India Union Budget 2025: A Comprehensive Overview

 

India Union Budget 2025: A Comprehensive Overview

On February 1, 2025, Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 in the Lok Sabha. This budget, hailed as a "people's budget" by Prime Minister Narendra Modi, aims to spur economic growth, enhance savings, and make citizens active participants in India's development journey. The budget has facilitated the Ease of doing business (EoDB),  paying taxes (EoPT),  Living (EoL),  Savings (Eos) , Investment (EoI) and Consumption (EoS).

Reforms in Six Domains

The budget will initiate reforms in six key domains:

Taxation: Simplifying tax structures and reducing tax rates can increase compliance and boost revenue.

Urban Development: Investing in urban infrastructure can improve living standards and attract investments.

Mining: Reforms can enhance efficiency and sustainability in the mining sector.

Financial Sector: Strengthening regulations and promoting financial inclusion can stabilize the economy.

Power: Enhancing power infrastructure can support industrial growth and improve energy access.

Regulatory Reforms: Streamlining regulations can reduce bureaucratic hurdles and foster a business-friendly environment.

Budget Estimates 2025-26

• The total receipts other than borrowings and the total expenditure are estimated at ₹ 34.96 lakh crore and ₹ 50.65 lakh crore respectively.
• The net tax receipts are estimated at ₹ 28.37 lakh crore.
• The fiscal deficit is estimated to be 4.4 per cent of GDP.
• The gross market borrowings are estimated at ₹ 14.82 lakh crore.
• Capex Expenditure of ₹11.21 lakh crore (3.1% of GDP) earmarked in FY2025-26.

Fiscal Deficit at 4.4% of GDP

The fiscal deficit is projected to be 4.4% of GDP. A lower fiscal deficit indicates better fiscal management and reduced borrowing needs. It can lead to lower interest rates, increased investor confidence, and overall economic stability.

Scheme for Determining Arm's Length Price of International Transactions

A scheme to determine the arm's length price of international transactions for a block period of three years has been introduced to streamline transfer pricing and provide an alternative to yearly examination. This scheme aims to simplify the transfer pricing process, reduce compliance burden, and provide more certainty to businesses. It can lead to better tax compliance and reduced litigation.

Tax Exemption on Withdrawals from National Savings Scheme

Tax exemption will be provided on withdrawals made from the National Savings Scheme by individuals on or after 29th August, 2024. This measure will encourage more people to invest in the National Savings Scheme, as they can withdraw their savings without tax implications. It can lead to higher savings rates and financial security for individuals.

Personal Income Tax Reforms

No Tax Up to ₹12 Lakh: Under the new tax regime, individuals with an annual income up to ₹12 lakh will not have to pay any income tax. More than 1 crore people will be benefitted by this new rate.

Standard Deduction for Salaried Individuals: Salaried individuals will enjoy a standard deduction of ₹75,000, effectively making no tax payable up to ₹12.75 lakh.

Increased Rebate Limit: The rebate limit under Section 87A has been increased from ₹7 lakh to ₹12 lakh, providing a rebate of ₹60,000.

New Tax Slabs: Revised tax rates for various income ranges have been proposed. For example, income between ₹12 lakh and ₹16 lakh will be taxed at 15%, and income between ₹16 lakh and ₹20 lakh at 20%.

Senior Citizens. Tax deduction limit doubled from ₹50,000 to ₹1 lakh**: This increase in the tax deduction limit for senior citizens will provide them with additional financial relief, helping them manage their expenses better. It also reflects the government's commitment to supporting the elderly population.

TDS on Rent.  Annual limit increased from ₹2.40 lakh to ₹6 lakh. Raising the threshold for Tax Deducted at Source (TDS) on rent will benefit landlords, especially those with higher rental incomes. It will reduce the administrative burden on tenants and landlords, making the rental market more attractive.

Self-Occupied Properties: Taxpayers can now claim the annual value of 2 self-occupied properties (previously 1) without any conditions. This change will benefit homeowners with multiple properties, allowing them to save on taxes. It encourages investment in real estate and provides relief to those who own more than one home.

TDS on Insurance Commissions: Reduction in TDS rates for insurance commissions.

This will put more money in the hands of consumers, resulting in higher consumption.

The estimated savings by Tax payers is Rs.100,000 cr on account of Changing the tax slabs. Assuming that they would save Rs.30,000 cr.  Rs.70,000 cr could go for consumption. Assuming that Rs.50,000 cr would be used as their contribution for availing consumer loans, 4 times borrowing of Rs.50,000 cr will be Rs.200,000 cr.

Threshold Limit for TCS on LRS Remittances Increased

The threshold limit for Tax Collected at Source (TCS) on Liberalized Remittance Scheme (LRS) remittances has been increased from ₹7 lakh to ₹10 lakh. This change will make it easier for individuals to remit money abroad for various purposes, such as education, travel, and investment. It can boost outbound tourism and international education.

Compliance and Simplification

Extended Timeline for Filing Updated Returns : The time limit for filing updated returns has been extended from 2 to 4 years.

Decriminalization of Delayed TDS/TCS Payments: The government proposed removing higher TDS/TCS for delayed payments to reduce compliance burden.

Safe Harbour Rules Expansion : Expansion of safe harbour rules to provide more certainty and reduce litigation.

Other Tax Proposals

Presumptive Taxation Scheme: Extension to non-resident service providers for electronics manufacturing.

Incentives for International Financial Services Centres (IFSC): Tax exemptions for ship leasing and life insurance policies.

Trust Registration Validity: Increased from 5 to 10 years for certain conditions.

Scheme for Arm’s Length Pricing

Introduction of a scheme to determine the arm’s length price of international transactions for a block period of 3 years. This aims to reduce litigation and provide certainty in international taxation. By setting a fixed price for a block period, businesses can plan their finances better and avoid disputes with tax authorities. This move is expected to enhance the ease of doing business in India and attract more foreign investments.

Expansion of Safe Harbour Rules.

