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Budget 2025

Budget 2025: Aims to expand domestic production in electronics industry with help of tariffs relief
Equities, Markets - February 3, 2025

Budget 2025: Aims to expand domestic production in electronics industry with help of tariffs relief

Budget 2025: Aims to expand domestic production in electronics industry with help of tariffs relief

Budget 2025 emphasizes on boosting the progress of the electronics industry in India at global level. The Indian Ministry of Electronics and Information Technology is given more than Rs. 26,000 crore of fund allocation which is about 48 percent of growth in fund allocations. It aims to expand production of electronics and semiconductors in India. The government of India announced relief in import duties on some of the important components used for producing smart LED TVs, mobile phones, and other electronic gadgets. To become an international manufacturing hub in the world, India sets up the goal of growth of 500 billion dollars in Indian electronics manufacturing over the year 2030.

Performance of Electronics Industry in India
The Economic Survey of India for the financial year 2024-2025 states that the Indian electronics market shares in the international market is only 4 percent. The Indian electronics market majorly concentrates on assembly. It has made only small developments in component manufacturing and designing.

Despite this, the electronics industry in India was able to make significant progress in reduction of imports, and expansion of exports and domestic production in the country. In the previous 10 years, it was able to increase domestic production to about Rs. 9.52 lakh crore in the financial year 2024 which is an upward trend from the earlier domestic production of Rs. 1.90 lakh crore in the financial year 2015. Apart from this, India has successfully limited its reliance on other countries for smartphones by achieving around 99 percent of production at domestic level.

The main reasons for this strong growth is availability of skilled workforce, cost of labour is low, and also existence of a big market at domestic level. Along with this, the number of incentives, Production linked incentive (PLI), easing of business activities, development of infrastructure, and projects like Digital India and Make in India have helped in encouraging foreign investment and spurring growth in manufacturing at domestic level.

Measures taken by Budget 2025
The budget 2025 pointed out reforms in tariffs for some important electronics materials and components. Its aim is to make India’s electronics industry cost structure effective and efficient in the market. It will result in encouraging domestic production, expansion in investment and more use of materials and components which are produced in the Indian markets only.

Measures taken to promote domestic manufacturing of mobile phones
To encourage manufacturing of mobile phones in India, the actions taken by government of India is to eliminate earlier basic customs duty (BCD) which accounts to 2.5 percent on components used for making mobile phones such as wired headsets, fingerprint reader and scanners, printed circuit board assembly (PCBA), USB cables, camera modules, microphones, and connectors. Now these components are duty-free. It will lead to lower prices of the mobile phones supported by measures taken by the government to increase disposable income of the people.

Apart from this, open cells which are crucial for the production of TV panels like LCD and LED are also made duty-free by the Budget 2025. It is anticipated to give advantage to both manufacturers and consumers in the market due to contraction in the cost of production.

Measures taken to boost electric vehicles segment
For the production of electric vehicles and mobile phones, lithium-ion batteries are one of the crucial elements. To make lithium-ion batteries, materials such as scrap of lithium-ion batteries, cobalt power, and some 12 important minerals are used. Finance ministry of India made a public statement of making these materials duty-free. In the list of no duty, the number of capital goods for production of batteries of mobile phones and electric vehicles are added 28 and 35 capital goods more, respectively. It aims to promote manufacturing of batteries at domestic level in order to achieve the goal for becoming a global hub in areas of manufacturing of electric vehicles and mobile phones as well.

Steps taken to address issue of inverted tariff structure
India faced the issue of high custom duties on importing of components used for production which is higher than duties on finished commodities. The Finance ministry took measures to raise custom duty on components such as interactive flat panel displays to around 20 percent, which was earlier 10 percent.

Measures taken to promote semiconductors
The fund allocation in the budget 2025 for promoting display and semiconductors production in India is about Rs. 7,000 crore in the upcoming financial year compared to previous financial years’ allocation of Rs. 3,816.47 crore. It has also increased the allocation of funds twice which accounts to Rs. 2,499.96 crore. The budget has also raised funds to establish facilities for creation of silicon photonics, compound semiconductors, sensor fab, and other equiment related to semiconductors and to estabilish units like OSAT and ATMP. For this purpose, fund allocation was expanded to about 56 percent which accounts to Rs. 3,900 crore in the upcoming financial year compared to Rs. 2,500 crore in the financial year 2025. It will provide support to the semiconductor projects going on in Dholera by TATA and in Sanand by Micron.

Outlook of Electronics Industry in India
In present times, India is considered as the second biggest producer of mobile phones in the world. Companies like Samsung and Apple share in the mobile phones market in India is about 22 percent and 23 percent, respectively.

The programs like national manufacturing mission, contraction in various tariffs on crucial components used for electric vehicles and other electronics goods will lead to expansion in foreign investment, reasonable prices for consumers segment and expansion in domestic productivity of the country.

