Nomura Report: Potential Revisions in Income Tax Slabs for Union Budget 2025

Synopsis

Nomura forecasts that the upcoming Union Budget for 2025-2026 will focus on fiscal consolidation and growth measures, potentially altering personal income tax slabs to enhance consumer spending. Additionally, they predict changes in capital expenditure and other economic initiatives.

Key Takeaways

Nomura expects changes in personal income tax slabs.
India's fiscal deficit may be 4.8% of GDP for 2025.
Public capital expenditure projected to grow by 12.5% in FY 2026.
Potential increase in import duties on gold.
Net market borrowing may decrease to Rs 11.03 lakh crore.

New Delhi, Jan 23 (NationPress) The global financial services firm Nomura indicated on Thursday that the government's upcoming Union Budget for 2025-2026 will prioritize both fiscal consolidation and measures that promote growth. They anticipate that the administration might implement changes to the personal income tax slabs to stimulate consumer spending.

Nomura forecasts that India will exceed its fiscal deficit goal for the fiscal year 2025, with an estimated deficit of 4.8 percent of the GDP, which is a slight improvement from the previous prediction of 4.9 percent.

This adjustment is attributed to a decrease in capital expenditure (capex) spending. For fiscal year 2026, Nomura predicts that capex will maintain a level of 4.4 percent of GDP, consistent with India’s long-term objectives.

Additionally, they expect public capital spending to increase by 12.5 percent year-on-year in FY 2026. The budget may propose initiatives such as a reduced corporate tax rate for firms in manufacturing hubs across India, lower customs duties on intermediate goods, and increased funding for the agriculture sector.

Moreover, Nomura anticipates a rise in the import duty on gold, an expansion of the foreign direct investment (FDI) cap in the insurance industry, and measures to enhance capital inflows to support the rupee.

Regarding borrowing, Nomura estimates that India’s gross market borrowing will see a slight uptick in FY 2026, reaching Rs 14.4 lakh crore, compared to Rs 14 lakh crore in the current fiscal year. However, this figure could reduce if the government undertakes additional buybacks in the near future.

The firm predicts that net market borrowing will fall to Rs 11.03 lakh crore, a decline of Rs 60,000 crore from FY 2025.

Looking forward, Nomura believes that while much of the favorable fiscal news may already be reflected in the market, Indian government bonds continue to be a worthwhile investment.

They see the risks associated with the forthcoming budget announcement as asymmetric, indicating that the government's balanced strategy will keep India’s fiscal risk premium low. This will, in turn, provide the Reserve Bank of India (RBI) with more leeway to lower its policy rate during the February Monetary Policy Committee (MPC) meeting.