Scope of safe harbour rules expanded to reduce disputes and provide clarity in cross-border transactions: Safe harbour rules provide a simplified way for businesses to comply with transfer pricing regulations. By expanding these rules, the government aims to reduce the compliance burden on businesses and minimize disputes with tax authorities. This will likely encourage more multinational companies to set up operations in India, boosting economic growth.

Simplification: Removal of 7 Tariff Rates

The government has removed seven customs tariff rates to streamline the customs duty structure. This simplification reduces the number of tariff slabs from 14 to 8, including a zero rate.

This will make the customs duty structure more straightforward and easier to navigate for businesses. It will reduce administrative complexities and help in faster processing of imports and exports, thereby enhancing ease of doing business in India.

Cess and Surcharge: Limiting to One

The budget proposes that not more than one cess or surcharge will be applied on customs duties. Additionally, lower cess rates will be applied on certain items to reduce the tax burden.

This will lower the overall tax burden on imported goods, making them more affordable. It will also reduce the complexity of calculating customs duties, benefiting both businesses and consumers.

Sector-Specific Exemptions: Make in India

Exemptions have been provided for open cell panels for LED/LCD TVs, looms for textiles, and capital goods for lithium-ion batteries used in mobile phones and electric vehicles (EVs).

These exemptions will boost domestic manufacturing by reducing the cost of production for these sectors. This will encourage investment in these industries, leading to job creation and economic growth.

 Promotion of MRO (Maintenance, Repair, and Overhaul)

A 10-year exemption has been granted for goods used in shipbuilding and shipbreaking. Additionally, the time limit for the export of railway goods imported for repairs has been extended.

These measures will support the shipbuilding and railway sectors by reducing costs and encouraging exports. This will enhance the competitiveness of Indian industries in the global market.

Export Promotion

Duty-free inputs have been provided for the handicraft and leather sectors to boost exports.

This will make Indian handicrafts and leather products more competitive in international markets, leading to increased exports and foreign exchange earnings.

MSME Classification and Credit Guarantee

Investment Limit Increase: Raising the investment limit for MSME classification to 2.5 times and doubling turnover limits will allow more enterprises to qualify as MSMEs, enabling them to access various benefits and incentives. Credit Guarantee Enhancement: Enhancing the credit guarantee cover for MSMEs and start-ups will improve their access to finance, encouraging innovation and growth.

Trade Facilitation

Provisional Assessment. A time limit has been fixed for the finalisation of provisional assessments.

Voluntary Declaration. A new provision for voluntary declaration of material facts post-clearance has been introduced, with interest but without penalty.

IGCR Rules Amendment. The time limit for filing quarterly statements has been extended to 1 year instead of monthly.

These measures will improve trade facilitation by making the customs process more efficient and transparent. They will reduce delays and uncertainties, benefiting businesses engaged in international trade. Overall, these proposals aim to simplify the customs duty structure, reduce the tax burden, and promote domestic manufacturing and exports. They are expected to enhance the ease of doing business, attract foreign investments, and boost economic growth.

Export Promotion Mission

The Union Budget 2025 announced an Export Promotion Mission with a budgetary allocation of ₹2,250 crore. This mission aims to facilitate easy access to export credit, provide cross-border factoring support, and help MSMEs tackle non-tariff measures in overseas markets. The mission will be driven jointly by the Ministries of Commerce, MSMEs, and Finance.

This initiative is expected to boost India's export competitiveness by making it easier for businesses, especially MSMEs, to access credit and navigate international trade barriers. By addressing non-tariff measures, it can help Indian products become more competitive in global markets, potentially increasing export volumes and contributing to economic growth.

BharatTradeNet

The Budget also introduced  “BharatTradeNet”, a digital public infrastructure for international trade. This platform will provide a unified system for trade documentation and financing solutions, complementing the Unified Logistics Interface Platform.

BharatTradeNet is expected to streamline trade processes, reduce compliance burdens, and improve logistics efficiency. By providing a single platform for trade documentation, it can simplify the export-import process, reduce transaction costs, and enhance the ease of doing business for exporters and importers.

Warehousing for Air Cargo

The Budget includes plans for the upgradation of infrastructure and warehousing for air cargo, particularly for high-value perishable horticulture produce. This initiative aims to improve the handling and storage of air cargo, ensuring that perishable goods are transported efficiently and safely.

Upgrading warehousing infrastructure for air cargo can enhance the efficiency of transporting perishable goods, reducing spoilage and ensuring that high-value products reach their destinations in optimal condition. This can boost the export of perishable items, support the agricultural sector, and contribute to higher export revenues. Overall, these proposals are designed to enhance India's export capabilities, improve trade efficiency, and support the growth of MSMEs and the agricultural sector. By addressing key challenges in international trade, they can help India achieve its export targets and strengthen its position in the global market.

Inclusive Development and Boosting Middle-Class Spending

The focus on inclusive development and boosting middle-class spending aims to ensure that economic growth benefits all sections of society. By increasing disposable income for the middle class, the government hopes to stimulate consumption, which in turn can drive economic growth. This approach can lead to a more balanced and equitable development, reducing income disparities and fostering social stability.

Support for National Cooperatives Development Corporation

Providing support to the National Cooperatives Development Corporation for its lending operations will strengthen the cooperative sector, which plays a crucial role in rural development and financial inclusion. This support can enhance the financial stability of cooperatives and enable them to offer better services to their members.

Kisan Credit Card and Agricultural Schemes

Kisan Credit Card (KCC): Increasing the loan limit from Rs 3 lakh to Rs 5 lakh under the KCC will provide farmers with greater financial flexibility, helping them invest in better inputs and modern equipment.

Atamnirbharta in Pulses: The 6-year programme aims to achieve self-sufficiency in pulses, reducing dependency on imports and ensuring stable prices for consumers.

Dhan Dhanya Krishi Yojna: This scheme will cover 100 districts with low productivity, aiming to enhance agricultural productivity, adopt sustainable practices, and improve irrigation and storage facilities.

Mission for Cotton Production

The 5-year mission to promote cotton production focuses on improving productivity and sustainability, particularly for extra-long staple cotton varieties. This initiative will support farmers, enhance the quality of cotton, and rejuvenate India's traditional textile sector.

