Fiscal Deficit & Spending: What Govt Should & Shouldn’t Do In Budget 2025. Morgan Stanley’s View

With Budget 2025 just around the corner, what should investors and businesses expect from the government’s fiscal roadmap? In this exclusive conversation, Upasana Chachra, India Chief Economist at Morgan Stanley, deciphers the key macroeconomic and market implications of this year's budget.

 

What to Expect from Budget 2025?

 

Upasana highlights three critical factors that will shape the budget’s impact on the economy and stock markets:

 

1. Fiscal Math & Deficit Targets – The government’s stance on fiscal consolidation and how it balances growth with financial discipline. With India’s fiscal deficit improving, will the government set an ambitious target for FY26?

2. Capex Allocation & Growth Strategy – Over the past few years, capital expenditure (capex) has driven economic expansion, but recent slower-than-expected infrastructure spending has raised concerns. Will the government increase its capex outlay to sustain growth, or will spending priorities shift?

3. Sector-Specific Announcements – Investors are keenly watching for tax policy tweaks—whether in direct or indirect taxes, PLI scheme updates, or new incentives to boost domestic industries. Which sectors will benefit, and which might be left out?

 

What Shouldn’t Happen in Budget 2025? 

 

While growth-oriented policies are expected, Upasana warns against potential pitfalls that could threaten India’s macroeconomic stability:

 

1. Excessive Populist Spending – With rising state-level fiscal stress, Upasana cautions against introducing additional populist schemes at the central level, which could elevate the consolidated fiscal deficit and put pressure on inflation and external stability.

2.  Abandoning Fiscal Deficit Targets – Some believe that India should slow down its fiscal consolidation path, but Morgan Stanley argues that stability is key. A higher deficit could limit monetary policy flexibility, increase inflation risks, and dampen investor confidence.

3.  Shifting Focus from Capex to Revenue Expenditure – A budget that prioritises revenue spending over capital investment could undermine India’s long-term economic prospects. Will the government stick to its infrastructure-led growth model or take a different approach? 

 

Will Budget 2025 Deliver on Growth & Stability?

 

This budget comes at a time when India is at a crossroad of economic expansion and fiscal responsibility. Will the government stay the course and prioritise long-term investments, or will political pressures lead to short-term populist measures?

 

Join Business Today TV’s Budget 2025 Special for exclusive insights into how this budget will shape the economy and markets. 

 

Stay tuned for expert analysis, market reactions, and investment strategies!