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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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Infrastructure Expectation in Budget 2025-26
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Infrastructure: Prioritizing Consistent Growth in Budget 2025-26 Overview

Infrastructure: Prioritizing Consistent Growth in Budget 2025-26
Overview

Overview
With the Indian economy flourishing, there are numerous investment opportunities in multitude of sectors. The growth potential is excellent, thanks to technological advancements in the dynamic industry, which are augmented by different legislative reforms. The Indian economy has so far been resilient to persistent downside threats. Despite the slight dip in expectation of growth at 6.5-7% in the fiscal year 2024-25 according to the Economic Survey 2023-24, there is a positive sentiment about global economic backdrop. Coming to infratruscture segment of the nation, it is believed that Finance Minister Nirmala Sitharaman is likely to increase capital expenditure (capex) in the infrastructure sector in the Union Budget 2025-26 in order to bolster and boost urban development. Sitharaman will deliver the budget for 2025 on February 1, 2025. According to Federation of Indian Chambers of Commerce & Industry (FICCI) regarding the upcoming budget, the focus of government in the last few years on capex has been contributing to support recovery and sustain the momentum of growth. During persistent headwinds from the global front, public capex, especially physical, social, and digital infrastructure, would be critically important for the maintenance of growth momentum.
In the previous Union Budget that is in 2024-25 maintained a strong commitment to balancing multiple objectives in order to achieve Viksit Bharat’s vision. Continuing and extending the reform program on the nine priorities established in the Union Budget 2024-25 will be critical to maintaining the economy’s resilience.

India’s Infrastructure
India’s landscape is fast changing as the Government of India spends extensively in infrastructure projects such as roads, railroads, and renewable energy. To stimulate domestic manufacturing and increasing demand for machinery and construction materials, the government has launched projects such as ‘Make in India’. The infrastructure sector was allocated ₹11.11 lakh crore in the Union Budget 2024, and is expected to increase to ₹18 lakh crore in the next Budget 2025. As a result of thse schemes, GDP figures are expected tom improve significantly at the same time boosting public-private partnerships.Other notable initiatives such Housing for All, National Infrastructure Pipeline (NIP), and PM Gati Shakti would support and aid in enhancement of the infrastructure sector in India.

Smart City Mission
Another major budget expectation for the infrastructure sector, would be Smart Cities Mission development and implementation. India’s urban development and overall landscape is bolstered by Smart Cities Mission. Launched in 2025, by PM Narendra Modi, the Smart City Mission aims at improving quality of life in 100 cities across in India by way of infrastructure, sustainable environment and effective essential services. Further, the solutions offered through this mission aim to promote economic growth, financial inclusion, sustainability in urban development, etc.

Mitu Mathur, Director of GPM Architects and Planners, told ETNOW.in that the 2019 budget will prioritize essential expenditures in India’s urban development, with a focus on safety, sustainability, and infrastructure. She stated that the primary focus should be on transit-oriented development, which has the potential to alleviate traffic congestion by up to 30% while increasing property prices near transit hubs by 20%. “This focus on TOD will contribute to more sustainable, connected cities with both environmental and economic benefits,” according to her.

Mathur added that the future budget must prioritize sustainable infrastructure as India’s urban population continues to grow. She emphasised that green initiatives could bring down energy consumption by up to 50% while at the same time, improved waste management could reduce 70% of urban waste going to landfills. Furthermore, in light of recent instances, women’s protection in metropolitan areas is projected to become a top focus. Beyond improved street lighting and monitoring, we anticipate financing for smart lighting systems that respond to pedestrian activity, as well as the creation of safe pathways with well-maintained paths and emergency stations,” she stated.

