Budget FY2025: Pioneering India’s path to holistic development

Butterfly effect. Domino effect. Gestalt effect.

These are all effects that exponentially amplify the cause.

The first Union Budget under Modi 3.0 is a fiscal tour de force that lays an impenetrable foundation for India’s development roadmap towards a Viksit future.

Flashbacks often provide the most inspiring stories. Budget FY2025 is a compelling moment for such a story.

The plot builds

Not so long ago, the return of a coalition government after the elections raised the specter of a populist mindset. A blockbuster dividend of ₹2.11 lakh crore by the RBI to the incoming government only increased the likelihood.

An improvement in the fiscal deficit to 5.63 percent of GDP ahead of the FY25 budget underscored the government’s impeccable ability to run a tight ship and deliver growth amid caution, in an increasingly volatile world.

Meanwhile, whispers of jobless economic growth would only complicate matters for the government as it chooses its preferred path for sustained growth.

Let’s take a look at the Economic Survey FY2024: the 476-page document stressed the importance of the trinity of government, private sector and citizens to work on all fronts to escape economic inertia.

Highlights of D-Day

In her record seventh budget, Finance Minister Sitharaman laid out the priorities in advance. As sectoral announcements followed, the macroeconomic context in which these reforms are being implemented changed.

GDP growth for fiscal year 2024-25 is projected at 6.5 percent. Inflation is expected to remain within the targeted range of 2-6 percent and the fiscal deficit is targeted at 4.5 percent of GDP, with plans to gradually narrow it over the coming years.

Real estate is the catalyst

The reforms come at a pivotal moment for the real estate sector. Significant financial commitments under the ₹11.1 lakh crore capex outlay will recalibrate the sector and transform it into a catalyst for holistic national development.

Under the PMAY-U initiative, the allocation of ₹10 lakh crore to meet the housing needs of 1 crore families is a transformative step. Moreover, the allocation for completing 3 crore houses in rural and urban areas underscores the government’s commitment to improving the ‘ease of living’ and ensuring dignity for millions of Indians.

The substantial capital expenditure of ₹11.11 lakh crore (3.4 per cent of GDP) on infrastructure will boost growth and improve rural connectivity. The proposed relaxation of FDI rules further positions India as an attractive destination for global investments.

Particularly noteworthy is the government’s collaboration with states to reduce stamp duty, which benefits women in particular. This measure not only reduces the cost of purchasing, but also empowers women and underscores their economic role as the backbone of our society.

The credit guarantee schemes for manufacturing MSMEs unveiled today, with a new rating model and a substantial guarantee cover of ₹100 crore, underscore their crucial role as engines of national growth. This initiative not only promises to generate employment but also aligns with Prime Minister Narendra Modi’s ‘Make in India’ vision, cementing India’s status as a preferred manufacturing hub on the global stage.

The reduction of the Long Term Capital Gains Tax (LTCG) on real estate sales from 20 percent to 12.5 percent is a major reform aimed at making real estate transactions more attractive. This measure is expected to boost investment in the real estate sector by reducing the tax burden for investors. In addition, the abolition of indexation for calculating long-term capital gains simplifies the tax calculation process, bringing clarity and convenience to taxpayers.

A substantial allocation of ₹2.2 lakh crore for urban housing over the next five years marks a surge in financing that will accelerate urban housing projects, improve urban infrastructure and enhance living conditions in cities.

By improving urban infrastructure, these projects contribute to creating liveable, sustainable cities.

Addressing the housing needs of industrial workers is another innovative aspect of the Budget. The proposal for rental housing with dormitory-style accommodations in a Public-Private Partnership (PPP) mode is expected to boost industrial growth and stability in labour-intensive sectors.

The Budget envisages a total expenditure of ₹45.03 lakh crore, with significant allocations for infrastructure, education and healthcare.

By ensuring that industrial workers have access to decent living conditions near their workplace, the government promotes a stable and productive industrial workforce, which is essential for sustainable economic growth.

By integrating residential, retail and recreational spaces with efficient public transport systems, TOD initiatives aim to reduce traffic congestion, lower carbon emissions and improve the quality of urban life.

These projects exemplify sustainable urban development, align with global best practices and support the broader goal of creating smart, resilient cities.

The Budget proposal to develop investment-ready ‘plug and play’ industrial parks in or near 100 cities is expected to attract significant industrial investment. This initiative will support the growth of support services and residential developments in these regions, contributing to balanced urban-rural growth.

The provision of ₹1.5 lakh crore in long-term interest-free loans to states for infrastructure development in the Budget will improve connectivity and amenities across regions. This financial support will have a positive impact on real estate markets by making regions more attractive for residential and commercial investments.

Digitalization initiatives, including the creation of a unified online platform for property registration and related services, will revolutionize the real estate sector. These measures are aimed at streamlining real estate transactions, improving transparency and reducing bureaucratic delays.

While these initiatives are commendable, enhancing direct financial benefits to the common people could further bolster positive sentiment and increase consumer confidence, especially given India’s current economic development. We believe this would significantly enhance the feel-good factor among the common people and contribute to broader economic prosperity.

Finally, we commend the Honourable Minister of Finance for presenting a forward-looking budget that addresses critical national priorities. The focus on accelerating infrastructure development and urban expansion is perfectly aligned with the changing needs of our growing population.

By Boman Irani, MD & Chairman, Rustomjee Group