Scheme for Footwear and Leather Sector

The dedicated scheme for the footwear and leather sector is expected to create 22 lakh jobs, generate ₹4 lakh crore in revenue, and boost exports to over ₹1.1 lakh crore. This will enhance the sector's global competitiveness and contribute significantly to the economy.

Scheme for Toys Sector

The dedicated scheme for the toys sector aims to make India a global manufacturing hub. By developing clusters, enhancing skills, and creating a manufacturing ecosystem, the scheme will promote high-quality, innovative, and sustainable toy production.

National Centres for Skilling in Manufacturing

These centres will enhance the skills of the youth, making them more employable in the manufacturing sector. This will boost India's competitiveness globally and support the "Make in India" initiative.

Expansion of Capacity in IITs

Doubling the capacity of IITs over the last decade and adding infrastructure for 6,500 more students will increase the number of highly skilled engineers and researchers, contributing to technological advancements and innovation.

Additional Infrastructure for New IITs

Creating additional infrastructure will accommodate more students, ensuring that more individuals have access to quality higher education and research opportunities.

75,000 Medical Seats in Next 5 Years

Increasing the number of medical seats will address the shortage of healthcare professionals in India, improving healthcare services and accessibility.

10,000 Fellowships under PM Research Fellowship Scheme

Providing fellowships for technological research will encourage innovation and research excellence in IITs and IISc, leading to cutting-edge technological advancements.

New Fund of Funds for Startups

This fund will provide financial support to startups, fostering entrepreneurship and innovation, and contributing to economic growth.

New Scheme for First-Time Entrepreneurs

Supporting first-time entrepreneurs from women, Scheduled Castes, and Scheduled Tribes will promote inclusivity and economic empowerment, helping to reduce poverty and inequality.

Centre of Excellence in AI for Education

Establishing a centre for AI in education will revolutionize the educational system, making it more efficient and equitable through AI-driven innovations.

Urban Challenge Fund

This fund will transform cities into growth hubs by financing bankable projects, improving infrastructure, and promoting sustainable urban development.

Revamp of PM Swanidhi Scheme

Increasing loan limits and introducing a UPI-linked credit card will provide better financial support to street vendors, enhancing their livelihoods and economic stability.

Identity Card Issuance and e-Shram Portal Registration for Gig Workers

Facilitating identity card issuance and registration will provide social security and insurance coverage to gig workers, ensuring their well-being and financial security.

3-Year Pipeline of Projects in PPP Mode

Each infrastructure-related ministry is to come up with a 3-year plan to be implemented in PPP mode. An outlay of ₹1.5 lakh crore is proposed for 50-year interest-free loans. This initiative aims to boost infrastructure development by leveraging private sector efficiency and investment. The interest-free loans will reduce the financial burden on states, making it easier for them to undertake large-scale projects. This could lead to improved infrastructure, job creation, and overall economic growth.

100GW Nuclear Energy by 2047

Setting up of mini nuclear plants will be encouraged to achieve 100GW nuclear energy capacity by 2047. This ambitious target will help India transition to cleaner energy sources, reducing reliance on fossil fuels and lowering carbon emissions. It will also create opportunities for technological advancements and job creation in the nuclear energy sector.

Modified UDAN Scheme

The modified UDAN scheme will connect 120 new destinations and cater to 4 crore passengers over the next 10 years. This will enhance regional connectivity, making air travel more accessible and affordable for millions of people. It can boost tourism, trade, and economic development in underserved areas.

Tourism Initiatives

Mudra loans for homestays, promotion of medical tourism and 'heal in India', and development of top 50 tourism destination sites in partnership with states. These initiatives will diversify and strengthen India's tourism sector, attracting both domestic and international tourists. It will create jobs, promote cultural exchange, and generate revenue for local communities.

Global Capability Centres (GCCs)

A national guidance framework to promote GCCs in Tier II/III cities and rural areas. This will encourage the establishment of GCCs outside major urban centres, promoting balanced regional development and creating high-skilled job opportunities in smaller towns and rural areas.

Centralized KYC System

Implementation of a centralized KYC (Know Your Customer) system. This will streamline the process of verifying customer identities, reducing paperwork and improving efficiency for financial institutions. It will enhance security and compliance while making it easier for customers to access financial services.

Grameen Credit Score for Self-Help Groups

Banks will be required to maintain a Grameen credit score for self-help groups.  This will improve financial inclusion by providing better access to credit for self-help groups, empowering them to undertake entrepreneurial activities and improve their livelihoods.

Model Bilateral Investment Treaty

Drafting of a model bilateral investment treaty to attract foreign investment.  This will create a more favourable environment for foreign investors, boosting foreign direct investment (FDI) and fostering economic growth. It will also enhance India's global trade relations and competitiveness.

Insurance FDI Hiked from 74% to 100%

The Foreign Direct Investment (FDI) limit in the insurance sector has been increased from 74% to 100%. This move is expected to attract more foreign investment into the insurance sector, leading to increased competition, better services, and potentially lower premiums for consumers. It can also result in the infusion of advanced technology and expertise from global players.

Investing in Research, Development, and Innovation ₹20,000 Crore

₹20,000 crore has been announced for private-sector driven Research, Development, and Innovation initiative. This investment aims to boost innovation and technological advancements in the private sector. It can lead to the development of new products, services, and solutions, enhancing India's global competitiveness and creating high-skilled jobs.

FastTrack Merger for Companies

FastTrack merger process for companies has been introduced.  This initiative aims to simplify and expedite the merger process, making it easier for companies to consolidate and grow. It can lead to increased efficiency, better resource utilization, and stronger market presence for merged entities.

In conclusion, the Union Budget 2025-26 aims to balance growth drivers with fiscal prudence. By focusing on income tax reforms, technology, energy, agriculture, MSMEs, infrastructure, healthcare, and education, the budget seeks to create a more prosperous and self-reliant India.

