The Union Budget 2025-26 has higher significance than an annual budget, as it will be the first full-year budget of the NDA’s new term and the Prime Minister Narendra Modi-led government has utilised the first full-year budget as a platform for signalling structural, strategic policy intent and laying down a blueprint of its journey ahead, rather than only attempting to balance tactical fiscal trade-offs, a report showed on Friday.

The NDA government, over the past decade, has pivoted from the low-hanging fruit of a ‘consumption push’ to embracing a supply-side reform strategy. It orchestrated landmark reforms, which included GST, digitisation, financial inclusion, affordable housing and sweeping social reform.

The government’s emphasis on infrastructure-led investments has set a strong foundation for economic resilience and growth, said Motilal Oswal Financial Services in its note. “Nominal GDP posted a 10 per cent CAGR (FY14–FY24), while inflation moderated, creating a stable macroeconomic environment.

“These reforms translated into tangible market outcomes, as the market cap of the listed universe surged at a 15 per cent CAGR to Rs 302 trillion by January 2025 from Rs 80 trillion in July 2014. “Aggregate PAT followed suit, expanding at a 12 per cent CAGR (FY14–FY24), to Rs 12.5 trillion from Rs 3.9 trillion,” the note read.

In the Union Budget 2025-26, any allocation above Rs 11 trillion for Capex, backed by convincing commentary, could positively surprise the market. “Also, after a series of promises for freebies across multiple state elections, market participants are concerned that Finance Minister Nirmala Sitharaman may tilt more towards easy handouts,” said the report.

Given the consumption trends and soft corporate commentary, the market expects some relief measures for consumption growth (especially urban). “We believe that the government will focus more on improving household income growth through slab adjustments. Further, indirect taxes on items deemed non-essential consumption may be raised to fund forbearance on items of middle-class consumption,” the report mentioned.

Unlike the past few years, the budget could go easy on LTCG/STCG from equity markets. FM Sitharaman may use some leeway on fiscal, given the macro backdrop. “It will not be too surprising if the FM considers a modest countercyclical fiscal overstretch. FY25 fiscal deficit is likely to be lower at 4.8 per cent vs. the budgeted 4.9 per cent. This slack may also help to provide some headroom for the FY26 Union Budget,” said the report.

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