-coordinated approach involving both public and private stakeholders is essential to sustaining long-term economic growth and enhancing infrastructure development.
Also Read | Budget 2025 income tax: Individual taxpayers want FM Sitharaman to lower tax rates, make new tax regime more attractive, says survey
STIMULATE DEMAND
In its recent bulletin, the Reserve Bank of India has stated that the time is apposite to rekindle the animal spirits, create mass consumer demand, and trigger a boom in investment.
But contrarian sentiments loom large. A recent report by market research firm Kantar notes that demand for goods is likely to remain subdued next year, as high inflation hurts real incomes, eroding consumer confidence.
Also, one needs to be watchful that such demand is not stimulated through easy loans. There is already significant stress in the microfinance segment. The RBI’s latest Financial Stability Report (FSR) notes that asset quality stress in the microfinance (MFI) sector has doubled in the April to September 2024 period, with loans due more than 31 to 180 days rising to 4.30% at the end of September 2024 versus 2.15% at the end of March 2024.
A similar trend is visible in the personal loan segment. The RBI report states that nearly 50% of borrowers availing credit cards and personal loans have another live retail loan outstanding, which are often high-ticket loans (i.e., housing and/or vehicle loans). This is further compounded by the fact that 11 percent of borrowers originating personal loans under Rs 50,000 had an overdue personal loan, and over 60 percent of them had availed of more than three loans during FY25 so far.
Demand has to be stimulated by employment and job creation. Recently the Chief Economic Advisor V. Anantha Nageswaran also pointed out that while corporates have used their profits to deleverage, now it is time to pay attention towards compensation to employees, or otherwise not paying workers enough will end up being self-destructive or harmful for the corporate sector itself.
The government should also look at giving some tax relief for individuals in the upcoming budget. According to a Grant Thornton Bharat pre-budget survey, as many as 57% of individual taxpayers want taxes to be lowered in the upcoming budget.
With the global economy on the verge of another reset, it is crucial for the government to prioritise strengthening the domestic ecosystem. The upcoming Budget presents a vital opportunity to implement measures that enhance resilience and foster diversification.
(Bikash Narayan Mishra is Senior Advisor, IBA. All views expressed are personal)