 

Summary of India Economic Survey 2025

 

The Economic Survey 2025 provides valuable insights into India's economic health and outlines a roadmap for sustainable growth. With a focus on innovation, inclusion, and investment, the survey sets the stage for the upcoming Union Budget and highlights the government's commitment to achieving long-term economic prosperity.

 Summary of the key points from the Economic Survey 2025

The Economic Survey 2025, presented by Finance Minister Nirmala Sitharaman, provides a detailed analysis of India's economic performance over the past year and outlines key projections and policy suggestions for the upcoming financial year. The survey, prepared under the leadership of Chief Economic Adviser Dr V Anantha Nageswaran, highlights several critical aspects of the Indian economy.

Economic Growth: India's economy is projected to grow by 6.6% in FY25, which is attributed to strong private consumption and investment. This growth is supported by government policies that encourage economic activities, investments in infrastructure, and reforms aimed at improving the ease of doing business.

Inflation: Food inflation remains high due to supply disruptions, with the Consumer Food Price Index (CFPI) rising to 8.4%. This is primarily driven by adverse weather conditions affecting crop yields, supply chain issues, and increased demand for food products.

Global Trends: On the global front, inflation has eased from previous highs, but risks persist due to geopolitical tensions, such as trade conflicts and instability in certain regions, and central bank policies that impact global financial markets.

Sector Performance: All major sectors of the economy—agriculture, industry, and services—are performing well. Agriculture, in particular, has been thriving above its trend levels, supported by favourable monsoon rains and government initiatives aimed at improving agricultural productivity.

Capital Expenditure: Capital expenditure (capex) has seen an 8.2% growth between July and November 2024. This indicates robust investment in infrastructure projects, machinery, and equipment, which is expected to further drive economic growth and development.

GDP Growth: Real GDP growth for FY25 is estimated at 6.4%. This reflects stable economic performance despite global challenges such as fluctuating commodity prices and geopolitical uncertainties. The government's focus on structural reforms and investment in key sectors contributes to this growth.

Fiscal Deficit: The fiscal deficit is projected to be 4.9% of GDP, which indicates the gap between the government's revenue and expenditure. Efforts are being made to reduce the fiscal deficit over the coming years through better fiscal management and increased revenue generation.

Urban Demand: Strong urban demand has led to increased housing rents and healthcare expenses. This is driven by higher disposable incomes, urbanisation, and improved access to credit, which have boosted consumer spending on housing and healthcare services.

Weather Impact: Extreme weather events, such as unseasonal rains and heatwaves, have significantly impacted agricultural output. This has contributed to food price pressures and variability in crop yields, making it challenging for farmers and affecting overall food supply.

Government Interventions: To stabilise food prices, the government has released buffer stocks of essential commodities and invested in cold storage and logistics infrastructure. These measures aim to ensure a steady supply of food products and reduce price volatility.

Core Inflation: Core inflation, which excludes volatile food and fuel prices, eased to 4.1%. Despite this overall reduction, the cost of services such as housing, healthcare, and education continued to rise. These sectors faced higher demand and supply constraints, contributing to the persistent increase in prices.

Retail Inflation: Retail inflation, measured by the Consumer Price Index (CPI), averaged 5.4% during FY25 (April-December). This reflects the combined effects of various factors, including elevated food prices, increased service costs, and global commodity price fluctuations.

Global Inflation: Globally, inflation has eased from the peaks seen post-pandemic. This can be attributed to the stabilisation of supply chains, lower energy prices, and monetary policies aimed at controlling inflation. However, risks remain due to ongoing geopolitical tensions and economic uncertainties.

US Inflation: Inflation in the United States declined to 3.4% by the end of 2024. This decrease was driven by lower energy costs, improved supply chain conditions, and the Federal Reserve's monetary tightening policies. The easing of inflation provides some relief to consumers and businesses alike.

Eurozone Inflation: The Eurozone's inflation rate fell to 2.9%, primarily due to lower energy prices and weak demand. The European Central Bank's monetary policy and lower global commodity prices also contributed to the reduction in inflationary pressures.

Rupee Depreciation: The Indian rupee depreciated by 4.5% against the US dollar over the year. This depreciation can be linked to various factors, including global economic conditions, fluctuations in capital flows, and the strength of the US dollar.

RBI Policy: The Reserve Bank of India (RBI) maintained a steady repo rate of 6.5% throughout most of 2024. This policy aimed to anchor inflation expectations and ensure economic stability. By keeping the repo rate unchanged, the RBI sought to balance growth and inflation objectives.

Supply-Side Measures: To stabilise staple food prices, the government released 5 lakh tonnes of wheat and rice from buffer stocks. These supply-side measures were intended to address food price volatility and ensure adequate availability of essential commodities in the market.

Food Processing Sector: The government introduced a Rs 10,000 crore incentive for the food processing sector. This initiative aims to strengthen long-term food supply chains, enhance processing infrastructure, and promote value addition in agriculture. The incentive is expected to improve food security and create job opportunities.

Housing Rents: Housing rents increased by 12% due to strong urban demand. The rise in rents is driven by factors such as urbanisation, higher disposable incomes, and limited housing supply in urban areas. This trend underscores the need for policies that address affordable housing and urban planning.

Healthcare Expenses: Healthcare expenses rose by 6.5%, primarily driven by increased costs of medical treatments, drugs, and healthcare services. The rise can also be attributed to higher demand for healthcare services due to urbanization and greater awareness of health issues.

Vegetable Prices: Tomato prices soared by 37% during peak summer due to heatwaves that adversely affected crop yields. Extreme temperatures led to reduced tomato harvests, creating supply shortages and driving prices up significantly.

Onion Prices: Onion prices remained 20% above their five-year average following unseasonal rainfall. The erratic weather patterns disrupted the sowing and harvesting cycles, leading to supply shortages and increased prices.

Crop Area Damage : Over the past three years, there was a 15% increase in crop area damage due to erratic weather. Unpredictable weather conditions such as heavy rains, droughts, and heatwaves have caused significant damage to crops, impacting agricultural productivity and farmer incomes.

