Budget 2025: As the nation eyes Union Finance Minister Nirmala Sitharaman's upcoming Union Budget 2025-26 announcement on Saturday, February 1, research agency Emkay Global expects India to continue in the line of consolidation amid economic trade-offs and growth of a negative fiscal impulse.

On the financial markets front, the research agency highlighted that it remains “cautious” for the Indian stock markets as the company set its target for the Nifty with an 8 per cent upside. 

“The markets may be especially vulnerable in Q1CY25 due to sustained FPI selling and weak earnings support. We are, however, more optimistic on the longer-term outlook,” said Emkay Global.

Nifty 50 index closed 0.49 per cent lower at 23,092.20 points, compared to 23,205.35 points at the previous market close. The BSE Sensex index closed 0.43 per cent lower at 76,190.46 points, compared to 76,520.38 points at the previous stock market session. 

Emkay Global's key expectation for India's economy 

The Indian financial services and research agency Emkay Global expects the Central government to consider five factors as the Finance Ministry finalises the upcoming Union Budget.

In the Budget 2025, the Centre is expected to consider a comfortable starting point, taxation tweaks, non-tax revenue gains, Capex growth, and Revenue expenditure growth, according to Emkay Global's research report.

1. Comfortable starting point: The research agency said that if this year's Budget decides to stick to the 4.5 per cent fiscal deficit target according to the pre-set plans, the consolidation will be much milder at 0.3 per cent of GDP.

“The overall direct fiscal impulse of the general government was fairly negative on growth in FY25 and, the GDP growth print finally took the hit,” said Emkay.

2. Taxation tweaks: Emkay expects to look out for any rationalisation of the income tax slabs to increase people's disposable income and give the lower income segment a taxation relief. It will also increase people's willingness to consume more in turn boosting domestic consumption.

“There could be a possibility of increasing standard deductions for the salaried class, as they move to new regime. While the exact contours of the tax changes are difficult to predict, this could encourage the government to reduce the tax burden of the lower-income slabs,” said the research agency in its report. 

The agency expects the tax buoyancy to fall to 0.8 to 0.9x from 1.1x/1.4x in the financial year 2025 estimates/financial year 2024.

On the corporate tax front, the Central Government may provide some concessions on corporate tax schemes for the manufacturing sector to attract foreign direct investment (FDI) and lower customs duties on manufacturing inputs to boost domestic production.

“We do not see any dramatic changes in the capital gain tax framework,” said Emkay, highlighting that the policy will continue to seek to rationalise taxation across asset classes over time.

3. Non-tax revenue gains: Emkay expects the non-tax revenue gains to be “mildly higher” than in the financial year 2025, with the Reserve Bank of India dividend mostly similar to or marginally higher than FY25.

“Despite a miss on the disinvestments pipelines, the Budget may again pencil in ₹500 billion miscellaneous capital receipts,” according to the Emkay report. 

4. Capex growth: Emkay expects the central government to target a capex of a little above ₹11 trillion after having undershot in the financial year 2025. This would peg the growth at 10.5 to 11 per cent over the FY25 estimates.

“We expect capex loans to states to be nearly the same as that in FY25, with the biggest increase in allocation seen in defence among key sectors, after a dismal FY25,” said the Emkay report.

5. Revenue expenditure growth: According to the research report, Emkay does not see any rationale for raising outlay on food or fertilizer subsidies, but they expect a mild increase in petroleum (LPG) subsidies.

“There may be focus on a better target/increasing the outlays on existing welfare schemes, focus on welfare of the rural/farm sector, improving human capital, and labor efficiencies. We expect the revex/capex ratio to imporve mildly to 3.6x from 3.7x in FY25E, albeit still remain higher than 3.3x in FY25BE,” as per the report.