New Delhi, Feb 3
Morgan Stanley’s report on the Union Budget suggests that the government’s budget is realistic and sets the stage for economic growth. The budget aims to increase consumption through tax cuts, raise capital spending by giving more funds to states, and keep fiscal policies stable. This is expected to support economic growth and maintain overall financial stability.
The report highlighted that both fiscal and monetary policies are aligned to encourage growth, which fits with their forecast of a recovery in the economy. The budget assumes a 10.1% growth in nominal GDP for FY2026 and a 10.8% growth in gross tax revenue.
However, the report pointed out the need to keep an eye on income tax collection growth, which the government expects to rise by 14.4%, despite the income tax cuts and the execution of capital spending plans.
The budget has managed to balance supporting growth while reducing the fiscal deficit, aiming for a lower deficit of 4.4% of GDP in FY2026.
Income tax reductions are designed to boost consumption, particularly for middle-income taxpayers, while also increasing capital spending by giving more grants to states.
The report also mentioned that the direct tax changes are expected to lead to a revenue loss of Rs 1 lakh crore (about 0.3% of GDP), which will help support consumption. On the spending side, the focus is on capital expenditure (capex), which is expected to grow by 17.4% in FY2026 compared to 5.3% in FY2025.
Overall, the report believes the budget will help economic recovery by promoting consumption and boosting capital spending. At the same time, maintaining fiscal consolidation will ensure financial stability.
These measures are likely to be positive for equities and could encourage foreign investments and private sector growth due to changes in the tax regime and other regulatory updates.
