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Budget 2025

Infrastructure Expectation in Budget 2025-26
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
Business, Equities, Market News, Markets - January 10, 2025

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
Business, Equities, Market News, Markets - January 9, 2025

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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