Goonmeet Singh Chauhan, Founding Partner of Design Forum International, anticipates that the 2025 budget would place a greater emphasis on blue-green infrastructure under the Smart Cities Development initiative. “Given the gravity of the AQI issue in most towns, a data-driven approach is required to create and improve urban green cover, tree biomass, and tree demography, as well as their relationship with habitation density. Ideas such as responsive green infrastructure, the integration of ‘city forests’ into urban fabrics, and the Federal Acquisition Regulation (FAR) of forest pockets must be adopted immediately. Expanding on ‘blue infrastructure,’ hydrological master plans for all future smart cities must be developed to capture the current nature of hydrological behavior, with a particular emphasis on drainage and aquifer studies” he emphsised.

Conclusion
India’s strong economic foundations and concentration on innovation and technology make it a prominent investment destination. The sectors mentioned above are at the heart of India’s growth story. Keeping a close eye on these industries and their potential will allow you to better capitalize on future chances.

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India’s Economy: Resilient Amid Global Uncertainties and Poised to Lead Emerging Markets in 2025

India’s Economy: Resilient Amid Global Uncertainties and Poised to Lead Emerging Markets in 2025

In recent years, despite economic and global insecurities and turbulence, India’s economy has consistently been standing its ground on resilience and development. In recent times, two reliable reports have been staged to bolster this connotation, one published by Goldman Sachs and the other by Morgan Stanley.

Goldman Sachs Report
A new Goldman Sachs report published on 10th December 2024, forecasts the reaffirmation of India’s economy to remain firm. This report comes despite of numerous uncertainties owing to India’s solid macroeconomic fundamentals and strategic reforms. This positive posture has been reflected by various financial institutions thus positioning India as a strong leader among the emerging markets in 2025. At the core of this stability, India has been able to achieve sound macroeconomic management. The Reserve Bank of India has managed fairly well in terms of controlling inflation while ensuring overall financial stability. Governor Shaktikanta Das, in this way, noted that India is, in his opinion, “well positioned” to cope with external shocks due to the country’s policies, decent levels of foreign exchange reserves, and external debt.
Economists at Goldman Sachs predicted that India’s GDP would increase by an average of 6.5% between 2025 and 2030. Their 6.3% projection for 2025 is 40 basis points lower than the consensus of analysts polled by Bloomberg. The slowing growth rate is due, in part, to diminishing public capital expenditure growth. According to budget predictions, the Indian federal government’s capex growth fell from a CAGR of 30% per year between 2021 and 2024 to mid-single digits in nominal terms in 2025.
Credit is slowing

Credit is also shrinking. Total private sector loan growth in India peaked in the first quarter of the 2024 calendar year and has slowed in the past two quarters. The slowdown was primarily caused by a decline in bank credit growth to roughly 12.8% as of October, down from more than 16% in the first quarter of this year. In particular, household credit growth in unsecured personal loans slowed after the Reserve Bank of India tightened retail loan standards in November 2023.
Inflation Factor

Headline inflation in India is predicted to average 4.2% year on year in 2025, with food inflation at 4.6%, significantly lower than our analysts’ prediction of 7%-plus for 2024, thanks to ample rainfall and robust summer crop sowing. Food supply shocks caused by weather-related interruptions remain the most significant risk to this prediction. So far, excessive and erratic food inflation, primarily driven by vegetable prices due to weather shocks, has prevented the RBI from relaxing monetary policy. Core inflation should be around the RBI’s objective of 4% year on year in 2025, with the likelihood of inflation falling if US tariffs force Chinese firms to reallocate products to regional markets. The RBI has managed fairly well in terms of controlling inflation while ensuring overall financial stability. Governor Shaktikanta Das, in this way, noted that India is, in his opinion, “well positioned” to cope with external shocks due country’s policies, decent levels of foreign exchange reserves, and external debt.

Market Outlook
A separate analysis from Goldman Sachs Research predicts that India’s equities would perform substantially in the medium future. In the short term, however, sluggish economic growth, high beginning values, and negative earnings-per-share revisions may keep markets rangebound. Goldman Sachs equity experts believe the benchmark NIFTY index will reach 27,000 by the end of 2025. They also predict MSCI India earnings to expand by 12% and 13% in 2024 and 2025, respectively, falling short of consensus expectations of 13% and 16%. The MSCI India index of companies is trading at a 23x forward P/E multiple, which is much higher than the 10-year average and higher than our strategists’ top-down fair value estimate of 21x, implying more de-rating risk.