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Renewable Energy Sector Awaits Budget 2025 for Key Support Measures

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Renewable Energy Sector Awaits Budget 2025 for Key Support Measures
Equities, Markets - January 30, 2025

Renewable Energy Sector Awaits Budget 2025 for Key Support Measures

Renewable Energy Sector Awaits Budget 2025 for Key Support Measures

Overview
The renewable energy sector anticipates that Finance Minister Nirmala Sitharaman would announce more steps to encourage the production of local equipment, policies to encourage the adoption of green technologies, increased funding for renewables, and a duty differential to assist domestic companies.

Over the past two years, the fiscal support for the renewable energy sector has more than doubled. Compared to the revised budget estimate of ₹7,848 crore for FY 2023-24, the Ministry of New and Renewable Energy’s (MNRE) total allocation for FY 2024-25 climbed to ₹19,100 crore.

As India strives to reach 500 GW of green energy capacity by 2030, the Union Budget 2025–26, which will be unveiled on February 1, is anticipated to include a number of incentives for the renewable energy industry. The renewable energy sector in India is optimistic that the next Union Budget will provide a path for the fossil fuel-dependent economy to increase its green energy capacity in multiple ways, given recent geopolitical developments such as China’s export restrictions and the United States’ tougher sanctions on Russian oil.

Large budget allocation through PLI Schemes
Green energy stakeholders want a stronger domestic push, whether it is for output, storage capacity, new production-linked incentive (PLI) schemes with larger budget allocations for areas like battery infrastructure, or research and development promotion. This is especially important at a time when India may find it difficult to meet its 2030 target of 500 GW from non-fossil fuel sources.

According to Subburathinam P, Chief Operating Officer of TeamLease Services, many businesses in these industries are still in the pre-production or incubation stage. It is crucial that they enter the production stage in order to benefit from PLIs in the renewable energy industry. The industry anticipates a drive toward battery storage, which is essential for integrating renewable energy and guaranteeing a steady power supply.

Industry participants look for ways to solve implementation issues and encourage domestic production in new and developing renewable technology areas. To reduce reliance on imports, primarily from China, the government may propose support measures for the domestic battery manufacturing and supply chain.

PSUs in action
In order to meet the 2030 target and become Net Zero by 2070, more steps are anticipated to increase the involvement of corporate and public sector undertakings (PSUs) in the green energy transition. Given that these technologies have large capital expenditures and a ten to fifteen-year time horizon, a significant rise in resource allocation is anticipated for the adoption of renewable energy, the integration of green technologies, and waste reduction.

Solar Cells to be supported by incentives
Observers of the green energy sector believe that more incentives to support domestic production of solar cells and green hydrogen would be included in the Union Budget 2025. In order to increase research and development (R&D) activities in the industry and draw in foreign money, supporting measures can be proposed.

As the nation seeks to diversify its renewable energy portfolio, larger solar and offshore wind projects are probably going to receive larger budgetary allocations. In a similar vein, increased funding is anticipated for carbon markets, green hydrogen production, and future technologies.

Support for minerals
The government may focus on critical minerals such as lithium, copper, cobalt, and rare earth materials, which are vital for sectors like nuclear energy, renewable energy, space, defence, telecommunications, and high-tech electronics.

In the last budget, the government fully exempted customs duties on 25 critical minerals and reduced basic customs duties (BCD) on two of them to boost the processing and refining of such minerals. Any further friendly measures in this direction will ensure the easy availability of such critical minerals for renewable energy players.

Boosting the Green Sector
In order to encourage the public to embrace green energy, the government introduced legislative initiatives like the PM Surya Ghar Muft Bijli Yojana in the most recent Budget. In order to provide free electricity to one crore families, up to 300 units per month, the Yojana was started to install rooftop solar plants.

Last year, the increase of energy capacity in the renewable energy industry significantly improved. In the calendar year 2024, 27 GW of renewable energy capacity was added. In November 2024, the total installed non-fossil fuel capacity was 214 GW, a 14% increase over the 187.05 GW recorded during the same period the previous year. Of this, 47.96 GW came from wind energy and 94.17 GW from solar energy.

Ahead of the Union Budget 2025, pressure has continued to mount on leading renewable energy equities. Compared to their closing price on the NSE on January 1, the shares of major industry companies, including Waaree Energies, KPI Green Energy, NTPC Green, and Adani Green Energy, have dropped by as much as 60% since the start of the month.

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India’s export in auto industry reach 19 percent

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Interest Payment Burden to reduce in FY26
Equities, Markets - January 29, 2025

Understanding Revenue Deficit: Implications for Government Finance and Economic Stability

Understanding Revenue Deficit: Implications for Government Finance and Economic Stability

Overview
The revenue deficit indicates if the nation is borrowing money to make ends meet or if its regular income is sufficient to pay for daily expenses such as salaries, pensions, and subsidies. Consider a family that makes Rs 50,000 a month but spends Rs 60,000 on necessities. At first, that Rs 10,000 deficit might not seem like much, but in the long run, it could ruin their plans to save for a home or send their children to college. Similar to this, a revenue shortfall indicates that the government’s revenue is insufficient to cover its operating expenses, forcing it to borrow money for daily survival rather than for expansion.

