BUDGETING IN UNCERTAIN TIMES

AFTER last year's parliamentary elections, the Budget for FY2026 was presented in July 2024, which provided a glimpse of the government's priorities. In a few weeks, the government of India (GoI) will table the Union Budget for FY2026, which is expected to expand on these plans, and provide the new medium-term fiscal path as well.

- ADITI NAYAR

The macro context for the upcoming Budget is somewhat uneven. The year-on-year (YoY) growth in India's GDP moderated to a lower-than-expected 5.4 per cent in Q2 FY2025 from 6.7 per cent in Q1 FY2025, amid the anemic outturn of manufacturing growth, contraction in mining and slowdown in electricity growth owing to the transient impact of heavy rains, and lower-than-projected growth in the services GVA.

Following the discouraging data for Q2, high frequency indicators are painting a more upbeat picture for Q3 FY2025. We foresee a likely improvement in rural demand amid robust kharif output and healthy outlook for rabi crops, as well as investment activity aided by some pick-up in the GoI's capital spending. At the same time, urban demand is likely to remain quite uneven, with continuing robust demand at the top of the pyramid, and more circumspect sentiment in the middle and the bottom, singed in part by volatile inflation.