Further, the report remains neutral on Indian stocks in the short term, but sees potential in local sectors such as automobiles, telcos, insurance, real estate, and e-commerce, which may have a better path to higher profitability.

Morgan Stanley Report
According to Morgan Stanley’s India Equity Strategy Playbook, India will be among the top emerging markets by 2025. As a result, the BSE Sensex is expected to reach 93,000 by December 2025, a growth of around 18%. The researchers deem India’s value multiple high because over the next four to five years India is expected to record profits growth at an average rate of 18-20% on a yearly basis coupled with macroeconomic stability and a large pool of domestic risk capital. A gradual increase in the level of protection against global market volatility is verified by the fall in the correlation between the returns on India’s equities and the world’s stock markets.

Market Sentiment
Factors that determine the sentiment such as Morgan Stanley’s in-house sentiment index portray a neutral to buy market, which coincides with the bullish perspective of the team. Domestic mutual fund sources remain robust, especially SIPs, although other sources not belonging in that category are slowing down. On the other hand, foreign equity portfolio inflow is favorable, while outflow in debt portfolio is unfavorable. Sensex earnings are predicted to expand at an annualized rate of 17% through FY27, with corporate profits as a percentage of GDP on the rise. Profitability measurements like return on equity (ROE) show a positive cycle. Corporate debt is expected to reach 58% of GDP by 2025, with a positive nominal growth outlook notwithstanding market expectations for low growth.

US- India Relations
The gap between real GDP growth and the 10-year bond yield points to a positive prognosis for stocks. Indicators such as the policy certainty index, which has declined from pre-election levels, and the favorable real policy rate gap with the United States also help equities performance. Short-term interest rate and yield curve trends suggest that equities returns may moderate in the next 24 months, while earnings growth in the high teens is predicted during the next year. Global investors are likely to find relative safety in India’s financial markets as a result of Donald Trump’s economic plans, especially any protectionist trade policies that may cause emerging market turbulence. However, investors and analysts believe that India’s strong economic growth, minimal exposure to the Chinese and US consumer markets, healthy local appetite for equities, and a central bank committed to currency stability will boost the country’s appeal in the face of global uncertainty.

Conclusion
Thus according to these reports, India’s share of the EM and global indices is increasing, and its performance relative to China is improving. Household savings are shifting towards shares and away from gold, indicating increased confidence in financial assets.

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IT Ministry Proposes ₹40,000 Crore Package to Bolster India’s Electronic Component Industry

IT Ministry Proposes ₹40,000 Crore Package to Bolster India’s Electronic Component Industry

The Ministry of Electronics and Information Technology (MeitY) is gearing up to seek the Union Cabinet’s approval for a comprehensive ₹40,000 crore initiative designed to enhance local manufacturing of electronic components. This move aims to strengthen India’s position in the global electronics value chain and reduce reliance on imports. The package could potentially roll out investments as early as April 2025, provided all necessary approvals are secured in December 2024.

Key Features of the Proposed Package
The initiative, which primarily focuses on non-semiconductor components, includes a mix of capital expenditure subsidies and production-linked incentives tied to employment generation. Industry experts view this as a critical step in creating a robust ecosystem for electronic component production in India.

According to a senior government official, the ministry is finalizing details to ensure a smooth rollout. The scheme is aligned with the government’s broader vision of boosting local value addition in electronics manufacturing, from the current 15-18% to 35-40% during its initial five-year tenure, eventually aiming for 50%.

Growing Demand for Electronic Components
India’s electronic component demand is expected to surge from $45.5 billion in 2023 to $240 billion by 2030, fueled by the growing production of mobile phones and other electronic devices. A report by the Confederation of Indian Industry (CII) underscores the importance of self-reliance in producing components like printed circuit boards (PCBs), camera modules, displays, and lithium-ion cells, which constitute a significant portion of the materials used in mobile phones and IT hardware.

