Nomura, a global financial services company, said Thursday that the Centre will focus on both fiscal consolidation and growth-supportive measures in the upcoming Union Budget for 2025-2026, forecasting that the government may tinker with personal income tax slabs to boost consumer spending.
Nomura expects India to exceed its fiscal deficit target for the financial year 2025, estimating the deficit at 4.8 per cent of the GDP, which is slightly lower than the earlier forecast of 4.9 per cent.
This is because capex spending has declined. Nomura projects that for FY 2026, capex will be at 4.4 per cent of GDP, in line with India's medium-term goals.
It also expects public capital expenditure to increase by 12.5 percent year-on-year in FY 2026. Some of the other measures that might be included in the budget are a lower corporate tax rate for companies operating manufacturing hubs in India, reduced customs duties on intermediate inputs, and higher investment in agriculture.
Additionally, Nomura foresees an increase in the import duty on gold, an expansion of the foreign direct investment (FDI) limit in the insurance sector, and steps to boost capital inflows to support the rupee.
Nomura forecasts a marginal increase in India's gross market borrowing at Rs 14.4 lakh crore in FY 2026 against Rs 14 lakh crore in the current year. This could be lower if the government conducts more buybacks in the coming weeks.
Net market borrowing is expected to fall to Rs 11.03 lakh crore, a decline of Rs 60,000 crore from FY 2025.
While a significant portion of the positive fiscal news may have already priced into the market, government bonds from India look attractive, believes Nomura.
As the risks pertaining to the forthcoming budget announcement are seen asymmetric by the firm, it indicates that the balanced approach by the government would help India's fiscal risk premium stay low. This in turn would help the Reserve Bank of India increase flexibility in reducing its policy rate in the upcoming February MPC meeting.
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