Union Budget 2025 | Reducing fiscal deficit to 4.5% will be defining goal for this budget, says Ionic Wealth's founding member Ankita Pathak

Finance Minister Nirmala Sitharaman will present the 8th consecutive Union Budget on February 1, 2025. Reports suggest that the government is mulling over cutting income tax for those who are earning up to Rs 15 lakh a year in February's budget, in turn providing relief to the middle class.

The financial sector has pinned high hopes on the Union Budget FY 2025-26 documents and is keeping its fingers crossed regarding their expectations from the government's most important financial document of the year.

"The third budget under Modi 3.0 is expected to emphasize credibility and continuity, which have been strong points of recent fiscal policies. For FY25, the fiscal deficit may be lower than the budgeted 4.9 per cent, potentially reaching 4.7 per cent, supported by reduced capital expenditure and higher RBI dividends.

Looking forward, the FY26 budget seems to face dual challenges-- lower growth and sticky inflation. To correct this, fiscal consolidation seems inevitable where the deficit will be reduced to 4.5 per cent likely, aligning with current policies and thus creating space for monetary reflation . Since, growth is expected below six per cent, policy continuation will be crucial.

Elevated gross borrowings, driven by pandemic-era debt repayments and redemptions, may push bond yields intermittently above 7% in the short term if global yields continue to rise. However, domestic yields have a floor given higher demand than supply and lowering of fiscal and current account deficit. At the same time, slower corporate earnings are likely to weigh on tax collections, leaving limited scope for significant tax reforms this year, though minor adjustments could still be on the table.

Capex growth may plateau to 11 per cent of GDP at 3.2 per cent, with revenue expenditures mostly unchanged. To that, equity markets will react cautiously, with potential support for housing, capital-intensive sectors, and consumption. Overall, reducing the fiscal deficit to 4.5% will be a defining goal for this budget," said Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth.

Union Budget 2025 | Nirmala Sitharaman, who continues to be Finance Minister, will present her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', reports suggest there might be a tax relief for those making up to Rs 15 lakh per year. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.