India's Economic Growth and the Union Budget 2025

As India aims to achieve a $5-trillion economy, maintaining sustainable growth while focusing on fiscal discipline and economic inequality is crucial. The Union Budget 2025 plays a significant role in addressing these challenges, arriving at a time of weak GDP growth and low consumer spending.

Key Expectations from the Union Budget 2025

• Tax reforms to provide relief and boost consumption.
• Increased capital outlay for infrastructure development.
• Support for sustainable initiatives across sectors.

Capital Expenditure (Capex) Trends

Capital expenditure is critical for India's growth, with a focus on productive capex having a higher multiplier effect.

• Gross fixed capital formation (GFCF) increased to 30.8% of GDP in FY24, surpassing the pre-pandemic average of 28.9%.
• Disruptions in momentum during H1FY25 due to multiple elections.
• Central and state governments saw declines in capital expenditure, with a 15.4% and 10.5% year-on-year decrease, respectively.
• Major central public sector enterprises reported a 10.8% decline in capex during H1FY25.

Government Initiatives and Challenges

• The Centre increased allocation for 50-year interest-free loans to Rs 1.5 trillion in FY25.
• The slowdown in public capex is temporary, with a likely pickup expected in the second half of the fiscal year.

Private Sector Investment and Challenges

• Private sector capex has not seen a strong pickup due to global policy uncertainties, geopolitical risks, and increased borrowing costs.
• Gross FDI inflows for FY25 are at $48.6 billion, higher than the previous year's $42.1 billion, but net inflows are muted due to repatriation of profits.

Fiscal Support and Budget Allocations

• Centre's budget allocations for capex have more than doubled from 1.6% of GDP in FY19 to 3.4% in FY25.
• State capex is expected to grow to 2.6% of GDP in FY25, exceeding pre-pandemic levels.

Sectoral Developments

• Order books in the capital goods sector grew by 23.6% in FY24 against a CAGR of 4.5% in the previous four years.
• Infrastructure companies, especially in road development, saw improvements in FY25 with a 20.5% growth in new orders in the first half of the year.

In conclusion, while the government has ambitious capex targets, recent slowdowns have impacted growth momentum. Vigilant monitoring of the capex trajectory is vital to harness India's economic potential.