Global Commodity Prices: A decline in global commodity prices, especially crude oil, provided some relief to the economy. Lower crude oil prices helped reduce the cost of imports, easing inflationary pressures and improving the trade balance.

Economic Stability: Despite global uncertainties, India's economy is expected to remain stable. Factors contributing to this stability include strong domestic demand, robust industrial and agricultural performance, and effective government policies aimed at sustaining growth and managing inflation.

GDP Forecast: GDP growth for FY26 is forecasted to range between 6.3% and 6.8%. This growth projection is based on continued investments in infrastructure, favourable demographic trends, and policy measures aimed at enhancing productivity and economic resilience.

Sectoral Growth: The industrial sector has surpassed pre-pandemic growth levels, driven by increased manufacturing activity, infrastructure development, and government initiatives to boost industrial production. The sector's recovery has been a key contributor to overall economic growth.

Services Sector: The services sector has reached its trend growth levels, supported by strong demand for IT services, financial services, and other professional services. The sector's performance has been buoyed by digital transformation, increased consumer spending, and global demand for India's service exports.

Agricultural Growth: Agriculture continues to thrive above trend levels, benefiting from favourable weather conditions, government support programs, and advancements in agricultural technology. The sector's robust performance has contributed to food security and rural income growth.

Retail Investor Base: India's growing retail investor base adds resilience to the stock market. Retail investors, consisting of individual and small investors, have shown increased participation in stock markets. This diversified investor base helps to stabilise the market, reducing dependency on foreign institutional investors.

Market Resilience: Despite foreign portfolio investor outflows, the Nifty 50 index saw only a 6.2% correction. This resilience is attributed to robust domestic investor participation and strong economic fundamentals. The diversified portfolio of Nifty 50 companies has also contributed to maintaining market stability.

US Market Impact: India's stock market is sensitive to downturns in the US market. Given the interconnectedness of global financial markets, any significant downturn in the US market can lead to volatility in Indian markets. This sensitivity underscores the importance of monitoring global economic trends.

US Stock Market: The US stock market saw a 24% gain in 2023 and continued strong performance in 2024. The gains were driven by economic recovery, corporate earnings growth, and positive investor sentiment. The strong performance of the US market has had a positive impact on global investor confidence.

Retail Investor Participation: Individuals invested a net amount of Rs 4.4 lakh crore in the NSE’s cash market segment over the past five years. This significant investment by retail investors highlights their growing confidence in the stock market and their role in providing liquidity and stability to the market.

Geopolitical Risks: Geopolitical risks continue to pose challenges to the global economic outlook. Factors such as trade conflicts, political instability, and international tensions can impact economic growth and market stability. It is crucial for policymakers to navigate these risks to sustain economic progress.

Government Initiatives: Government initiatives aim to improve infrastructure, innovation, and social development. Programs focused on building physical infrastructure, promoting technological advancements, and enhancing social welfare are expected to drive economic growth and improve the quality of life for citizens.

Climate Sensitivity: Emphasis on climate sensitivity and sustainable practices is increasingly important. The government is prioritising policies that address climate change, promote renewable energy, and encourage sustainable agriculture. These efforts aim to mitigate environmental risks and ensure long-term ecological balance.

Healthcare Spending: Increased government spending on healthcare is a key focus. Investments in healthcare infrastructure, accessibility, and quality of care are essential to improving public health outcomes. Enhanced healthcare spending also aims to address challenges such as disease prevention and health equity.

Education System: Focus on improving the education system to support future economic growth. The government is committed to reforms that enhance the quality of education, promote digital literacy, and align curricula with industry needs. These efforts aim to equip the workforce with skills necessary for a competitive global economy.

The Economic Survey 2025 provides valuable insights into India's economic health and outlines a roadmap for sustainable growth. With a focus on innovation, inclusion, and investment, the survey sets the stage for the upcoming Union Budget and highlights the government's commitment to achieving long-term economic prosperity.

 

 

Achieving the Right Valuation of Government Enterprise Stocks

Achieving the Right Valuation of Government Enterprise Stocks

In recent years, the valuation of Public Sector Undertakings (PSUs) and Public Sector Banks (PSBs) in India has been a topic of discussion among financial experts. Despite being leaders in various industries, boasting sound balance sheets, consistent year-on-year growth in sales and profits, and possessing significant real estate assets, these stocks were historically undervalued compared to their private counterparts. However, between 2021 and 2024, this gap began to narrow, only to widen again as the stock markets weakened by the end of 2024.

The Valuation Gap: Historical Perspective

Historically, PSUs and PSBs in India were perceived as bureaucratic and inefficient compared to the private sector. Their significant holdings and vast land banks, which should have been reflected in their stock prices, were often overlooked by investors. This undervaluation was attributed to governance issues and the slow pace of decision-making, which impacted their appeal in a dynamic market environment.

 Market Correction and Narrowing Gap (2021-2024)

Starting in 2021, market analysts noted a shift as the valuations of PSUs and PSBs began to rise. This change was fuelled by several factors, including improved corporate governance, increased government support, and better financial performance. The narrowing valuation gap was a positive reflection of these companies' intrinsic values. However, towards the end of 2024, the broader stock market began to weaken, leading to a sharp decline in the share prices of these entities once again.

Collaborative Efforts by the Department of Public Enterprises

To address these ongoing challenges, the Department of Public Enterprises (DPE), in collaboration with the Capacity Building Commission of India, organized a crucial meeting last week. This meeting brought together key stakeholders, including PSUs, investment bankers, merchant bankers, and research analysts, to discuss strategies to enhance the market perception and valuation of PSU and PSB stocks.

Here are some action plans that could be considered to bridge the valuation gap for PSU/PSB stocks:

1. Enhance Corporate Governance and Transparency:

Independent Directors: Increase the proportion of independent directors on PSU boards to improve objectivity and decision-making.

Regular Investor Interactions: Organise frequent investor calls, roadshows, and analyst meetings to improve communication and transparency.

ESG Focus: Emphasise environmental, social, and governance (ESG) practices to attract ESG-focused investors.

