India's Budget: A Plan for Jobs, Growth, and Debt

Prime Minister Narendra Modi's upcoming budget is set to tackle India's most pressing economic challenges: creating jobs for millions of new workers while shielding the nation from global uncertainty and trade tensions. An analysis of economist expectations reveals a strategic focus on bolstering employment and stimulating growth.

According to a Bloomberg News survey of 29 economists, Finance Minister Nirmala Sitharaman is expected to prioritize measures that support job creation and drive economic expansion. Key policy levers will likely include increased spending on infrastructure like roads, ports, and railways, along with new export incentive schemes and reforms to the import-duty structure.

This government-led push is a direct response to a shaky global economic environment and lagging private investment. With the private sector's share of new investment hitting a decade low in the year ending March 2024, the government has stepped in to fill the gap. To sustain demand and protect incomes, it boosted its own capital spending by 30% during that period.

The High-Wire Act of Fiscal Consolidation

Even as it ramps up spending, the ruling party is expected to maintain its commitment to fiscal discipline. While new social programs may be announced in five states to secure popular support, the broader goal is to rein in debt and reduce the budget deficit.

Economists project Sitharaman will target a budget deficit of 4.2% of gross domestic product for the fiscal year starting in April, down from 4.4% in the current year. This aligns with a roadmap established in last year's budget to lower federal debt to around 50% of GDP by 2030-31.

Analysts at BofA note this framework allows for a gradual reduction in the deficit, which helps manage the high debt-servicing costs that accumulated during the COVID-19 pandemic. However, the current debt level remains a concern. The International Monetary Fund estimates India's general government debt rose to 81.29% of GDP by March 2024, up from 69% in 2015, largely due to pandemic-era borrowing.

Key Numbers Driving the 2025 Budget

Several critical figures will define the government's economic strategy and its potential for success.

Economic Growth and Revenue Targets

Economists forecast India's economy will grow between 6.5% and 7% in the next fiscal year, with inflation hovering near the central bank's 4% target. This implies a nominal GDP growth of 9.5% to 10.5%—a crucial assumption for projecting government revenue. The recently released Economic Survey offers a similar projection, pegging growth between 6.8% and 7.2%.

On the revenue side, the government faces significant challenges. Last year's tax cuts on goods, services, and personal income, designed to offset a 50% tariff shock from the U.S., have constrained revenue. The budget is expected to target net tax collections of 28.3 trillion rupees ($308 billion), supplemented by 500 billion rupees from disinvestment.

To meet existing targets, corporate and income tax collections must rise by 11.7% and 43% respectively in the final four months of the fiscal year, according to Radhika Rao at DBS Bank Ltd. The government is also counting on dividends from the Reserve Bank of India (RBI) and other financial institutions, with transfers expected to reach about 3.2 trillion rupees.

Capital Expenditure and Defense Spending

Capital expenditure (capex) will remain a central pillar of the budget. The government is likely to allocate approximately 12.04 trillion rupees for capex, equivalent to nearly 3% of GDP. However, some economists warn that the capacity to expand and execute massive infrastructure projects may be approaching a saturation point.

Defense-related capital spending is also projected to increase significantly, rising to 2.3 trillion rupees from 1.8 trillion rupees last year, reflecting heightened border tensions following the conflict with Pakistan in May.

Record Borrowing and Market Implications

To fund its spending plans while pursuing fiscal consolidation, the government is expected to engage in record bond borrowing. Economists anticipate gross market borrowing of 16.5 trillion rupees, with net borrowing at 11.6 trillion rupees.

This heavy borrowing schedule could pressure the RBI to support the market through secondary bond purchases, according to Citigroup Inc. economists. Market participants surveyed expect the 10-year government bond yield to settle around 6.7% by the end of December 2026.