Addressing Local Manufacturing Gaps
Despite the success of production-linked incentive (PLI) schemes in scaling up the final assembly of electronic products, local value addition has lagged behind. This package seeks to bridge that gap by fostering the production of high-priority components. Government officials estimate that the scheme could attract investments totaling ₹82,000 crore and facilitate the production of components worth ₹1.9-2.0 lakh crore over its tenure.

Industry Collaboration and Global Partnerships
The program also emphasizes collaboration with international technology partners and supply chain players, including companies from Taiwan, South Korea, Japan, and China. Industry stakeholders have urged the government to expedite approvals for joint ventures and technology transfers, which are vital for the success of this initiative.

“Smartphone and IT hardware brands are actively engaging their supply chain partners to invest in India under this scheme,” said an executive from a leading contract manufacturing firm. These collaborations aim to establish a strong foundation for component manufacturing and integrate domestic firms into global production networks.

Strategic Focus Areas
The initiative targets key components critical to reducing import dependency. These include PCBs, camera modules, displays, mechanical components, and lithium-ion battery assemblies, which collectively accounted for 43% of the component demand in 2022, according to the CII report. By 2030, the value of these components is projected to grow to $51.6 billion.

The government is ensuring that the scheme’s design avoids potential setbacks seen in previous PLI programs. For instance, there are ongoing deliberations on whether to provide incentives based on capital or operational expenditure or a mix of both. Incentive structures may also be linked to employment generation to maximize economic impact.

Road Ahead: Challenges and Opportunities
Once approved, the industry will have a 90-day window to prepare for investments. This timeline underscores the urgency of securing technology partnerships and identifying potential customers. Industry executives have expressed optimism but also highlighted challenges such as navigating bureaucratic hurdles and securing timely approvals for joint ventures.

The government’s commitment to fostering local manufacturing comes at a crucial juncture as India positions itself as a global electronics manufacturing hub. The proposed scheme complements existing PLI programs and aligns with the nation’s ambition to increase its footprint in advanced manufacturing sectors.

Conclusion
The ₹40,000 crore package proposed by MeitY represents a significant milestone in India’s journey toward becoming a global electronics manufacturing powerhouse. By addressing critical gaps in the domestic supply chain and fostering international collaborations, the initiative holds the potential to transform India’s electronics industry. If implemented effectively, it could not only reduce import dependency but also generate substantial employment and bolster economic growth in the coming decade.

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Beyond GDP: Understanding the disconnect between economic growth and consumer confidence in India

Beyond GDP: Understanding the disconnect between economic growth and consumer confidence in India
Introduction:

India has experienced strong GDP growth in recent quarters, reflecting positive economic fundamentals. However, the RBI’s surveys on consumer confidence indicate a discrepancy between these macroeconomic indicators and the sentiments of the average consumer. Understanding this incongruity is crucial for policymakers, businesses, and investors to make informed decisions in navigating the economic landscape.

RBI surveys:

Recent surveys conducted by the Reserve Bank of India (RBI) have revealed a surprising disconnect between the nation’s strong economic growth and the sentiments of urban consumers. While the Indian economy has been showcasing robust growth, with a GDP of 7.8% in the June 2023 quarter and 7.6% in the September quarter, consumer confidence seems to be lagging behind. This report aims to analyse this disconnect and explore its potential implications.

The latest RBI Consumer Confidence Survey reports a stable consumer confidence index at 92.2, indicating a consistent economic perception. Despite increased pessimism about current economic conditions, optimism grows regarding current income levels, reaching the highest since July 2019. Compared to September 2023, the overall consumer confidence remains unchanged, showing positive shifts in income and spending but lingering negativity in price levels, economic situation, and employment. Looking ahead, the one-year consumer confidence index reflects positive sentiments in income and spending, with a slight dip from the previous survey, while concerns persist in price levels, economic situation, and employment.