Fiscal Deficit Vs Revenue Deficit
The fiscal deficit, which is a more comprehensive metric that accounts for all government borrowing and spending (including capital and revenue), is distinct from the revenue deficit. The revenue deficit particularly draws attention to the difference between daily operating costs and earnings, whereas the fiscal deficit represents the overall shortfall in the government’s budget. While the fiscal deficit provides a comprehensive picture of borrowing requirements and long-term financial health, the revenue deficit helps evaluate how well the government handles its monthly income and spending.

By leveraging capital receipts or other non-revenue sources to make up the whole difference, the government can also manage a sizable revenue deficit while maintaining fiscal control. For example, even if revenue receipts are insufficient, the fiscal deficit can be partially compensated by the proceeds from disinvestment or borrowing for infrastructure projects. A large revenue loss however still denotes inefficiencies since it shows that money is being borrowed for operating costs rather than profitable ventures.

Importance of Revenue Deficit
For the economy, revenue deficit is comparable to a doctor’s report. The government is borrowing to keep the lights on while the revenue deficit is consistently substantial, which is bad for long-term financial stability. India’s revenue deficit for the fiscal year 2024–2025 is estimated to be Rs 5.80 lakh crore, or 1.8% of GDP, which is a significant improvement from the 4% deficit in 2022–2023. This indicates that the government is cutting back on spending.

A revenue deficit indicates that the government is having to borrow money or draw from reserves in order to pay its debts because it is not making enough money to cover its operating costs. A government’s capacity to invest in long-term economic initiatives like infrastructure or education is diminished when it borrows money to cover a revenue shortfall. In terms of indicating inefficiency, a continuous income shortfall could be a symptom of ineffective revenue production or excessive expenditure on wasteful spending.

Revenue Deficit so far
The Balance of Payments crisis in 1991 brought attention to the revenue deficit. With declining reserves and growing debt, India was on the verge of an economic collapse. This turning point resulted in extensive reforms and made budget discussions more focused on budgetary restraint. The revenue shortfall has since emerged as a crucial indicator of a government’s sound financial management. Prior to the pandemic, when the revenue shortfall of the GDP was 7.3%, the revenue deficit had been declining. Since then, the recovery has been rigorously monitored, with a revenue deficit of about 1.8% of GDP.

Revenue Deficit in Budget 2025
Observe the government’s goal for the fiscal year’s revenue deficit and the actions it intends to take to lower it. Seek ways to increase non-tax revenue streams, rationalize subsidies, or improve tax compliance. Additionally, to comprehend the government’s overall financial aims, compare it with the fiscal deficit target.

The government’s ability to finance development initiatives is directly impacted by the revenue shortfall, which is a crucial sign of its financial health. You can better grasp the difficulties of balancing the nation’s accounts and how it may impact your pocketbook if you know how it operates and how it differs from fiscal deficit.

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India’s export in auto industry reach 19 percent

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Contraction in Banking Stocks to around 6 percent due to RBI's repo rate cut
Equities, Markets - January 28, 2025

Stance on divestment and its impact on PSU stocks in the upcoming budget

Stance on divestment and its impact on PSU stocks in the upcoming budget

Overview
Following the year 2020, there is a considerable mismatch between the projected divestments and the actual divestment occurred in the budgets so far. Currently, many experts believe that this time’s budget will have a reasonable approach in terms of setting targets for divestment. This year’s budget will have smaller targets than the targets planned in the budget year 2022 and 2023. This time projection will fall in the band of about Rs. 30,000 crore to Rs. 60,000 core.

Gap in divestment target
The divestment reached to about Rs. 9,000 crore until now compared to its target of Rs. 50,000 crore in the financial year 2024-2025. It indicates a huge gap in the actual action and projected plans of divestments. The stake sales of the government of India were done through offer for sale method. It sold its stakes in Hindustan Zinc, General Insurance Corporation of India, and Cochin Shipyard. It also received money from selling its shares in different companies and investments managed by specified undertaking of Unit Trust of India.

Impact of lower target
In the Budget 2025, the projection will fall in the band of about Rs. 30,000 crore to Rs. 60,000 core. Nomura Holdings, a Japanese brokerage firm, stated that India is suffering from getting less money from sale of its stakes in the companies. Also, it is facing the issue of fall in growth of nominal GDP. This will result in cancelling out the effect of savings made by the government due to lower capital spending on its projects. Despite this, the government is anticipated to keep its present divestment goal in the budget.

In case the government of India reduces the target of divestment which could be around Rs. 30,000 crore then it will be for the fifth year in a row that the budget has contracted the goals of divestments.

The underperformance or remarkable performance of divestment will not have a big impact on India’s financial position. It is because the share of divestment in the total revenue collection has become small in the duration of previous years. In the financial year 2025, it was about 1.6 percent.

Effects on Public Sector Undertaking Stocks
Nilesh Shah, managing director of Kotak Mahindra AMC stated that the government of India should carefully plan its budget. The sale of shareholdings of the government of India in non-core public sector units will help the country to reduce the fiscal deficit.

In the upcoming financial year 2026, the major sales of companies such as IDBI bank, BEML, Shipping Corporation, and NMDC steel are expected to be undertaken. These plans of selling shares will help the government to fufil the goals of divestment set in the financial year 2026.

