The upcoming
Union Budget 2025
is expected to announce a 20 per cent rise in the country’s capital expenditure, according to a report by global accounting agency EY.
The hike in capex spending would target fueling economic activity, put more disposable income in people’s hands and land the
fiscal deficit
at 4.4 per cent of the GDP for the year ending March 2026.
Chief policy advisor at EY India, DK Srivastava, told news agency ANI that India will need to depend on domestic demands amid global economic uncertainties to sustain growth.
“The FY26 budget should therefore restore the momentum of growth in GoI’s capital expenditure. This may be supplemented by some rate rationalisation and income tax deductions aimed at increasing personal disposable incomes, particularly in the hands of lower income and lower middle-income groups,” Srivastava said.
The report, titled EY Economy Watch – January 2025, suggested that the government is likely to continue lowering its fiscal deficit, aiming for 4.4 per cent against 4.9 per cent budgeted for the current FY. However, the agency anticipated that this number would come out slightly lowered at 4.8 or the GDP during the budget announcement.
It added that expected to rise by at least 20 per cent, alongside stronger domestic demand and private consumption could help maintain economic growth while ensuring fiscal discipline, the report said.
For the ongoing fiscal year, the government had declared capital expenditure at Rs 11.11 lakh crore. However, 2024 Lok Sabha elections slowed spending in the April–July period, resulting in a shortfall in planned investments.
Srivastava, who is also part of the advisory council to the 16th Finance Commission, highlighted the importance of strategic reforms and their timely implementation for India’s medium-term economic momentum.
“While there may be challenges, such as global economic headwinds and pressure on the INR, these measures can help India sustain its growth trajectory. With the right fiscal policy initiatives and reforms, India can continue progressing toward its long-term targets,” he said.
He further reaffirmed that India is on track to achieve a $5 trillion economy by FY30, assuming an average nominal GDP growth rate of 10.5 per cent and an annual INR/USD depreciation of around 3.5 per cent.
On the inflation front, consumer price index (CPI) inflation eased to 5.2 per cent in December 2024, with core inflation steady at 3.7 per cent. This, EY suggested, could pave the way for a 50-basis-point or a 0.50 per cent cut in policy rates during FY26, potentially boosting private investment.
