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The upcoming Union Budget for FY26 is expected to focus on rural development, youth and women empowerment, fine-tuning the Employment Linked Incentive Scheme, and enhancing the skilling program according to a report by Yes Bank. Additionally, capital expenditure may shift focus to new sectors beyond railways and roadways, which are nearing capacity saturation.
The report also adds that the budget will maintain fiscal discipline while prioritizing growth-oriented reforms to lay the foundation for a "Viksit Bharat." The government is set to target a Gross Fiscal Deficit (GFD) to GDP ratio of 4.5 per cent in FY26BE, down from an estimated 4.7 per cent in FY25E (against a budget estimate of 4.9 per cent). Net and gross borrowings through government securities (G-secs) are expected to be Rs 11.3 trillion and Rs 14.2 trillion, respectively. The budget aims to restore investor confidence in reforms while ensuring capital expenditure efficiency to reduce project delays and cost overruns. The budget will be framed against the backdrop of weaker-than-expected GDP growth, which stood at 5.4 per cent in Q2FY25. The First Advance Estimates (AE) for FY25 peg GDP growth at 6.4 per cent, significantly lower than the 8.2 per cent recorded in FY24. A key factor behind this slowdown has been the lower-than-expected government capital expenditure, which has failed to offset the sluggish private sector investments. Urban demand has weakened, while rural consumption has shown relative resilience but remains insufficient to drive overall economic momentum. To address these concerns, the government is likely to maintain its focus on capital expenditure while ensuring higher efficiency in deployment. Discussions on changes in income tax slabs to boost consumption are ongoing, but their impact may be limited, as only a small percentage of the population files taxable returns. The Employment Linked Incentive Scheme is expected to be refined with a focus on job creation in the manufacturing sector. Additionally, the government's skilling programs launched in the previous budget will be further strengthened to address workforce mismatches and enhance employment generation. These initiatives aim to improve per capita income, thereby fostering sustainable domestic consumption growth. For FY25E, direct tax collections are expected to underperform due to slower corporate tax growth, while CGST collections may see some slippage. Disinvestment receipts are also likely to be lower than anticipated. Despite these challenges, the government is expected to meet its fiscal deficit target of 4.7 per cent for FY25, aided by lower-than-budgeted capital expenditure. Looking ahead, a slight correction in the GFD/GDP ratio to 4.5 per cent is anticipated in FY26. The government may benefit from another year of substantial dividend payouts from the Reserve Bank of India (RBI), providing additional fiscal room to boost capital expenditure. Capex is expected to be targeted at 3 per cent of GDP in FY26, a slight improvement from 2.9 per cent in FY25E but below the 3.4 per cent originally budgeted for FY25. (ANI)
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