Union Budget 2025-26 – Key things to Look Out for

The India’s finance minister will deliver the Union Budget 2025-26 on Saturday (i.e. 1^st February 2025). The Finance Minister Smt. Nirmala Sitharaman will deliver the Union Budget for the eighth time in a row in Parliament. She is also the first Finance Minister to deliver eight consecutive union budgets. She has presented six annual budgets and two interim. Late Shri Morarji Desai set the previous record by presenting six budgets in a row.

Now let us look at what we need to look out for in Union Budget 2024-25.

Key Things to Watch Out for in this Budget 2024-25

For any economy, the major key drivers are Economic Growth, Employment, Inflation, Union Budget, Interest rates, Investments, and Infrastructure.

1. Fiscal Deficit:

One of the key things to watch in any economy is Budget, is Fiscal Deficit. In the Union Budget 2024-25, the Fiscal Deficit is budgeted at 4.9%.

However, Government has promised in its 2021-22 budget that the Government would continue on its path of fiscal consolidation, as per Fiscal Responsibility Management Act, 2003, to attain a fiscal deficit to a GDP level below 4.5 per cent by FY 2025-26 through a fairly steady decline over this period.

During last year’s budget speech FM stated that “The fiscal consolidation path announced by me in 2021 has served our economy very well, and we aim to reach a deficit below 4.5 percent next year,”

FM also added, “The government is committed to stay the course. From 2026-27 onwards our endeavour will be to keep fiscal deficit each year such that the central government’s debt will be on a declining path as percentage of GDP,”

Therefore, we can expect that Government may budget in between 4.5% to 5.0% in the Union Budget 2025-26.

2. Capital Expenditure (Capex)

For any economy, Capex is an important expenditure as it is mostly for development purposes. Many expect that in this budget there could be a big increase in Capex this year, especially for crowding in private investments.

In 2024-25, Union Budget, the Capex was budgeted with an increase of 11.1%. However, Effective Capita Expenditure (Capex + Grants-in-Aid for creation of Capital Account) has budgeted with an increase by 15% compared to 2023-24 BE, and 18.2% in 2023-24 RE.

The capex to GDP ratio has increased from 1.75% of GDP in 2019-20 to 3.4% in 2024-25. Still, it failed to crowd in private investments in spite of healthier bank balance sheet. Therefore, even in the present budget Government will try to woo private sector investments by increasing Capex marginally (say may be 1% higher) compared to last year.

Central Governments aspiration to continue to ramp up Capital Expenditure. Thus, stressing more on State Government to spend on capital assets is still unclear when this will take place. This is due to lack of cooperation and desire to increase their Capex budget from states. 

3. Disinvestment Target

There are many newspaper and researchers claimed that in the current financial year 2024-25, the budgeted disinvestment target is Rs. 50000 crores. However, there is no mention about disinvestment target in the budget speech or documents.

In the current financial year (i.e. 2024-25), the total receipts so far are Rs. 57,947.98 crore (as of 31.01.2025, figures are taken from the DIPAM website).

Out of which Rs. 8,625.05 Crore are from Disinvestment Receipts and Rs. 49,322.93 Crore are from Dividend Receipts. 

4. Taxes

One of the important sources for the Government and people eye on budget will be for/on is Taxation. There is a huge expectation that Government may address the simplication of tax process. Another expectation is Standard deduction under new regime may get an hike to Rs. 75,000. This is doubtful.

Government may eye on phasing out Old Tax regime from this year (or) atleast announcement of phasing out should be on the card.

There is a high expectation on a rollback of the long-term capital gains tax rate from 12.5% to 10%, following the July 2024 announcement; this is unlikelyor doubtful.

According to media report, there are two tax options, which are under government consideration:  incomes up to Rs 10 lakh could be made tax-free, or a new 25% tax bracket could be implemented for incomes between Rs 15 lakh and Rs 20 lakh. It is to be noted that the current tax rate for incomes exceeding Rs 15 lakh is 30%.

5. Interest Payments

The Interest payments and Subsidies together constitutes one fourth of the total budget. The remaining three fourth of the Budget resources will be used for country’s defence, development programmes and grants/ transfer to states.

Naturally, this will restrict Government’s expenditure on Development programmes. It would be good to see if the interest payments are in same ratio as the previous budget. 

6. Fertiliser and Other Subsidies

Feritliser Subsidy is expected to increase in this budget. There is a greater possibility that compared to last year there will be a jump in Subsidies, this financial year.  

Unknown or Less Known facts of Indian Budget

1. In the wake of a failed rebellion, Mr. James Wilson was sent to India under Queen Victoria’s orders to implement financial reforms, which involved developing a tax system and introducing a new paper currency. He significantly contributed by introducing income tax, a crucial government revenue source to this day.

2. During Indira Gandhi’s administration, Shri. Yashwantrao B. Chavan presented the 1973-74 budget. With a staggering Rs 550 crore fiscal deficit, this budget infamously became known as “The Black Budget“. The situation clearly showed the depth of India’s financial hardship at the time.

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