Union Budget 2025: How Budget may determine India’s economic trajectory on the global stage

India Budget: As India prepares for the Union Budget 2025, the country stands at a crossroads, with the opportunity to assert its economic leadership on the global stage. Following a year of mixed economic outcomes - with GDP growth estimated at a robust 7%, yet foreign direct investment (FDI) inflows facing a notable decline in FY 2023 - the budget will be pivotal in navigating these complexities. While FDI inflows have shown signs of recovery, this highlights the continued need for bold, strategic measures to attract global capital and unlock sustainable growth. As the first full-fledged budget under NDA 3.0, the Government is poised to tackle these challenges, with a clear focus on driving inclusive growth, sustainability, and innovation.

Cornerstone of Union Budget

A cornerstone of the Union Budget 2025 will be fiscal prudence. With inflationary pressures and global economic uncertainties, balancing fiscal targets with growth-oriented initiatives will be crucial in sustaining investor confidence and creating a stable macroeconomic environment. The government’s continued adherence to fiscal consolidation will not only enhance its credibility with global financial institutions but will also fortify India’s economic resilience, ensuring that it remains an attractive destination for both domestic and international investors.

Also Read: 5 schemes Finance Minister Nirmala Sitharaman may top-up

The central theme for India Budget

Infrastructure development may be a central theme of the upcoming budget, with expectations of a significant increase in infrastructure spending. Focus areas are likely to include roads, railways, urban development, with a special emphasis on rural infrastructure. This would align with India’s ambitious target of becoming a $7 trillion economy by 2030. Enhanced infrastructure spending will not only stimulate immediate economic activity but will also foster long-term growth by reducing logistics costs, improving connectivity, and unlocking new economic corridors.

As India pushes forward with initiatives like the Bharatmala Pariyojana (road development) and Sagarmala Project (port infrastructure), the budget is expected to create an enabling environment for foreign companies seeking reliable logistics networks for manufacturing hubs or regional offices. The emphasis on rural infrastructure development will bridge the urban-rural divide, creating new opportunities in previously underserved regions, while promoting inclusive growth.

Also Read: India’s growing trade imbalance with China: Can Budget 2025 provide a solution?

Budget and the critical diver of economy

The manufacturing sector remains a critical driver of India’s economic expansion. With the government’s Production Linked Incentive (PLI) scheme already catalyzing growth in sectors such as electronics, pharmaceuticals, and renewable energy, the Union Budget 2025 may expand the scheme to include emerging sectors like green energy, semiconductors, and advanced textiles. Industry insiders predict that these measures will push India’s manufacturing exports beyond the $500 billion mark by 2026, creating millions of new jobs and reducing import dependence.

How Budget can help job creation

Additionally, efforts to simplify regulatory frameworks for small and medium enterprises (SMEs) may be key to enhancing their contribution to job creation and fostering foreign partnerships. A more streamlined and supportive environment for SMEs could also spur innovation and entrepreneurship, ensuring that India remains at the forefront of global manufacturing.

India’s digital economy, projected to reach $1 trillion by 2028, will remain a keystone of its growth story. The sector is expected to contribute 20% of GDP by 2026, and the Union Budget may announce targeted investments in emerging technologies such as artificial intelligence (AI), blockchain, and quantum computing. The government’s emphasis on digital infrastructure - such as expanding internet access in rural areas - will enhance financial inclusion and further integrate underserved communities into the economic fold. In the wake of transformative initiatives like the Unified Payments Interface (UPI), PM Jan Dhan Yojana (PMJDY), and DigiLocker, the budget is expected to push India closer to becoming a global leader in digital innovation. For technology firms, this may signal a favorable environment for scaling operations and investing in R&D, creating a fertile ground for cutting-edge digital ecosystems.

Also Read: Can Budget 2025 address India's unemployment woes?

Tax reforms in Budget 2025

Tax reforms will play a central role in the Union Budget 2025, with a strong emphasis on enhancing technology-driven compliance, streamlining processes, and reducing pending tax disputes. One key initiative appears be the integration of various tax portals into a unified platform. This would facilitate seamless communication between taxpayers and tax authorities, reducing compliance costs and fostering transparency.

Also Read: Govt to counter slowdown, may unveil measures including tax relief to help economy climb

Additionally, the budget is expected to introduce measures to expedite the resolution of pending tax disputes, including the introduction of amnesty schemes. These schemes would allow taxpayers to settle their dues without facing heavy penalties, encouraging greater compliance and increasing revenue collection. Alongside these, there may be specific incentives for sectors that are aligned with the government’s sustainability and innovation goals, such as tax rebates for companies investing in green technologies or digital infrastructure.

The government may focus on encouraging the adoption of the new income tax regime and offering potential relief measures. Adjustments to income tax slabs could increase disposable incomes, driving consumption and economic growth. Additionally, simplifying corporate tax compliance will ease the regulatory burden on businesses, creating a more attractive environment for investment and entrepreneurship. These changes are expected to foster both domestic and foreign investments, further positioning India as a competitive global player.

Sustainability may take center stage in the Union Budget 2025. India has already made significant strides in renewable energy, surpassing 200 GW of installed capacity, and the budget is expected to align with the nation’s COP26 commitments to achieve 500 GW of renewable energy capacity by 2030. Investments in electric mobility, hydrogen energy, and green technologies are projected to surpass ?8 lakh crore, reflecting India’s dedication to climate action and the transition to a green economy. Tax incentives for sustainable practices may further catalyze private sector participation, while international green technology leaders may find fresh opportunities to collaborate with India on large-scale green projects. These initiatives are not only aligned with global environmental goals but also present new avenues for foreign investment in India’s burgeoning green economy.

Budget push for human capital development

Human capital development may also receive a significant push in the Union Budget 2025. Last year saw a 13% increase in the health budget, and an even more ambitious rise is expected this year, focusing on expanding telemedicine, enhancing public healthcare infrastructure, and upgrading hospitals. In education, the focus will likely be on vocational training and skills development, with an emphasis on aligning curricula with industry needs. By incorporating emerging technologies into educational frameworks, India can more effectively leverage its demographic dividend, ensuring that its young, dynamic workforce is prepared to meet the demands of the global economy. These investments in human capital will not only address challenges related to employability but also attract international firms seeking skilled, adaptable talent.

In response to shifting global trade dynamics, the Union Budget 2025 is expected to introduce measures aimed at simplifying compliance, rationalizing tariffs, and enhancing export competitiveness. The government’s push for new free trade agreements and the improvement of special economic zones (SEZs) will further integrate India into global value chains. Additionally, India’s $15 billion incentive package for semiconductor manufacturing signals a decisive move towards reducing import dependence and strengthening its self-reliance in critical sectors.

For multinational companies looking at India as a manufacturing hub, the budget’s focus on trade facilitation and industrial policy could significantly enhance India’s position in global supply chains.

The Union Budget 2025 is not just a financial document; it is a powerful statement of India’s intent and ambition. By addressing structural bottlenecks, prioritizing sustainability, and investing in both technological innovation and human capital, the budget holds the potential to redefine India’s economic trajectory. As the world watches, this budget could mark a transformative moment for the nation, propelling India toward its goal of becoming a global economic powerhouse, shaping the future of the world economy, and solidifying its place in the international arena.

(The authors Krishan Arora is a Partner and Devika Dixit is Director at Grant Thornton Bharat LLP)