In recent times, many investors are showing their interest in stocks of infrastructure and manufacturing sectors undertaken by the public sector. It has resulted in a hike in market capitalization of these companies which includes Shipping Corporation of India and NMDC Steel.

The stake sales of government in IDBI bank of about 60 percent will possibly be undertaken in the financial year 2026. To conduct a financial bid of IDBI bank, a thorough review is taken of the bank and it is going to be given to potential buyers.

The sale of shares of Shipping Corporation of India is expected to happen in the upcoming financial year as well. This company is the biggest shipping firm having about 70 vessels. It is being moved forward due to administrative hurdles in the process of divestment.

One of the other reasons for lower targets is also possibly due to the belief that public sectors in key areas are expanding their potential capacity.

The announcement of the divestment process of the companies normally leads to a hike in that stock. The reason for this is that investors think that privatization of a company will lead to expansion of profit levels. In present times, small goals of divestment will possibly lead to poor performance of that public sector stocks on the day of the budget announcement. Also, the market changes due to news of divestment will affect that particular stock and not the entire sector.

In conclusion, the government of India is getting its return from strong operational activities, core public sector units, and high attraction of investors towards PSU stocks. It is unlikely for the government to do large stake sales. Thus, investors having a stake in PSU stocks possibly need to find other reasons than news of divestment for hike in prices of these stocks.

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Budget needs to focus on local infrastructure

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Easing of risk weights on loans given to MFIs and NBFCs
Equities, Markets - January 27, 2025

Bank Results highlight issues in the banking segment

Bank Results highlight issues in the banking segment

Overview
Earnings season has begun, and as usual, the performance of the banking industry provides insight into the overall health of the economy and underlying patterns in the payback cycle. The December figures thus far suggest that the industry is under underlying pressure.

IDFC First Bank’s profit slides
For example, IDFC First Bank’s quarter has been uneventful, with a notable 52.6 percent year-over-year drop in net profit at Rs 339.4 crore. The decline has mostly been ascribed to a downturn in the microfinance industry and an increase in wholesale banking’s market share, both of which have had an impact on the lender’s net interest margin (NIM).

Even though the bank’s net interest income (NII) increased 14.4% to Rs 4,902 crore, it is evident that certain business model and operational issues are plaguing the bank. Notwithstanding the difficulties, the rise in core operating profit (up 15 percent) and operational income (up 15 percent) suggests a strong base performance.

The shift in IDFC’s microfinance business appears to be the fundamental problem. The bank may eventually take advantage of operational efficiencies as its scale grows as it shifts to universal banking, which includes branching out into areas like wealth management, corporate banking, and credit cards. Despite its short-term difficulties, the microfinance shift brings to light the difficulties in sustaining profitability while striking a balance with adherence to regulatory standards such Priority Sector Lending (PSL) for underprivileged sectors.

ICICI Bank’s margin suffers
At Rs 11,792 crore, ICICI Bank’s net profit increased by 15% year over year. The second-largest private bank by assets in India may also be suffering margin compression, as evidenced by the minor drop in NIM from 4.43 percent to 4.25 percent, despite a 9.1 percent increase in net interest revenue to Rs 20,370 crore. This is especially noteworthy because the Indian banking sector is under pressure from both increased competition for customer deposits and inflationary cost rises.

Despite a slight decline in its gross non-performing assets (NPA) percentage, ICICI Bank’s steady asset quality indicates a robust business strategy. Given the seasonal stress in the Kisan Credit Card portfolio, a vital component of rural credit, the 17% increase in provisions indicates a responsible strategy in light of bad loan risks.

HDFC Bank’s asset quality drops
The earnings of HDFC Bank also indicated deterioration on asset quality a few days ago. The third quarter’s gross non-performing assets (GNPA) climbed 16 percent to Rs 36,019 crore from Rs 31,012 crore in the same period last year. From 1.26 percent the year before to 1.42 percent, the GNPA ratio increased by 18 basis points (bps). The net non-performing assets (NNPA) ratio increased 15 basis points to 0.46 percent from 0.31 percent YoY, while NNPA itself surged 51 percent to Rs 11,588 crore. The quarter’s provisions decreased by 25% from the same period last year, from Rs 4,217 crore to Rs 3,154 crore.

Faults in the Banking Sector
These figures highlight both potential and problems for the banking sector as a whole. The emphasis on high-margin assets is increasing, but as the economic and legal environment changes, niche markets like microfinance encounter difficulties. It is anticipated that the theme of pressure on margins from growing interest rates and heightened competition for retail deposits would persist.

Banks face two challenges: maintaining strong deposits and managing the slowdown in lending growth due to dampened demand. There are concerns regarding the reasons behind the decline in credit growth. In order to reduce their credit-deposit (CD) ratios, banks may be purposefully limiting loan expansion. The Reserve Bank of India has cautioned against this practice because of the hazards involved. Over-leveraging and possible trouble fulfilling commitments may be indicated by a high CD ratio.

On the other hand, the slowdown can be the result of lower credit demand in particular markets. Significant drops in personal and service loan credit growth are shown in data from the prior year, which may indicate a slowdown in economic activity in these sectors. In terms of deposit growth, banks have increased their attempts to attract investors by raising deposit interest rates.

