As India navigates the enmeshed complexities of geopolitical uncertainties and swift changes in the global economic tapestry, a holistic budget that addresses both tax and non-tax expectations will be vital writes Mukesh Butani, Founder and Managing Partner, BMR Legal
Budget discourse, and the cloistered jugular of public policy in shaping budget announcements are more probabilistic than deterministic- skewed more to a slow-burn game of poker than a slasher, edge-of-the-seat game of chess. As India readies for its ingress toward the annual econometric phantasmagoria, the 2025 Union Budget, it hurtles at a crucial juncture between immediate fiscal imperatives and the Holy Grail of aspirational goals. With the centennial year of independence in 2047 on horizon for the proclaimed Vishwaguru, this budget holds the ace for a transformational blueprint to position India as a preeminent player in the global economy.
The economic topography seems replete with some intriguing developments over the past year. Hale infrastructure investment has been central on the government’s ‘Sabka Vikas’ (growth-for-all) agenda, evidenced by capital expenditures witnessing a growth rate of 28.4 percent in FY24. This upward trend is projected to continue and might seem like all is hunky-dory, albeit it is not. Extreme caution has been warranted, as the first half of FY25 has shown a lag in capital expenditure, totalling only 37.3 per cent of full-year estimates. To prevent it’s spending from being billed kosher, the government needs to ensure that infrastructural spending is not just sustained but accelerated with private capital, as they attempt to reduce extraneous logistics costs and enhance supply chain efficiencies.
A cursive glance at the services sector tells a compelling story: the sector has demonstrated resilience, growing by an impressive 7.6 per cent in FY24, with expectations to maintain a solid 7.1 per cent growth in the upcoming fiscal period. The surge in services exports, particularly boosted by IT and business services, has significantly contributed to the GDP and job creation. As total services exports reached $216 billion between April and October 2024, the need for supportive policy measures to sustain this momentum is paramount. This can be a flesh-and-blood reality with a higher dosage of foreign investment, as was expounded by the Chief Economic Advisor in the 2024 Economic Survey.
However, the pathway to economic prosperity is fraught with challenges of realpolitik. Geopolitical tensions, notably the intensified conflicts in the Middle East, and the Russia-Ukraine showdown, has shot at the rate of bayonets on global supply chains. These uncharacteristic uncertainties, coupled with capital outflows from emerging markets, including India, following major altercations with China, has exacerbated risks to our overall economic outlook. Thus, a concerted approach in the budget is essential to win foreign investments for exports-led manufacturing, in our bid to fortify our commitment as the halcyon representative of the Global South.
In the realm of taxation, the altitudinous barometer of expectations has been simmering, particularly on restructuring of corporate tax rates to enhance India’s status as a numero uno destination for FDI. Businesses, in anticipation of continuity of the concessional corporate tax rate of 15% for new manufacturing companies, observe perspicaciously. In the wake of a monumental increase of Global Value Chains (GVCs), and Global Capability Centres (GCCs), the India story would not be complete without a tailor-made approach to address their concerns. Businesses were left disillusioned with the greyscales of the previous budget, and hence, in the present environment, there is an urgent need to reexamine such proposals. This rate has been auxiliary toward attracting investments and fostering growth; thus, there is a palpable demand for its continuation or even its reduction. A strategic recalibration could serve as a clear call to multinationals to invest in India’s burgeoning market, thereby creating jobs, and enliven the economic pastures for attracting mammoth cross-border investments.
India’s commitment to global tax reforms, especially in light of the OECD’s two-pillar framework, underlines the need for straightforward and robust tax regulations. As over 40 countries gear up to implement the second pillar from 2024, India’s clarity and alignment with these international standards will not only solidify its reputation for tax certainty but also facilitate smoother operations for foreign investors. Experts speculate that a more defined approach regarding the Pillar Two implementation would be pivotal, particularly as India’s policy stance remains anticipated yet ambiguous. The forthcoming budget presents an opportunity to elucidate these commitments, perhaps through a concerted announcement or a divergence unto the Finance Bill, to corroborate the edifices of trust and transparency.
The pressing necessity for ease of compliance must not be overlooked. Simplifying the tax framework and ensuring user-friendly compliance measures can catalyse a healthy business environment. A reduction in administrative burdens, coupled with enhanced digital tools for tax filing and payments, would help SMEs and large corporations alike. By emphasising simplicity and efficiency, especially in the wake of the government’s renewed vigour in orchestrating the Direct Taxes Code, India can spell its audacious attractiveness as a global business hub. Avenues for attracting more investments by way of fiscal and non-fiscal benefits coupled with relaxation in exchange controls shall be crucial.
While tax expectations dominate discussions in any budget, non-tax considerations cannot be underestimated. The government’s historical focus on robust infrastructure spending is commendable, as evidenced by significant increases in capital expenditures. However, there is room for further enhancements that align with the needs of evolving industries like technology, green energy, and logistics. Expanding infrastructure not only lowers logistics costs but also directly supports GCCs and global value chains (GVCs) aiming to optimize their supply chains in India.
Additionally, leveraging artificial intelligence—a crucial driver identified in the 2024 Economic Survey—will be critical for maintaining India’s competitive edge. There is an urgent need to expand on the AI blueprint developed by the government, facilitating the emergence of AI as a cornerstone of various sectoral strategies. Encouraging innovation and supporting AI-driven startups through favourable policies will help maintain a dynamic ecosystem that attracts investment.
As India navigates the enmeshed complexities of geopolitical uncertainties and swift changes in the global economic tapestry, a holistic budget that addresses both tax and non-tax expectations will be vital. By fostering an environment of predictability, enhancing compliance measures, and investing in critical state-of-the-art infrastructure, the Union Budget 2025 has the potential to be more than a fiscal event; it presents a defining moment to build an architecture for sustainable growth. The aspirations surrounding India’s Budget 2025 should thus aim at crafting a narrative of resilience and opportunity. Akin to a dualist approach of meeting the sweet spot between ‘Bazball’ and ‘The Wall Manual’, the Finance Minister has an opportunity to navigate the charter for the next five years of transcendental transformations, in an effective manner.