market: ETMarkets Smart Talk: Budget 2025 could drive India’s $5 trillion economy ambition, says Amisha Vora

“Budget 2025 is expected to focus on priming the economy with GDP growth estimated at 6.5-6.8% in FY26,” says Amisha Vora, Chairperson and Managing Director PL Capital – Prabhudas Lilladher.

Thanks for taking the time out. The month of January started on a roller coaster note ahead of the big domestic event – Union Budget 2025. Do you see some recovery in the market post the event?

We believe that the market is currently adjusting to the reality of a slowdown in the economy, impacted by reduced government capex and tepid consumer demand.

However, as food inflation peaks and government capex gains momentum, we expect a gradual recovery to set in. Sectors like railways, defence, power, and data centers are already witnessing robust ordering activity.

A growth-focused budget that stimulates spending and addresses fiscal priorities could drive market sentiment and set the stage for FY26 growth.What are your big expectations from Budget 2025?
Budget 2025 is expected to focus on priming the economy with GDP growth estimated at 6.5-6.8% in FY26.Increased public spending, tax rationalization to provide relief to the middle-class, and continued focus on high-multiplier sectors like infrastructure, railways, defence, and renewable energy are anticipated.Further, capital expenditure will continue to remain a big growth lever. While the government may miss its FY25 capex target of Ts 11.1 trillion (5-10% shortfall likely), we expect a decent (15-20%) increase in capex allocation in FY26 (over FY25 RE) with accelerated execution timelines to push for creating growth momentum.

What are the key priorities for the government in Budget 2025 to ensure long-term economic growth?
India’s Union Budget FY25-26 arrives at a critical juncture. With GDP growth at a four-year low (6.4%), policies that boost consumption and private investments, while addressing structural vulnerabilities, will be critical to long-term economic resilience.

The government must balance growth stimulation with fiscal discipline. This could be addressed through strategic interventions in infrastructure spending, tax reforms, job creation, support for MSMEs, and measures to boost domestic consumption.

Any specific sectors which could see increased spending in Budget 2025?
Defense (allocated ₹6.21 lakh crore in FY25 Budget) remains a key focus, with significant allocations expected for electronics, armored vehicles, shipbuilding, drones, and R&D.

Railways (allocated ₹2.52 lakh crore in FY25 Budget), renewable energy (allocated Rs 19,100 crore in FY25 Budget), healthcare (received Rs 89,287 crore in FY25), and urban housing are also poised for higher investment.

Additionally, data centers, thermal power, and logistics hubs will likely see enhanced funding, aligning with the government’s growth priorities.

Do you see any specific measure coming in the Budget to boost consumption which is showing signs of slowing down?
We expect GOI to undertake measures to revive consumption demand in the economy through a diverse spate of measures.

This includes higher allocation of capital to agriculture, credit outflow to MSE and MSME segments, tax relief for middle class and Govt. employees (standard deduction and base rates), taxation relief for housing (lower to mid end), increased allocation under Pradhan Mantri Awas Yojana, and a safety net for farmers and gig workers.

Election driven delays stalled Govt. capex between April-Nov 2024 by ~12.3%. But, with a reduced electoral calendar in 2025 (limited to West Bengal, Delhi, and Bihar), public capex is poised to rebound.

On a lower base of FY25, we expect a decent increase in capex allocation (~15-20%) in FY26 Budget which will increase the level of activity and employment levels in the economy.

Do you see any changes in direct tax structures which middle-class taxpayers expect in Budget 2025?
We believe that the government is aiming for a simplified taxation structure by minimizing deductions and making the new tax regime more attractive.

Rationalization of direct taxes through minor changes and some tinkering with tax slabs are expected to provide relief to the middle class and senior citizens.

This could include increasing the standard deduction limit and reducing tax rates or revising tax slabs. Govt is also looking at bring direct tax code by combining new and old tax regimes and implementing it uniformly for all.

Are there plans to simplify tax provisions for capital market products further, such as long-term capital gains tax or securities transaction tax?
Simplifying tax provisions for capital market products has been a long-standing demand from investors, and it’s an important area to address. As long-term capital gains tax has been increased last year, we expect stability in that.

Revisiting the rate of securities transaction tax could make investing more accessible and less cumbersome, especially for retail investors.

It will also play a significant role in attracting more domestic and foreign investments, and support market depth.

Additionally, dividend taxation is another area that warrants attention. The abolition of Dividend Distribution Tax (DDT) in FY 2020-21 shifted the tax burden to shareholders, aligning with global practices.

However, this has significantly increased the tax liability for high-income taxpayers, while benefiting those in lower tax brackets. These changes have reshaped market dynamics, particularly the appeal of dividend-yielding stocks.

As India seeks to deepen its capital markets, addressing such tax complexities—whether in LTCG, STT, or dividend taxation—can create a more conducive environment for investment.

How does the projected fiscal deficit of 4.5% provide the government with the headroom for increased public spending?
The fiscal deficit for FY25 is expected to meet its target of 4.9% of GDP, supported by strong income tax growth (+23.5% YoY), driven by gains from taxes on investments and property.

However, challenges such as weaker corporate tax (-0.5%), excise duty (-0.6%), and subdued GST growth (+9.9%) have constrained overall revenue collections.

For FY26, the 4.5% (as laid out in the FY25 Budget) target depends on robust direct tax performance and an expected RBI dividend of INR 1.6–1.8 trillion, supported by strong dollar sales.

While public spending on infrastructure remains a priority, risks from revenue shortfalls or reduced capex execution may affect fiscal flexibility. We don’t rule out the possibility of the Govt. settling for a higher fiscal deficit (4.6-4.8% in FY26) and make higher provision for capex and relief to middle class to provide a push to tepid demand in the economy.

What role will Budget 2025 play in accelerating India’s journey towards a $5 trillion economy?
I think the government will continue to remain focused on boosting infrastructure, rationalizing taxes to encourage spending, and driving private investments led by PLI and Make in India.

Prioritizing sectors like railways, renewable energy, and logistics, defence, ports, infra, data centre, etc. while balancing fiscal discipline, could really accelerate economic momentum.

Any pre-budget picks for investors?
Capital goods, engineering, and healthcare are promising sectors, driven by robust demand and PLI incentives.

Small and midcap opportunities lie in sectors like hotels, jewellery, EMS, quick commerce, capital market entities catering to financialization of savings, and technical textiles.

Among large caps, leaders like L&T, Siemens, HDFC Bank, Britannia, and Max Healthcare are well-positioned to capitalize on structural growth trends.

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