Budget to reduce NPAs to strengthen the banking sector
Without addressing the problem of non-performing assets (NPAs), which has afflicted the Indian banking industry for many years, Finance Minister Nirmala Sitharaman cannot implement any reforms. A favorable trend is seen in recent statistics from the Reserve Bank of India’s (RBI) Financial Stability Report (December 2024), which shows that gross non-performing assets (NPAs) for scheduled commercial banks decreased from 3.9% in March 2023 to a 12-year low of 2.6% in September 2024.

Achieving significant reforms will depend on taking lessons from the past and avoiding repeated inefficiencies. The budget’s suggested actions can lower non-performing assets (NPAs) and pave the way for long-term financial stability and economic growth if they are implemented with a comprehensive strategy. Since the Indian economy shows promise for the future, this budget would be crucial because, in addition to financial institutions like banks, NBFCs, ARCs, and AIFs, private credit players and international distressed funds are also closely monitoring this area in the hopes that the sector’s full potential will be realized.

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Budget needs to focus on local infrastructure

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Interest Payment Burden to reduce in FY26
Equities, Markets - January 27, 2025

Budget needs to focus on local infrastructure

Budget needs to focus on local infrastructure

Overview
With some workers returning to agriculture, the post-pandemic job market structure exhibits retrogression. The increase of labor earnings has been hampered by this trend. According to research, the multiplier from public investments in local infrastructure passes through MSMEs and contributes to a favorable work environment. The budget should prioritize that.

The release of this year’s Union Budget coincides with a number of concerning structural change and employment data. Following the Covid-19 pandemic, overall economic growth recovered rapidly; however, current growth figures suggest that this impetus is waning. It is too soon to tell if the slowdown in GDP growth predicted for FY25 would be a one-time event or a long-term decline in growth. In any event, it is evident that concerted policy action is required on the employment front.

Increase in labour force in agriculture post pandemic
According to recent data from KLEMS and periodic labour force survey (PLFS), the pandemic caused a structural regression in the Indian economy, which has not yet been reversed as of 2023–2024.

An increase in the percentage of jobs in agriculture and self-employment is what is meant by structural retrogression in the Indian economy. Such a shift in employment from other sectors of the economy to more stable industries like agriculture was anticipated during the pandemic. As of 2023–2024, there were more workers in agriculture than at any other point since the early 2000s, indicating that employment in this industry has continued to rise after the epidemic. After the pandemic, labor productivity in the agricultural sector stalled as a result of the value created there not increasing proportionately.

In addition to agriculture, we anticipate that if more conventional wage or salaried employment opportunities are established, the percentage of self-employed workers—especially own-account and unpaid family workers—will decline with economic growth. However, from roughly 52% of the workforce prior to the epidemic to 58% in 2023–2024, the percentage of self-employed workers has grown. The growth has persisted after the pandemic, which is concerning.

Stagnation in earnings of major corporates and businesses
The fact that other industries where household businesses are commonly found, like food, beverages, and tobacco, textiles, leather and footwear, trade, and domestic services, were also less productive in real terms as of 2022–2023 than they were in 2017–18 suggests that the phenomenon of crowding into the self-employment sector appears to be more widespread than just agriculture. In other words, employment has increased more quickly than output in each of these sectors, most likely as a result of workers moving in from other parts of the economy where there is less need for labor.

This has the effect of completely stagnating or even decreasing real earnings overall. The PLFS provides quarterly data on earnings from regular salaried labor, self-employment, and casual wage work; the most recent data covers the April–June 2024 quarter. Earnings from regular salaried work have increased by an average of 5.3% annually in nominal terms or 0% annually in real terms since 2017–18 (the first year for which PLFS data are available). Earnings from regular wage jobs actually decreased by 0.14 percent annually over the April-June 2022 and April-June 2024 quarters.

Positive outlook
The fact that conventional pay employment increased by 11% in 2023–2024—its largest one-year growth in recent memory—surpassed the 8.6% increase in predicted self-employment. To ensure that the proportion of regular wage workers in the economy grows consistently, every effort must be made to ensure that this process continues.

MSMEs are a way of creating newer jobs
The bigger puzzle is why, in spite of a robust recovery in overall GDP growth, regular wage employment has not grown more quickly. Additionally, we should remember that the majority of job creation, even for paying positions, occurs in unlisted businesses and informal enterprises (more generally, MSMEs) rather than huge corporate firms. To allow businesses to grow, save, and invest, a new push for policy is required.

Barriers that hinder the growth at the bottom end for corporates
The absence of physical infrastructure is still a major barrier, aside from aggregate demand, which is a macro limitation that affects all businesses. Roads, energy, and water—the so-called bijli, sadak, and pani—are cited by businesses as the biggest barriers to growth, according to a 2019 IDFC Institute poll of 2500 small businesses nationwide. The government is well renowned for emphasizing the improvement of physical infrastructure. This agenda needs to be pushed further by shifting its focus to local infrastructure and small communities. India has made good progress in building highways, airports, and other major infrastructure, but we still lag far behind in terms of the quantity and quality of local roads, water, power, and other essential services.

