How Will Financial Planning Be Impacted by Budget 2025?

Posted on Friday, January 31st, 2025 | By IndusInd Bank

The budget outlines the government’s plans for revenue and expenditure. It sets the tone for fiscal priorities while balancing growth and fiscal discipline. It can cause a shift in financial planning for individuals and result in a change of financial strategies for corporations.

Stakeholders must be mindful. They need to pay close attention to the shift that’s taking place. Here are a few financial impacts you should be wary of:

1. Fiscal Deficit and Public Spending: Balancing on a Tightrope

One key element of this year’s budget is the fiscal deficit target. When government expenses exceed revenues, the government borrows. This could potentially crowd out private investment. This, in turn, has the potential to increase interest rates.

The budget could prioritise deficit reduction. This could include spending cuts and higher tax revenues. This could potentially stabilise borrowing costs for businesses and individuals.

Conversely, aggressive public spending on infrastructure or welfare schemes can be risky. This might spur economic activity, but it risks inflationary pressures. Financial planners must consider these macroeconomic signals. People should give special attention to debt management. Also look into fixed-income investments and liquidity buffers.

2. Tax Reforms: Could It Be Relief or Restructuring?

Tax policies have the direct effect on disposable income and savings. Budget 2025 may revise income tax slabs and introduce new deductions. It could also adjust GST rates. The objective is to incentivise investments in sectors like renewable energy or startups.

The increase in standard deductions or Section 80C limits could boost household savings. It would alter the allocation of funds that families have toward insurance, fixed deposit, equities, or real estate. This could also lead to higher capital gains taxes or surcharges for high-earning individuals. These could push investors towards tax-efficient instruments.

Businesses will scrutinise corporate tax rates and compliance norms. It could optimise cash flows and expansion plans.

3. Infrastructure Push and Private Investment

Capital budget outlines long-term investments for sectors like roads, ports, and digital infrastructure. If substantial funds are allocated to infrastructure projects in Budget 2025, we might see a surge in demand for industries allied to infrastructure like cement or steel.

By encouraging private investment, the government can stimulate MSMEs. They can also boost startups. Here, entrepreneurs may need to adjust their business strategies to align with government priorities. Measures to boost private investment could be production-linked incentives or easier credit access.

4. Social Sector Allocation: Planning for Inclusivity

Increased allocations to healthcare and education are essential. For social security schemes like Ayushman Bharat, more resources are imperative. PM-KISAN should not be neglected as well. All these steps will reinforce the budget’s focus on welfare.

An increased spending in social sectors might mean reallocating resources from other sectors. It could prompt investors to stay vigilant.

5. Inflation Management and Savings Culture

The budget’s role in stabilising prices through adjusted excise duties on fuel or import tariffs could impact inflation trends. Persistent inflation can be problematic. It can erode the purchasing power of households. It compels them to rely on inflation-beating assets. Such assets include equities or gold.

Government could introduce inflation-indexed bonds and revise small savings schemes. For example, PPF or NSC savers may need to recalibrate their asset mix.

Changes in interest rates can also shift preferences on post office schemes or fixed deposits. This could lead to a preference for market-linked instruments. At such a time, you should ensure that you have a decent amount of money saved up. A savings account that is flexible and is offered by a reliable bank should help you with this.

6. Fiscal Prudence and Long-Term Goals

A revenue surplus budget, though rare, would signal robust tax collections and disciplined spending. It can boost investor confidence and stabilise markets. It could also foster long-term financial planning.

Conversely, a higher fiscal deficit may have the opposite effect. It might lead to market volatility. It could create a need for a conservative approach to equity exposure. Financial planners should emphasise diversified portfolios.

Also Read: Union Budget 2024: Top Takeaways for Salaried Employees

The Road Ahead

Budget in 2025 is more than a statement. It is an indicator of India’s economic ambitions. There are challenges too. Adapting to tax changes, subsidy structures, and inflation trends will be a necessity.

There is a need for businesses to align with sectoral incentives. Above all, the budget might highlight the need for agility in financial planning. Every stakeholder should be ready to gauge shifting investment horizons, revise risk appetites, and leverage on new opportunities. On February 1, 2025 the finance minister will unveil the budget. Once that happens, the real job will begin. Policy will have to be translated into strategies. In a dynamic economy like India’s, the budget is more than a document. It is a compass that can guide you to make sound financial decisions. It offers guidance for kitchen-table budgeting and corporate boardrooms. Ensure that you are ready to use it to your advantage.

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.