Long-term reforms rather than short-term measures expected from the first full budget of Modi's third term: Motilal Oswal

New Delhi [India], January 31 (ANI): As the Modi government is set to present its first full budget of its third term on February 1, which is expected to emphasise fiscal consolidation and growth.
According to a report by Motilal Oswal's, the first full budget of Modi's first term in 2015 prioritized fiscal consolidation, GST implementation, and infrastructure expansion--critical foundations for sustained growth.
Later, in the first full budget of his second term in 2019 the focus shifted towards bolstering domestic manufacturing, advancing the Aatma-Nirbhar Bharat initiative, cutting corporate taxes, and promoting green energy, fuelling a surge in market capitalization, profitability of domestic cyclicals, and a resurgence in PSU banks through recapitalization.
The upcoming budget now stands at a crucial juncture, poised to build upon these reforms while addressing new economic challenges and growth imperatives.
While the influence of the budget has diminished over the years due to policy interventions outside the budget framework, it remains an important platform for setting economic direction.
As the first full-year budget of the NDA government's new term, this budget is expected to go beyond an annual financial exercise.
Historical trends suggest that the NDA government has used its first full-year budgets to introduce structural and strategic policy measures rather than merely addressing short-term fiscal concerns. The upcoming budget could lay out a blueprint for economic policies that will shape the next five years.
Market expectations for the budget are relatively moderate. Investors are particularly concerned about government capital expenditure, which saw a 12 per cent year-on-year decline between April and November 2024.
There is limited visibility of a strong pickup in spending in the near term. However, an allocation above Rs11 lakh crore for capital expenditure, supported by a clear government strategy, could positively surprise the market.
At the same time, there is apprehension that the Finance Minister may introduce more populist measures, given the series of welfare promises made during recent state elections.
To address the weakening consumption trends, the government is expected to focus on measures that improve household income growth. Income tax slab adjustments could be introduced to boost disposable income, particularly in urban areas.
Additionally, indirect taxes on non-essential goods may be raised to fund relief measures for middle-class consumers. Unlike previous years, the budget may not impose stricter capital gains tax regulations on equity markets.
On the fiscal front, the government has maintained a disciplined approach in recent years. However, given the current economic slowdown, the Finance Minister may opt for a modest fiscal expansion.
The fiscal deficit for FY25 is likely to be slightly lower at 4.8 per cent compared to the budgeted 4.9 per cent, providing some leeway for increased spending in FY26.
Looking at the broader economic impact of past budgets, the NDA government has focused on long-term reforms rather than short-term stimulus measures.
Infrastructure development has been a major beneficiary of past budgets, with capital expenditure on roads and railways increasing significantly.
The National Infrastructure Pipeline, introduced in 2019-20, further strengthened investment in key projects. This focus on infrastructure has benefited sectors like cement, capital goods, and construction. Meanwhile, domestic cyclicals have seen strong growth, driven by reforms such as the Production-Linked Incentive (PLI) scheme and housing initiatives.
The banking sector has also undergone significant transformation. The government's recapitalization efforts have helped public sector banks recover from past losses, bringing down their gross non-performing assets (GNPAs) from 14.6 per cent in FY18 to 3.1 per cent by September 2024. As a result, public sector banks have posted strong profits in recent years, reversing the losses recorded between FY16 and FY20.
Overall, the upcoming budget is expected to strike a balance between fiscal prudence, economic growth, and populist measures.
Key areas of focus will likely include capital expenditure, household income growth, tax reforms, and infrastructure investments.
Investors will closely watch the budget announcements, particularly in sectors such as banking, capital goods, technology, and consumer goods, which are likely to see policy-driven momentum in the coming years. (ANI)