Conclusion
In a big and diverse economy like India, the impact of a single budget—and that of only the Union government—is minimal, but the budget’s goals do give an idea of how the Union government is currently considering the economy. If the budget strongly favors removing barriers to small business growth in small towns, that would be encouraging. In order to guarantee inclusive development and long-term economic growth, India must produce the requisite number of jobs.

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Impact of Trump 2.0 on Indian Equity Market

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Interest Payment Burden to reduce in FY26
Business, Equities, Markets - January 22, 2025

No requirement of capital investment in state-run banks in the Budget 2025

No requirement of capital investment in state-run banks in the Budget 2025

According to the Reserve Bank of India (RBI) regulations, banks in India are required to maintain a Capital to Risk-Weighted Assets Ratio of atleast 11.50 percent. It aims to maintain capital adequacy in the banks in order to fulfill financial commitments as well as to mitigate financial losses. It is to give protection from various risks such as operational risk, credit risk, and market risk.

Most of the public sector banks in India not only fulfill the criteria but also have CRAR of around 16 percent and more as well.

Capital Adaquecy of Public Sector Banks
In the month of December 2024, the Bank of Maharashtra’s CRAR is about 18.71 percent which is the highest record in between all the public sector banks in India. While, the position of lowest capital position is held by Bank of Baroda. It has a CRAR of about 16.26 percent. Even the lowest CRAR fulfills the criteria of RBI’s capital adequacy regulations.

Overall, it indicates state-run banks are not in need of capital financing at this point of time.

Asset quality of Public Sector Banks
In recent times, asset quality of state-run banks is not risky. In the month of September, 2024, their ratio of gross non-performing assets fell to 2.6 percent of the total credits. As per the recent report of RBI’s Financial Stability, it is the lowest record compared to the records of the previous 12 years. While, the net non-performing assets ratio is close to 0.6 percent.

Financial health of Public Sector Banks
The macro stress tests conducted on Public Sector Banks indicates that these banks have the strong capability to tackle stressful situations. In the month of September, 2024, public sector banks’ capital adequacy was about 16.60 percent. It indicates their strong financial health. It also hints that it is improbable for the Union budget 2025 to provide capital financing for state-run banks in India.
Probability of Capital Investment in Public Sector Banks
In the past, the government of India has often taken an initiative of providing capital investment to state-run banks. In the previous 10 Union Budgets of India, the government of India has given capital investment to public sector banks for about three times. The total capital financing accounts to Rs. 3.35 lakh crore.

The main purpose of these capital investments in the state-run banks is to fulfill the regulations. It is also to maintain strong credit growth. It is important to maintain credit growth as it helps to expand the scope of lending to businesses and people. It results in boosting economic growth. This purpose of boosting credit growth is important in state-run banks compared to private sector banks.

Apart from the funding through the Union Budget, state-run banks were able to get capital financing from the Indian government. It got capital investment of about Rs. 20,000 crore in the financial year 2022. In this same financial year, four state-run banks in India got capital financing of about Rs. 14,500 crore in the month of March. This financing was done with the use of pure discount bonds.

The overall financial health of public sector banks indicates that the budget 2025 may not have new capital investment for public sector banks in India.

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Solid reason for GST reduction on two-wheelers

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India's Infrastructure Sector Calls for Policy Reforms to Boost Growth and Sustainability
Banking, Business, Equities, Markets - January 16, 2025

Infrastructure Expectation in Budget 2025-26

Infrastructure Expectation in Budget 2025-26

Overview and Current Scenario
India’s economic development in FY25 was hindered by limited public capital expenditure (capex), which was mostly caused by limitations associated with the election. Project execution was hampered by the Model Code of Conduct’s implementation during the state and parliamentary elections, especially in the first half of FY25, when total government capital expenditures fell 12.7% year over year.

In Q1 of FY25, the central government’s capital expenditures fell 35 percent year over year. In Q2, they recovered moderately, rising 10.3 percent year over year. Furthermore, state governments’ emphasis on populist welfare programs, which sparked discussions about fiscal discipline, also reduced the amount of money available for infrastructure projects. With just a few state elections scheduled for 2025, public capital expenditures are expected to pick up steam again, propelling advancements in areas like ports, roads, defense, and electricity.

Capex Trend
Infrastructure is still a priority even though capital spending (capex) has decreased by 12.3 percent year-to-date from April to November of FY25. Only 42% of the allocated capital expenditures had been used by November, down from 51% in FY24. This suggests a large backload of spending that is anticipated to occur in the second half of the fiscal year.

Q3 Results might lead to an increase in capex
Strong Q3 ordering activity points to a possible change in momentum as the fiscal year goes on. The government has made significant announcements about trains, defense, and power.
According to ICRA’s note, the significant projected shortfall in FY2025 (Rs 9.7 trillion) compared to the target (Rs 11.1 trillion) would allow for a 12–13 percent increase in FY2026 capital expenditures, or Rs 11 trillion, which would support growth in the upcoming fiscal year and crowd in private capital expenditures.

