Budget 2025: Change is income tax slabs, concessional corporate tax rates, higher public capex expected by Nomura

Union Budget 2025: Financial services group Nomura, in a recent note, has detailed out what it expects from the upcoming Union Budget FY26 to be tabled by Finance Minister Nirmala Sitharaman on February 1. It said that both growth rescue and fiscal discipline are likely in the budget that will come against the backdrop of weak domestic demand, currency depreciation risks, and threats of higher tariffs under Trump 2.0. “We expect targeted growth-supportive policies while fiscal consolidation is likely to continue,” it said. 

Nomura stated that it expects the government to tweak personal income slabs to boost consumption, boost public capex growth, announce concessional corporate tax rate for firms using India as a manufacturing hub, increase agricultural investment, and impose higher gold import duties, increase FDI limit on insurance and encourage capital inflows to support the rupee. 

“Overall, we expect the budget to adopt a balanced approach to boosting growth while retaining fiscal prudence. This should keep India’s fiscal risk premia low and provide greater leeway to the RBI to begin lowering its policy rate at the February MPC. However, if markets expect the budget to choose growth over prudence, then there is a risk of disappointment, in our view,” it said. 

Nomura stated for FY25 the government is likely on track to achieve a deficit target of 4.8 per cent, which is better than the budget estimate of 4.9 per cent of GDP. It also expects gross borrowing of around Rs 14.4 lakh crore for FY26, which is slightly higher than Rs 14 lakh crore in FY25.

“Growth has moderated by more than expected, with weak urban consumption and still-tepid private investment, which argues for counter-cyclical fiscal support. Yet, ongoing currency weakness requires keeping India’s fiscal risk premia low. Balancing the two will be crucial. Second, with a weak currency, the budget is an opportunity to announce measures to curb the current account deficit and boost capital inflows. Third, higher tariffs under Trump 2.0 are an opportunity for India to carve out a larger share of the ongoing supply-chain shifts,” said Nomura. 

WHAT TO EXPECT FROM BUDGET 2025?

Nomura says keeping in mind the factors in hand, it expects the following from the Union Budget FY26:

Fiscal consolidation: Nomura expects a fiscal deficit target of 4.4 per cent of GDP in FY26, down from 4.8 per cent in FY25, which reflects a balanced approach to boosting growth while also retaining fiscal prudence. 

GDP growth: It said it expects the government to consider a nominal GDP growth assumption of 10.3 per cent in FY26, up from the advance estimates of 9.7 per cent in FY25. 

Income tax boost: Nomura expects the government to tweak personal income tax slabs and focus on increasing disposable income for the middle class. “The marginal propensity to consume tends to be higher for lower-income households and this can provide a fillip to consumption in the near term,” it said.

Higher public capex: It said that it expects the public capex budget to increase by ~12.5 per cent y-o-y in FY26, lifting it to 3 per cent of GDP in FY26 from our estimate of 2.9 per cent in FY25. “Additionally, the government could relax the conditions attached to loans given to states, to enable them to spend more,” it said.

Domestic manufacturing: “To boost domestic manufacturing and attract global value chains to India, we expect a concessional corporate tax scheme for firms that use India as a hub for manufacturing, lower custom duties on intermediate inputs and higher import duties on products to counter China dumping,” it said.

Agriculture: Nomura says it expects the government to increase allocation for agriculture investment. Repetitive food price shocks have highlighted the importance of raising investment in cold storage and agriculture infrastructure.

Managing the rupee: Budget FY26 could raise the customs duty on gold imports since rising gold imports are weighing on the current account, encourage foreign capital inflows, increase the FDI limit in the insurance sector to 100 per cent from the current 74 per cent, it said.

Medium-term fiscal rules: Nomura stated that it expects more clarity on the medium-term fiscal rules to be provided on February 1.