Economic Vision and Political Themes Shape Upcoming Union Budget

The new government’s economic strategy and political themes are expected to be key highlights in the upcoming Union budget. Analysts predict muted equity returns in H2, while the government aims to reduce fiscal deficit. Attention will also focus on coalition-driven regional demands, potential tax changes, and manufacturing incentives.

The new government's economic strategy and the handling of political dynamics will be critical aspects to watch in the forthcoming Union budget, according to a Japanese brokerage report issued on Thursday.

The brokerage predicted subdued equity returns in the second half of the year and reaffirmed its year-end target of 24,860 points on the Nifty index, a modest 3 per cent increase from current levels.

Nomura's India Economist Aurodeep Nandi emphasized the importance of the government’s fiscal policies beyond FY26, when the fiscal deficit is slated to be reduced to 4.6 per cent, and indicated that political themes, particularly demands from coalition partners, could lead to increased borrowing and higher infrastructure spending.

Nandi also noted the government's progress in reducing the fiscal deficit to 5.6 per cent in FY24, outperforming the target of 5.8 per cent, bolstered by a record Rs 2.1 lakh crore dividend from the RBI. Additional budget moves could include minor deficit reductions and measures to stimulate economic consumption.