Sectoral Capex Increment in the Budget
In order to control inflation and the budgetary crisis, the government has been selectively prioritizing a small number of projects and sectors in order to reduce expenditure. Despite the bunching of a few orders in the remaining months of the current fiscal year, the government might still fall short of its initial capital expenditure targets given the current run rate. There are already rising expectations that the government will increase its capital expenditure budget for the upcoming year.

The Union Budget 2025–26 is anticipated to address these gaps with increased capex. The focus will likely be on sectors with high economic multiplier effects and a proven capacity for timely project execution, more so in the light of supporting economic growth. India’s GDP growth slowed to an estimated 6.4 percent in FY25, the weakest in four years, due to global headwinds and subdued private investment.

But in FY26, GDP growth is expected to rebound to 6.5–6.8 percent. For example, FICCI has suggested a 15% increase in capital expenditures for FY26 in order to sustain economic momentum, with a focus on investments in productive infrastructure that create long-term growth and jobs. It is anticipated that significant financial investment will be made in the fields of highways, railroads, defense, and renewable energy, just as in the past. Additionally, in anticipation the federal government will keep pushing states to undertake important infrastructure projects by allocating funds.

Ernst & Young Report on Infrastructure Sector Expectation from the Budget
According to EY, the shortfall will need to be made up in FY26 because the capital expenditure was significantly lower in FY24 due to the election. India’s goal of becoming a $7 trillion economy by 2030 is predicted to require $2.2 trillion in infrastructure investment, underscoring the necessity of enacting strong fiscal policies. Spending on infrastructure also frequently has a multiplier effect, with each rupee spent having a threefold effect on GDP. Public-private partnerships (PPP) in major projects involving ports, airports, roads, etc., require a renewed focus and innovative policy. This can be achieved through enhanced measures for viability gap funding (or “VGF”) and supportive policies and regulations.

Tax measures to boost infrastructure
Some of the tax measures to be implemented to support infrastructure include establishing a framework for fiscal consolidation for intragroup Special Purpose Vehicles (SPVs) that permits the offset of losses from one SPV against gains from other SPVs; reduced tax rates under a special and simplified tax regime for green energy and infrastructure projects; encourage business involvement in large-scale space initiatives through tax breaks; introducing a favorable tax framework for carbon credits; offshore wind projects were the focus of the VGF, but this would not be feasible without the importation of foreign cash, technology, and expertise. It would be beneficial to simplify the tax code for these kinds of initiatives.

Conclusion
It is highly anticipated that Budget 2025 would introduce a number of programs to accelerate the development of infrastructure. Private participants would be encouraged to plan their involvement if ambitious asset monetization programs received additional advice.

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Budget 2025 see higher focus on government capex

Budget 2025 see higher focus on government capex

Widespread growing concern is seen among economists, government and policy makers about the subdued economic growth in India. The financial year of 2024-2025 has faced a slowdown in economic growth as well as government capital expenditure (Capex).

Reasons for Economic slowdown
According to economists, the reason for a decrease in public expenditures is due to the General Elections of 2024 and also increase in social expenditure such as welfare programs, social services and subsidies, etc. One of the other reasons for the slowdown is the delayed final budget for the financial year 2024-2025. It led to a fall in cumulative capex until the month of October 2024.

According to some analysts, it is due to the government’s change in priority in its third term as it has to focus on balancing subsidies given for the purpose of improvement of rural conditions and capex for the purpose of economic growth. Also subdued growth in consumption level has led to a burden on the government to increase social expenditure in order to curb it.

The report of Sanford C Bernstein, an international brokerage and research firm states that the Indian government was able to secure only 37 percent of its capex target in the financial year 2025 till now. On the other hand, it was able to meet 56 percent of its subsidies target in the initial six months by the month of September only. The report further said that it is in the best interest of India and its economy to focus on government capex in 2025 even without reducing subsidies.

Historically speaking, government capex and growth are strongly correlated to each other. Taking the example of the pandemic itself, the increase in government expenditure played a critical role in improving economic growth.

The current public spending is required to be increased in sectors such as roads, railways, defence, airports and affordable housing. At the same time, encouraging private capex is important as well in industries such as steel, oil, gas, cement, and power.

The Berstein report states that when government and private capex moves together, it would certainly lead to a booming phase in the economy and markets.

Emphasis on government capex by CII
The President of Confederation of Indian Industry (CII) Sanjiv Puri states that a 25 percent increase in government capital expenditure, personal income tax relief, and deliberated measures taken to encourage manufacturing activity and integration of domestic industries into global value chains will help to provide the required growth momentum. He is the chairman and managing director of ITC ltd.

He also demanded a cut in interest rate in the budget. He advised that a significant contraction in fiscal could adversely affect investments. He further states that public capex is crucial in enhancing the level of competitiveness in the economy and helps to provide a push for growth in the economy. The government capex has its own economic mutlipliers. The CII has recommended a 12 percent increase in the government’s capex for the budget of financial year 2025-2026 compared to Rs. 11.11 lakh budget for the financial year 2025.

According to him, the gross domestic product (GDP) estimated at 6.4 percent is a four-year low GDP for the financial year 2025 is a fairly good number. As the GDP figures needed to be viewed by considering dynamic situations around the world. The industry body anticipates economic growth to rebound to 7 percent in the financial year. He states consumption is the biggest contributor in GDP. Also, private investment cannot alone act as a key for economic transformation.