Data Disclosure: Improve data disclosure and reporting standards to enhance investor confidence.

Transparent Financial Reporting: Adopting International Financial Reporting Standards (IFRS) or Indian Accounting Standards (Ind AS) ensures accuracy and consistency in financial reporting. Timely and comprehensive disclosures of financial and operational information should be a priority.

Stringent Compliance Measures: Establishing strong internal control systems and ensuring compliance with regulatory requirements can reduce risks. Continuous monitoring and evaluation, along with a credible whistleblower policy, are crucial.

Regular Audits : Conducting frequent internal and external audits can identify weaknesses and opportunities for improvement. Audit results and the subsequent actions taken should be communicated transparently to stakeholders.

2. Improve Financial Performance:

Focus on Profitability: Implement strategies to improve profitability, such as cost optimization, operational efficiency, and product innovation.

Return on Equity (ROE): Focus on improving ROE through initiatives like asset-liability management and capital optimisation.

Dividend Policy: Implement a clear and consistent dividend policy to attract dividend-seeking investors.

3. Unlock Value through Asset Monetisation:

Land Monetisation: Explore avenues for monetising surplus land assets through joint ventures, real estate development, or strategic partnerships. Use Invit and REIT Structures. Lease the operating assets to generate funds for new projects.

Strategic Partnerships: Collaborate with private sector players for technology upgrades, market access, and *operational efficiency.

Divestment: Explore divestment options for non-core assets to streamline operations and improve focus.

Identifying Non-Core Assets : PSUs need to conduct a comprehensive review of their assets to identify non-core properties that can be monetised. This includes surplus land, buildings, and other real estate holdings.

Efficient Disposal Mechanisms: Setting up transparent and efficient disposal mechanisms, such as electronic auctions or public tenders, to ensure fair value realization. Collaboration with professional asset management firms can enhance this process.

Utilising Proceeds: The capital generated from asset monetisation could be strategically reinvested to enhance core operations, reduce debt, or fund growth initiatives. Regular monitoring and reporting on the use of proceeds are essential for maintaining stakeholder trust.

4. Strategic Disinvestment

Reducing Government Stake: The government can gradually reduce its stake in non-strategic PSUs to below 50%, making them more market-driven. This requires a well-thought-out plan to ensure a smooth transition without negatively impacting employee morale or operations.

Attracting Private Investors: By providing incentives like tax benefits and simplified procedural requirements, private investors can be lured to invest in PSUs. Roadshows and investor meets can play a significant role in attracting both domestic and international investors.

Phased Approach: Disinvestment should be executed in phases to maximize value and minimize disruption. Each phase should be accompanied by thorough stakeholder engagement and focused communication strategies.

5. Enhancing Operational Efficiency

Adopting Modern Technology: Integrating advanced technologies such as AI, big data analytics, and IoT into operations can improve efficiency and reduce costs. Automation of routine tasks frees up human resources for more strategic roles.

Improving Supply Chain Mechanisms: Enhancing supply chain management through strategies like just-in-time inventory and vendor-managed inventory can lead to cost savings and increased efficiency. Collaboration with best-in-class suppliers is also beneficial.

Investing in Employee Development: Conducting regular training and development programs in partnership with leading institutions can bolster employee skills and productivity. Performance-based incentives can further drive efficiency.

Lean Manufacturing Techniques: Implementing lean manufacturing techniques can minimize waste and improve operational processes. Continuous improvement practices like Kaizen can keep operations agile and efficient.

6. Strategic Partnerships and Alliances.

Public-Private Partnerships (PPPs): Engaging in PPPs allows PSUs to leverage private sector expertise and capital. This collaboration can lead to innovative solutions and improved efficiency.

Joint Ventures: Forming joint ventures with leading private companies can bring in new technologies and expand market reach. Clear terms and governance structures for such partnerships ensure mutual benefit.

Collaborative Innovation: Encouraging partnerships with startups and tech companies can foster innovation. These collaborations can lead to the development of new products and services.

Sector-Specific Alliances: Engaging in sector-specific alliances helps PSUs gain insights into industry trends and best practices. This knowledge can be used to drive strategic initiatives and enhance competitiveness.

7. Leverage Government Support:

Policy Reforms: Advocate for policy reforms that support the growth and competitiveness of PSUs.

Financial Support: Explore avenues for government support, such as access to credit, equity infusions, and infrastructure development.

Strategic Investments: Encourage government-led strategic investments in key sectors where PSUs play a crucial role.

8. Promoting Research and Development (R&D)

Increased Investment: Allocating more funds towards R&D initiatives is crucial. This can include setting up dedicated R&D centres, incentivising innovation, and funding projects that align with the PSU's strategic goals.

Collaboration with Academic Institutions: Partnering with universities and research institutions can facilitate knowledge transfer and foster innovation. Joint research projects, internships, and scholarships can also enhance this collaboration.

Industry-Academia Consortium: Creating consortiums where academia and industry work together on breakthrough technologies and solutions. This can help in the rapid commercialization of research outcomes.

Internal Innovation Programs: Encouraging a culture of innovation within the organisation by establishing internal innovation programs and labs. This can include hackathons, idea competitions, and dedicated innovation teams.

Patents and Intellectual Property (IP) Management: Focusing on obtaining patents for new technologies and managing intellectual property efficiently. This can protect innovations and provide additional revenue streams through licensing.

9. Enhance Investor Relations:

Appoint Investor Relations Officers: Appoint dedicated investor relations officers in each PSU to manage investor communication effectively. Establishing a dedicated Investor Relations (IR) team that focuses on communicating with investors, analysts, and other stakeholders. This team should be well-versed in the PSU's operations, financials, and strategic vision.

Research Coverage: Encourage research coverage from leading investment banks and analysts to improve market understanding of PSU fundamentals.

Corporate Branding: Enhance the corporate branding and image of PSUs to improve investor perception.

Regular Updates: Providing regular updates through quarterly earnings calls, investor meetings, and detailed reports. Transparency about performance and strategic direction can build investor trust.

