Union Budget 2025-26: Fiscal Policy to Drive Inclusive Growth, Economic Stability, and Global Competitiveness

New Delhi: The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, has outlined a fiscal policy aimed at sustaining India’s economic growth while ensuring financial stability and resilience. With a focus on broad-based and inclusive economic expansion, the government aims to create a just, fair, and equitable international economic order.

Macroeconomic Outlook and Fiscal Targets

The Medium Term Fiscal Policy Cum Fiscal Policy Strategy Statement projects India’s real GDP growth at 6.4% and nominal GDP growth at 9.7% for FY 2024-25, while the budget for FY 2025-26 estimates nominal GDP growth at 10.1%. Inflation has moderated, with average retail inflation at 4.9% in FY 2024-25 (April-December), compared to 5.4% in 2023-24. The Reserve Bank of India (RBI) projects inflation to further decline to 4.6% in Q1 and 4.0% in Q2 of FY 2025-26.

The fiscal deficit target has been revised to 4.8% of GDP for FY 2024-25, with a commitment to bring it below 4.5% in FY 2025-26. The central government debt-to-GDP ratio is expected to decline to 56.1% in FY 2025-26 from 57.1% in FY 2024-25, with a long-term goal of reaching 50±1% by 2031.

Strategic Budgetary Allocations

The budget earmarks a record ₹11.21 lakh crore (3.1% of GDP) for capital expenditure, which is 3.3 times the outlay of FY 2019-20. This includes ₹1.50 lakh crore in interest-free long-term loans to states for infrastructure development.

To finance the fiscal deficit for FY 2025-26, net market borrowings from dated securities are estimated at ₹11.54 lakh crore, with gross market borrowings pegged at ₹14.82 lakh crore.

External Sector Performance and Investments

India’s merchandise exports grew 1.6% year-on-year in April-December 2024, while services exports expanded by 11.6% in the same period. The current account deficit (CAD) moderated to 1.2% of GDP in Q2 FY 2024-25, down from 1.3% in Q2 FY 2023-24.

Foreign Direct Investment (FDI) has also revived, with gross inflows rising to $48.6 billion in April-October 2024-25, compared to $42.1 billion in the same period of FY 2023-24. India’s foreign exchange reserves reached $640.3 billion by December 2024, covering 90% of external debt.

Strategic Priorities for FY 2025-26

The budget lays out key priorities to sustain long-term growth, including:

• Enhancing employment generation by boosting labor-intensive sectors.
• Scaling up public capital spending to drive infrastructure and industrial development.
• Expanding social welfare schemes through a ‘saturation approach’ to ensure universal coverage.
• Strengthening research and development (R&D) in critical technologies.
• Improving fiscal responsibility and transparency to maintain macroeconomic stability.

By balancing growth momentum with fiscal discipline, the Union Budget 2025-26 sets a robust roadmap for India’s economic transformation, positioning the country as a global leader in the years ahead.