Emphasis on government capex by EY India
The global consulting and professional services firm Ernst & Young India also advocated focusing on public capex in the budget 2025. According to EY India, the Indian economy should focus on crucial areas such as increase in public expenditure, reduction in fiscal deficit, promoting private sector improvement and also introduction of tax reforms to stimulate business innovation.

The government should particularly focus on small and medium enterprises (SMEs) and also removing complexities in tax compliance for the purpose of encouraging business activities. To achieve sustainable growth in the financial year 2025-26, it should focus on lowering the fiscal deficit to around 4.5 percent of GDP. It should also focus on decreasing debt-to-GDP ratio which is currently around 54.4 percent and 40 percent above the target of FRBM.

To increase private sector investment, interest rates should be progressively reduced. To gain economic growth and increase urban demand, employment schemes should be expedited

The Budget for the financial year 2025-26 will be formally present on 1st February, 2025.

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Centre Eases Capex Loan Norms to Boost State Spending in FY25

Centre Eases Capex Loan Norms to Boost State Spending in FY25

Overview
The Center has loosened a number of regulations pertaining to the issuance of interest-free capital expenditure loans to state governments in order to guarantee that the entire Rs 1.5 lakh crore allocated for 2024–2025 is utilized throughout the year and to prevent a reduction in public capital expenditures.

The action is intended to reduce the probable shortfall between the actual budgetary capital expenditure and the Rs 11.1 lakh crore budgeted level. To put this in perspective, just about Rs. 5.13 lakh crore or about 12.3% or less than the previous year had been spent from capex budget by November, 2024. The government hopes to streamline the procedure for states and increase capital spending in the latter quarter of FY25 by transforming tied savings into untied loans.

To aid long-term asset creation and investments, capex loans which are provided by the government as interest-free advances for 50 years are intended. Of the entire amount allotted for FY25, Rs 95,000 crore is linked to particular reforms like infrastructure development, land reform, and industrial growth, while Rs 55,000 crore is currently untied and available to states for initiatives of their choosing. However, with less than Rs 1 lakh crore sanctioned so far this year, disbursements have delayed. In the first half of FY25, the Center approved Rs 70,000 crore and released Rs 40,000 crore, falling well short of the yearly target of Rs. 1.15 lakh crore.

Delays in disbursement of loans
Delays in states achieving reform-linked standards, which were released in August rather than February, have resulted in slower payments of the tied share of the capital expenditure loans. States’ capacity to enact the necessary reforms was further hampered by the fact that this postponement fell during both the general and state elections. States have shown the greatest interest in tourism projects out of the 12 conditional allocations under the linked component. Urban land reforms, car scrappage, and working women’s hostels are further areas of concentration. Rs 25,000 crore of the Rs 95,000 crore in tied loans are contingent on states attaining a minimum of 10% growth in capital expenditures. The remaining portion will be released depending on growth in April–September of FY25, with the other half being determined by performance in FY24. After certain states such as Andhra Predesh, Kerala, and Punjab failed to meet the criteria, in FY24, the centre’s allocation of Rs. 1.30 lakh crore was reduced to Rs. 1.05 lakh crore.

Amendments in norms
States that experienced severe natural disasters in 2024–2025—as confirmed by the home ministry panel—will get an additional allocation of up to 50% of the funds already allotted under the untied category, according the most recent change to the regulations. The impacted states would have to utilize this sum for projects aimed at preventing future disasters as well as for the rehabilitation of infrastructure, ideally in areas devastated by the disaster. Additionally, on a first-come, first-served basis, states that have used the first installment under the untied category and have used the second installment will receive an additional allocation of up to 100% of the original allocation to the Hill and North East States and 50% of the original allocation for the other states.

Compared to the earlier allocation of Rs 55,000 crore for FY25, these two adjustments will significantly boost the total flow of untied loans to states. Further, the Center has loosened a number of requirements under the loan’s “tied” component, including as the one pertaining to the states’ “own capex” accomplishment.

According to the first standards, the Center gave states Rs 25,000 crore as a capex performance incentive: 50% if they achieved over 10% on-year growth in FY24, and the remaining 50% if they achieved over 10% growth in the first half of FY25. According to the 15th Finance Commission’s decision, funds would be distributed across the states in proportion to their share of central taxes and charges. The Center also modified incentives for the implementation of the SNA SPARSH Model for Just-in-Time disbursement of money under nationally sponsored schemes, as well as criteria pertaining to infrastructure projects in both urban and rural areas. These would guarantee that states will make full use of loans designated for these uses.

Further, the transfer of funds under the scheme has been extremely rapid this year, particularly in the last two to three months. Since several states were unable to comply with the severe conditions imposed by the Center, the Center was able to disburse Rs 1,05,551 crore, or 70% of the expenditure of Rs 1.5 lakh crore, during the previous fiscal year. Between April and November of the current fiscal year, the Center’s capital expenditures fell by more than 12%.
It is said that government’s capex would fall short of the FY25 target of Rs. 11.11 lakh crore by Rs. 1-1.5 lakh crore.

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