Roadshows and Investor Conferences: Organising and participating in roadshows and investor conferences to showcase the value and potential of PSUs. This helps in reaching a wider investor audience.

Media Outreach: Leveraging media platforms, including print, television, and digital media, to communicate key messages about PSU performance and prospects. Engaging with journalists and analysts can amplify the PSU's story.

Educational Campaigns: Launching educational campaigns that explain the intrinsic value of PSUs, their growth potential, and the benefits of investing in them. These campaigns can target both retail and institutional investors.

Analyst Briefings: Regularly briefing analysts on the PSU's performance, strategy, and market outlook. Positive analyst reports can influence investor sentiment and drive stock valuations.

Online Presence: Maintaining an informative and updated online presence, including a comprehensive website and active social media channels. Providing easy access to financial reports, press releases, and investor presentations can enhance transparency and engagement.

Interactive Platforms: Utilising digital platforms, including social media, webcasts, and webinars, to engage with investors. This ensures wider reach and real-time communication.

Feedback Mechanisms: Establishing channels for investors to provide feedback and ask questions. This can help in understanding investor concerns and addressing them promptly.

Crisis Communication: Having a robust crisis communication plan in place to manage and mitigate any adverse events. Proactive and clear communication during crises can maintain investor confidence.

10. Focus on Core Competencies

Identifying Core Businesses: Conducting a thorough analysis to identify core and non-core businesses. This includes assessing profitability, market position, and strategic importance.

Divesting Non-Core Operations: Selling or spinning off non-core or underperforming businesses. The capital raised from these divestitures can be reinvested into core areas to enhance growth and efficiency.

Resource Allocation: Allocating resources, both financial and human, to areas that align with the PSU's core competencies. This ensures that efforts are concentrated where they can deliver the most value.

Strategic Planning: Developing strategic plans that focus on leveraging core strengths and addressing weaknesses. Regular review and adjustment of these plans are necessary to stay aligned with market dynamics.

Employee Alignment: Ensuring that employees understand and are aligned with the PSU's core competencies and strategic goals. This can be achieved through regular communication, training, and performance incentives.

11.  Long-Term Vision and Strategy:

Develop Strategic Roadmaps: Encourage PSUs to develop long-term strategic roadmaps outlining their vision, growth plans, and key performance indicators. PSUs in India were the first ones to prepare Perspective Plans, Strategic Plans in alignment with the Ministries in charge of the PSUs.

Innovation and Technology: Foster a culture of innovation and technology adoption to remain competitive in a dynamic market.

Focus on Sustainable Growth: Emphasize sustainable business practices and long-term value creation for all stakeholders.

12. Policy Reforms

Simplifying Bureaucratic Processes: Identifying and eliminating redundant procedures that hinder efficiency. Streamlining approval processes and reducing paperwork can significantly improve operational speed.

Reducing Red Tape: Implementing policies that cut through bureaucratic red tape, making it easier for PSUs to operate efficiently. This includes simplifying regulations and ensuring a fair and transparent regulatory environment.

Advocacy and Lobbying: Engaging with policymakers and industry bodies to advocate for reforms that benefit PSUs. Regular dialogue with stakeholders can help in shaping policies that support growth and efficiency.

Ease of Doing Business Initiatives: Supporting initiatives that improve the ease of doing business, such as digital governance platforms, single-window clearances for approvals, and online grievance redressal systems.

Important Considerations:

Tailored Approach: The specific action plans will need to be tailored to the individual needs and circumstances of each PSU.

Collaboration: Effective implementation will require close collaboration between PSUs, the government, and the financial markets.

Regular Monitoring and Evaluation: Regular monitoring and evaluation of progress are crucial to ensure the effectiveness of the chosen action plans.

Conclusion

The recent fluctuations in the stock prices of PSUs and PSBs underscore the need for sustained efforts to address investor concerns and market dynamics. The collaborative meeting orchestrated by the Department of Public Enterprises signifies a proactive step towards bridging the valuation gap and ensuring that the true potential of these entities is recognized in the market. As these efforts gain momentum, it is hoped that the intrinsic value of PSUs and PSBs will be adequately reflected in their stock prices, fostering greater investor confidence and long-term growth opportunities. By implementing these action plans, the government and PSUs can work together to bridge the valuation gap, enhance investor confidence, and unlock the full potential of these vital enterprises.

India Government Pre Budget Expectations

The Indian Economy: Navigating Headwinds – Pre Budget Expectations

India's Economic Growth has come down. Rupee is depreciating. Consumer expenditure is down. Finance Minister is going to present the Union Budget on 1st Feb. there are expectations from various stakeholders.

India's economic landscape currently presents a mixed picture. While the country has demonstrated resilience in the face of global challenges, headwinds such as slowing growth, a depreciating rupee, and declining consumer expenditure are casting a shadow over the horizon. As the Union Budget 2025 approaches, stakeholders across sectors are eagerly awaiting policy interventions that can revitalise growth and address these concerns.  

Challenges Facing the Economy:

• Slowing Growth: Economic growth has decelerated, raising concerns about job creation and income generation. Factors contributing to this slowdown include global economic uncertainty, rising interest rates, and subdued private investment.  

India's GDP growth rate has been slowing down. According to recent reports, the country's growth for Q3 2024 was 5.4%, down from its previous robust performance. Several factors contribute to this decline, including global geopolitical tensions, inflation, and cautious private sector investment.

• Rupee Depreciation: The Indian Rupee has been facing significant depreciation against the US Dollar, impacting imports, increasing inflationary pressures, and eroding consumer confidence.

The Indian rupee has been depreciating against major currencies, posing significant challenges. Contributing factors include global economic uncertainties, trade imbalances, and capital outflows driven by geopolitical tensions and rising US interest rates. The depreciation has led to increased import costs, higher inflation, and reduced investor confidence. Continued Measures to stabilise the rupee, such as foreign exchange interventions and interest rate adjustments by the Reserve Bank of India (RBI), are critical to manage these challenges.

• Declining Consumer Expenditure: Weakening consumer demand, driven by factors like inflation and rising unemployment, is impacting economic activity across sectors.  

