đź“°India Unveils 2025 Union Budget

Three big stories in Indian markets you can't miss.

February 04, 2025

Good morning, 

Welcome to the best way to stay up-to-date on India’s financial markets. Here’s what’s in today’s newsletter:

  • Breaking down the 2025 Union Budget,

  • India reduced some tariffs to avoid a trade war with the United States,

  • and, India looks to boost infrastructure spending through private sector debt markets.

  • Finally, we’ll close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

Expert Panel & Networking Event in New York City

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Our keynote speaker is Dr. Viral Acharya, who served as the deputy governor of the Reserve Bank of India, during which he oversaw India’s monetary policy, financial markets, and the central bank’s research. Buy tickets here.

India’s 2025 Union Budget

On Saturday, India’s Finance Minister Sitharaman announced the Union Budget 2025, a highly anticipated event for markets, as the government will release its spending priorities and tax policies.

Main takeaways:

  • Middle-Class Tax Cuts: The new budget will not tax anyone earning less than $14,000 (â‚ą1.2 million) in annual income; the previous minimum income to be taxed was $8,000 (â‚ą700,000). This raises the number of zero-income-tax filers to 60 million wage earners, which means 74 percent of all wage earners will not pay income tax (India has 82 million wage earners, as per Bloomberg and Statista). This will increase taxpayers’ savings by $12 billion (Rs.1 trillion), an enormous bid to boost consumer spending and promote economic growth. The government expects the tax cuts will eventually boost tax revenue due to wage growth.

    • Even before these tax cuts, only about 7 percent of Indians filed tax results, and 2.5 percent of Indians paid any income tax.

    • The new $12 billion fiscal stimulus is only 0.5 percent of private stimulus, likely falling far short of what is needed to jumpstart the slowing economy.

  • Other tax implications: Any impairment from mergers with different businesses can now be written off for 8 years plus long-term capital gains on business trusts have been reduced to 12.5 percent. The government is moderating that by increasing FDI long-term capital gains from 10 to 12.5 percent. 

  • Fiscal Deficit: Modi aims to lower the deficit to 4.4 percent of GDP, slightly below the expected 4.5 percent. This is mainly due to higher-than-expected RBI collections and reduced government spending. However, this approach is unsustainable since government spending drives growth, and RBI collections are a one-time boost.

  • Job Creation: Unlike last year, no new job creation initiatives were announced. Instead, the government is still rolling out last year’s $24 billion (Rs. 2.1 trillion) job programs. The closest thing to job creation has been a $1.2 billion (Rs.100 billion) startup fund to invest across all types of medium to small enterprises. 

  • Industry Impact: Consumer-driven industries benefit from tax savings, while sectors relying on government spending, like healthcare and infrastructure, have seen share price declines due to reduced capex support. Some other changes to drive investment have been changing FDI limits. Insurance companies can now be 100 percent FDI-owned compared to 74 percent before the budget. 

What’s still missing:

  • Housing: The relatively balanced budget has improved the RBI’s ability to begin cutting rates. Sitharaman could introduce new fiscal incentives for affordable and mid-market housing to revive a sector that has seen a 36% decline in new starts over the past two years. This would help absorb surplus labor into construction jobs while providing banks with a fresh avenue for lending.

  • Easing Business Regulations (Maybe): Sitharaman has stated her intention to roll back regulations significantly, beginning next week with a revised edition of India’s 60-year-old tax code. However, a challenge for this administration is its longevity—Modi has been in power for 11 years and is largely in legacy-building mode. Reflecting this, Sitharaman announced numerous projects for Bihar, which faces upcoming local elections.

Question of the Day

Reader Vamsi P. asks, “For Market Update, why weekly instead of daily?” Great question! Our newsletter focuses on broader economic stories—structural changes, challenges, and opportunities in India—rather than daily fluctuations in individual stocks or events. By analyzing markets on a weekly basis, we provide a clearer, more meaningful perspective on trends without getting lost in the noise of daily volatility, which can be driven by countless short-term factors, especially in Indian markets.

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India Doesn’t Want to be the “Tariff King”

India’s latest move to slash import duties across multiple sectors sends a strong message to businesses: they can no longer rely on government protectionism. Finance Secretary Tuhin Kanta Pandey emphasized that India is “not a tariff king,” echoing comments from U.S. President Donald Trump, just as the US is embarking on multiple trade wars in Canada, Mexico, and China.

The average tariff is now 10.66 percent, down from 11.65 percent earlier. The tariff cuts span industries like electronics, textiles, and solar energy, aiming to boost local manufacturing and attract companies seeking alternatives to China. Notably, India also reduced duties on high-end motorcycles—an issue long raised by Trump.

Pandey’s fiscal views: On fiscal matters, Pandey reaffirmed the government’s commitment to its deficit and borrowing targets. The new tax exemptions, which will reduce revenues by $11.6 billion (₹1 trillion), are expected to drive both consumption and investment. Regarding Trump’s warning of 100 percent tariffs on BRICS nations attempting to replace the US dollar, Pandey clarified that India has “no intention to replace the dollar” as a reserve currency, signaling stability in its global economic stance.

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India Cut Public Infra Spending But Aims to Raise Private

India has unveiled plans to establish a credit enhancement facility to strengthen corporate bonds used to finance key infrastructure projects, including roads, ports, and bridges. The initiative, spearheaded by the state-owned National Bank for Financing Infrastructure and Development (NaBFID), aims to lower borrowing costs for infrastructure firms and attract new investors who were previously unable to purchase lower-rated debt.

Shifting from Public to Private Investment: Sitharaman emphasized the importance of this measure in advancing Modi’s infrastructure modernization push. By providing partial credit enhancement, NaBFID will help reduce risk for investors, making infrastructure bonds a more appealing option. Market experts believe this initiative could significantly boost private investment in infrastructure. Credit enhancement mechanisms, which transfer risk to a guarantor, are widely used to improve credit ratings and facilitate long-term financing.

Notably, the government has kept infrastructure spending unchanged at $138 billion (â‚ą11.5 trillion). While this may appear positive, traders and economists had hoped for a higher allocation to drive long-term growth. Effectively, the government has shifted more of the funding responsibility onto private investors.

Gupshup.

Macro

Equities

Alts

Policy

See you Wednesday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.