The National Democratic Alliance government began its third term with Budget 2024, unveiling bold policy initiatives focused on job creation, sustainable growth, and technological innovation. As we approach the centennial year of independence, India faces challenges from multiple macroeconomic headwinds, given moderated growth over the past three quarters. Budget 2025 presents an opportune moment to build on policy reforms for strengthening the reform path. Fiscal deficit shall emerge as the central theme, given the 3% target. With muted domestic rural demand, private capex, and geopolitical fragmentation, achieving the fiscal target versus betting on government spending-led growth is what policy shall guide. Much as businesses will vote for betting on growth, the Budget should signal a direction.
Underscoring the commitment towards a simplified and efficient tax system, Budget 2024 introduced several reforms focusing on closing past disputes and lending certainty. Other anticipated pivotal changes are revisions in tax slabs, enabling investment in tax saving instruments, and enhanced deductions for house loan repayments to bolster disposable income and thus push consumption. The abolition of angel tax was a surprise move in 2024; however, more is required to iron out creases and propel certainty.
Industry players expect the Budget to announce measures for dealing with obstacles in the prevailing geopolitical quandary, reorientation in the global trade corridor, and recessionary trends in global growth rates. Though ongoing conflicts in West Asia and the Russia-Ukraine clash continue to cause disruption in global supply chains, capital outflows into India have shown a positive trend in 2024. This potential needs to be further harnessed, given India’s attraction amongst emerging growth markets. The rise in crude oil prices due to conflicts and the threat of tariffs could negatively impact India’s export growth and affect its current account balance.
Though the economic topography has exhibited significant potential, the prevalent environment has introduced ambiguity concerning its performance in FY25. For instance, FY24 witnessed a growth rate of 28.4% in capital expenditures, but estimates suggest a lag in the first half of FY25. The service sector, which drove up GDP and employment with an impressive growth of 7.6%, is expected to dip to 7.1%. This underscores a pressing need to enhance efforts for generating employment and invigorating the financial landscape.
To avert a recessionary tendency, it has become imperative to provide a fillip through supportive policy measures which sustain and propel phase-wise momentum and help augment foreign direct investment and domestic investment in India. Much of investors’ simmering confidence emanates from uncertainties around the tax and tariff regime.
An anticipated announcement would be on a comprehensive review of the Income Tax Act to make it concise and lucid. By prioritising simplicity and efficiency, revitalised efforts to implement the new code holds high potential to enhance India’s competitiveness in the medium to long term.
India’s potential in global value chains (GVCs) and global capability centres (GCCs) highlights the need for a customised approach to address concerns identified in the 2024 Economic Survey. The non-continuation of the 15% corporate tax concessional rate regime needs a relook. Moreover, leveraging the success of the production-lLinked incentive scheme by targeting new areas for expansion will reinforce India’s position as an attractive hub for manufacturing and exports.
Given India’s alignment with global tax reforms, the July 2024 Budget propounded the elimination of the 2% equalisation levy to integrate into the global tax framework. Notwithstanding the Trump administration’s first stance, a clearer strategy for implementing Pillar Two now becomes crucial, considering India’s prolonged silence.
The chimera of dispute resolution and protracted litigation cycles necessitates desperate measures. The introduction of the Vivad se Vishwas Scheme in the 2024 Budget was a reformative move, expanding the scope of safe harbour rules to reduce transfer pricing litigation. Streamlining the appeals mechanism to higher appellate levels needs a relook. Serpentine litigation cycles, frequently cited as risks influencing business decisions, require a concerted approach to foster an atmosphere to attract GCCs and GVCs. Similarly, uncertainty around the operational status of the GST (goods and services tax) Appellate Tribunal requires prompt attention. An amnesty scheme akin to “Sabka Vishwas”, catering to Customs-related litigation, could address the judicial backlog.
Budget 2025 arrives at a pivotal moment for India’s economic ambitions. Prioritising tax certainty, transparent dispute resolution, and alignment with global tax frameworks to sustain growth are vital to domestic and foreign investments. Structured policies and streamlined reforms can boost investor confidence, ensuring India continues to be an attractive business hub despite global headwinds. By accelerating infrastructural spending and fostering a spirit of certainty, Budget 2025 holds promise to define India’s vision for the next four years of Modi 3.0. Besides, they are essential to position the nation as a dominant economic force and realise the vision for economic prosperity.