Consumer spending, a vital driver of economic growth, has seen a decline. Various factors, such as rising inflation, stagnant income growth, and economic uncertainties, have curtailed spending. This trend impacts sectors like retail, manufacturing, and services, further slowing economic momentum. Reviving consumer sentiment and enhancing disposable income are essential to stimulate demand and boost economic activities.

• Global Headwinds: The global economic slowdown, geopolitical tensions, and the ongoing impact of the pandemic continue to pose significant challenges to the Indian economy.

Budget Expectations:

The upcoming Union Budget is expected to play a crucial role in addressing these challenges and steering the economy back on track. Key expectations include:

Boosting Growth:

Increased Capital Expenditure: A significant increase in government spending on infrastructure projects is crucial to stimulate economic activity and create jobs.  Corporates are making good profits and they are also raising funds at a record pace from Capital markets. They should be encouraged to use these funds towards

Promoting Manufacturing: Policies to encourage domestic manufacturing, attract foreign investment, and enhance the competitiveness of Indian industries are critical.

Addressing Inflation:

Supply-Side Measures: Focus on measures to improve agricultural productivity, enhance supply chain efficiency, and control food inflation.  

Monetary Policy Coordination: Close coordination between fiscal and monetary policy to ensure price stability.

Supporting Consumer Demand:

Tax Relief: Measures to provide tax relief to individuals and businesses, such as increasing the tax exemption limit and rationalizing tax slabs.  

Social Sector Investments: Increased spending on social sectors like education, healthcare, and social security to improve the well-being of citizens and boost consumption.  

Fiscal Responsibility:

Maintaining fiscal discipline while supporting economic growth is crucial. This requires a careful balance between expenditure and revenue generation.

Income Tax Reforms

There are high expectations for relief in personal income taxes. Potential measures include increasing the basic exemption limit, raising the 80C deduction limit, and introducing new deductions to alleviate the tax burden on the middle class. These reforms can enhance disposable income, boosting consumer spending and overall demand.

GST Rate Rationalisation

Simplifying the Goods and Services Tax (GST) structure is another significant expectation. Stakeholders anticipate rationalising rates to reduce compliance burdens and create a more business-friendly environment. Such measures can promote ease of doing business, attract investments, and stimulate economic activities.

Infrastructure Development

Increased capital expenditure on infrastructure projects is crucial for economic growth. Investments in sectors such as transportation, housing, and energy can boost productivity and create employment opportunities. Additionally, expanding EV infrastructure and renewable energy projects can support sustainable development initiatives.

Support for MSMEs

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Indian economy. Stakeholders expect targeted support, including tax benefits, incentives for digital transformation, and easier access to credit. Strengthening MSMEs can enhance job creation, innovation, and economic resilience.

Healthcare and Education Investment

Allocating substantial funds to healthcare and education is vital. Enhancing healthcare infrastructure, public health programs, and medical research can improve the nation's health outcomes. Similarly, investing in education and skill development programs can bridge the employability gap and foster innovation.

Government's Ability to Meet Expectations:

The government’s ability to meet these expectations will depend on several factors, including fiscal prudence, effective policymaking, and stakeholder collaboration. Maintaining a balance between fiscal discipline and growth-oriented policies is essential.

The government faces several challenges in meeting these expectations. These include:

Fiscal Constraints: Balancing the need for increased spending with the need to maintain fiscal discipline. Managing the fiscal deficit while increasing expenditure on key sectors is challenging. The government needs to ensure efficient resource allocation and prioritise investments that yield high-economic returns. Measures such as rationalising subsidies, reducing wasteful expenditure, and enhancing revenue generation through better tax compliance can support fiscal stability.

Global Uncertainty: The evolving global economic landscape and geopolitical risks pose significant challenges to economic growth and policy effectiveness.  

Implementation Challenges: Ensuring effective implementation of policies and reforms on the ground remains a critical challenge.

Potential Government Strategies

To address the economic challenges and meet the budget expectations, the government can adopt the following strategies:

Monetary and Fiscal Policies

The government can collaborate with the RBI to implement monetary policies that stabilise the rupee and control inflation. Additionally, fiscal policies such as tax reliefs, targeted subsidies, and increased infrastructure spending can stimulate economic growth.

Public-Private Partnerships (PPPs).

Promoting PPP models for infrastructure development and service delivery can leverage private sector expertise and resources. This strategy can accelerate project implementation and enhance efficiency.

Technological Advancements

India has one of the best Eco Systems for Technology Development and Deployment. Government has taken lot of initiatives to speed up the process. Emphasising technological innovation and digital transformation can drive productivity and competitiveness. Supporting startups, investing in research and development, and fostering collaboration in emerging technologies can position India as a global innovation hub.

Agricultural Reforms

Modernising agriculture, promoting organic farming, and supporting farmers with technology and credit access can boost agricultural productivity and rural incomes. This strategy can also enhance food security and reduce import dependence.

Environmental Sustainability

There is a good support by Government for Sustainability Initiatives. Incentives are being given for Solar Mission and Electrical Vehicle Development. Focusing on renewable energy projects, green technology transfers, and climate change mitigation can support sustainable development. Collaborative efforts with other nations on clean energy initiatives can also strengthen India’s global standing in environmental leadership.

Policy Reforms

Implementing comprehensive policy reforms is critical. Simplifying tax laws, improving ease of doing business, and fostering a transparent regulatory environment can attract investments and enhance economic growth. Additionally, adopting progressive labour laws and environmental regulations is vital for sustainable development.

Conclusion:

The upcoming Union Budget presents a critical opportunity for the government to address the challenges facing the Indian economy. By focusing on growth-enhancing measures, addressing inflationary pressures, and supporting consumer demand, fiscal management, policy reforms, and targeted investments, the government can navigate the current headwinds and steer the econo+my towards a path of sustainable and inclusive growth. The government can address these issues through strategic policymaking and stakeholder collaboration. However, successful implementation of these policies will require strong political will, effective coordination between different government agencies, and a focus on long-term structural reforms.