1. The RBI Inflation Expectations survey:

The RBI Inflation Expectations survey reveals that current inflation perception among households decreased by 20 basis points to 8.2%. Over the fiscal year, expectations dropped by 70 basis points to 8.2%. While the three-month median inflation expectation remains stable at 9.1%, the one-year outlook increased by 20 basis points to 10.1%, yet lower than the start of the fiscal year at 10.5%. The survey indicates widespread anticipation of inflation across various product categories, driven by budgetary pressures. Notably, food products and services play a crucial role in shaping overall inflation expectations. In summary, consumers expect higher inflation in the coming months due to household budget challenges.

2. The RBI’s survey of professional forecasters sayings on GDP:

The RBI’s survey of professional forecasters reveals a 20 basis points upgrade in real GDP growth for FY24 to 6.4%, with FY25 forecast remaining at 6.3%. Despite appearing pessimistic compared to the RBI’s 7% projection for FY24, the forecast ranges from 5.8% to 7.4%. The survey anticipates a 6.0% annual growth in real private final consumption expenditure for FY24 and a more optimistic 7.5% growth in gross fixed capital formation, driven by the government’s robust capex. The November survey also revises the real gross value added (GVA) up by 10 basis points to 6.2%, signalling overall optimism in macroeconomic growth, although the median figure differs from RBI projections.

3. According to an RBI survey of professional forecasters on inflation:

The RBI survey of professional forecasters indicates an expected moderation in inflation, specifically in the Consumer Price Index (CPI). For FY24, annual headline inflation is projected at 5.4%, declining to 4.7% in FY25. The forecast suggests a gradual decrease, with Q3FY24 expected at 5.4%, followed by moderation to 5.2% in the subsequent two quarters. By the end of FY25, headline inflation is anticipated to reach 3.9%, well below the RBI’s 4% target.
Core inflation, excluding certain categories, is seen at 4.3% in Q3 and expected to remain between 4.1% and 4.4% over the following three quarters. The overall trajectory of inflation, driven by core inflation, is on a downward path, providing a more sustainable scenario compared to the cyclical nature of food and fuel inflation.

4. According to the RBI survey of professional forecasters on the external sector:

• Merchandise exports are expected to decline by -7.1% in US dollar terms for FY24, while merchandise imports are likely to fall by -5.4%. The survey does not cover services trade, but potential improvements are anticipated in this area.
• For FY25, there is optimism, with merchandise exports and imports expected to grow by 5.0% and 6.2% respectively. The services trade is expected to show greater traction in FY25.
• The current account deficit (CAD) is projected to be 1.7% of GDP in FY24, decreasing to 1.6% in FY25. Positive prospects for services exports are expected to contribute favourably to the current account.

Potential Reasons for the Disconnect:

1. Unequal Distribution of Gains: The benefits of strong GDP growth may not be evenly distributed among various income groups, contributing to a sense of economic inequality.
2. Perceived Job Insecurity: Even with economic expansion, concerns about job security and underemployment may be prevalent, influencing consumer sentiment.
3. Inflationary Pressures: Rising inflation rates can erode the purchasing power of consumers, affecting their confidence in making discretionary purchases.
4. Psychological Factors: Consumers may be hesitant to spend due to global uncertainties or geopolitical tensions.

Implications for the economy:

• Policy Considerations: Policymakers need to consider measures that address the concerns of individual consumers, such as targeted economic policies, social safety nets, and employment generation initiatives.
• Business Strategy: Understanding the consumer sentiment disconnect is essential for businesses to tailor their strategies, marketing, and product offerings to align with consumer expectations and economic realities.
• Investor Caution: Investors should be mindful of the potential impact of muted consumer confidence on certain sectors, adjusting their investment strategies accordingly.

Conclusion:

The findings from the RBI surveys highlight the importance of addressing the divergence between strong GDP growth and consumer confidence. A holistic approach involving targeted policies, business strategies, and investor awareness is essential to bridge this gap and ensure that the benefits of economic growth are felt at the individual consumer level. The coming months will be critical for stakeholders to collaborate and implement measures that foster inclusive economic growth and enhance consumer well-being.

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