Union Budget 2025 Likely To Focus On Growth, Ease Cost Of Living Amid Looming Economic Challenges

Prime Minister Narendra Modi is confronted with the dual challenge of reviving economic growth and providing relief to a middle class struggling with rising living costs, while also preparing for an unpredictable year in global trade.

Finance Minister Nirmala Sitharaman will present the budget for the next financial year in Parliament at 11 AM today.

Photo Credit: PTI

She is expected to introduce policies aimed at stimulating the world's fifth-largest economy, which is projected to experience its slowest growth in four years due to weak urban demand and inflationary pressures caused by a depreciating currency, reported Reuters.

The slowdown has unsettled the stock market and diminished optimism among many Indians regarding their quality of life under Modi's leadership.

Economists anticipate that the budget will introduce tax cuts on income and energy products to alleviate financial strain on individuals while building upon the $24 billion job creation programme announced in July's post-election budget.

Deregulation Plans

Ahead of Friday's parliamentary session, Modi stated that the budget would "instil new faith and trust" in the country but refrained from revealing specific measures to bolster economic growth.

"We expect the government to introduce growth-supportive fiscal policies that align with its fiscal consolidation roadmap," said Sonal Varma, an economist at Nomura.

The government is likely to marginally surpass its fiscal deficit target for the current year while aiming to reduce it to below 4.5% in the next financial year, beginning on 1 April.

The Economic Survey, released on Friday, predicted that growth would remain sluggish in the upcoming fiscal year and recommended long-overdue reforms in key sectors such as land and labour to boost medium-term expansion.

Although short-term growth aligns with the 10-year average, India requires an 8% growth rate to achieve its long-term economic targets and generate sufficient employment opportunities for its youthful workforce.

To accomplish this, the central and state governments must prioritise systematic deregulation, the report suggested. Reforms are needed across various sectors, including land, labour, and factory regulations.

India remains behind schedule in its ambition to become a $5 trillion economy by 2025. Modi has also set the goal of transforming India into a developed economy by 2047.

Preparing for US Trade Policies

India must also navigate potential disruptions from US President Donald Trump's trade policies. In an effort to mitigate the impact of possible American tariffs, India is preemptively reducing duties on various goods.

To align with Trump's "America First" policy, Reuters reported that India is willing to offer additional incentives, including tax breaks and land access, to US companies in sectors such as semiconductors and electronics.

Modi is expected to discuss these matters with Trump later in February.

The budget may also include tariff reductions on select goods, as India seeks to capitalise on US-China trade tensions and enhance its position in global supply chains.

The list is expected to feature components for mobile phone production, such as printed circuit board assemblies, camera module parts, and USB cables, according to sources.