New Delhi, Feb 3 : The Union Budget has set the stage for a robust economic revival, striking a positive balance between spurring consumption, enhancing capital expenditure, and adhering to a responsible fiscal consolidation path. According to a Morgan Stanley report released on Monday, these strategic measures are expected to drive a steady recovery in India’s growth while maintaining macroeconomic stability.
The report emphasized that both fiscal and monetary policies are now geared toward fostering growth, aligning perfectly with Morgan Stanley’s outlook for a cyclical recovery.
“The budget assumptions appear realistic, with nominal GDP growth forecasted at 10.1% for FY26 and gross tax revenue growth pegged at 10.8%. However, we will closely monitor the projected 14.4% growth in income tax collections, given the tax cuts and heightened capital expenditure plans,” the report stated.
By effectively balancing short-term consumption with long-term investment, the budget demonstrates the government’s commitment to inclusive growth. The fiscal deficit target has been set at 4.4% of GDP for FY26, reflecting responsible fiscal management even as direct tax cuts provide relief to middle-income taxpayers and spur consumption. To further support long-term growth, capital expenditure will see a significant boost, particularly through enhanced grants to states for infrastructure development, inputs from IANS.
“Direct tax changes, as mentioned by the Finance Minister, will result in a 1% revenue impact amounting to Rs 1 lakh crore (0.3% of GDP), which should fuel greater household spending,” Morgan Stanley noted.
On the expenditure front, the budget is heavily focused on capital creation. Effective capital expenditure, which includes both direct government investments and grants for infrastructure development, is expected to grow by 17.4% in FY26, up from 5.3% in the revised estimates for FY25.
Morgan Stanley projects that this strategic mix of measures—stimulating consumption and increasing capital investment—will result in a more widespread and sustained economic recovery. At the same time, the government’s commitment to fiscal consolidation should help maintain macroeconomic stability, keeping risks in check.
The report further highlights the positive implications for equity markets, noting that the combination of improved consumption, expanded capex, and fiscal discipline is likely to drive strong market sentiment. The projected primary deficit of just 0.8% underscores the government’s disciplined approach.
Investor sentiment could also benefit from several tax-related reforms announced in the budget. These include updates to permanent establishment rules, clarifications regarding GIFT City regulations, extended exemptions for sovereign funds, and streamlined tax deduction and collection mechanisms—all of which are expected to improve the foreign direct investment (FDI) landscape.
Additionally, the forthcoming tax code, set to be unveiled this week, could usher in a more business-friendly environment, the report noted. This, in turn, is likely to further encourage private investments and enhance India’s overall economic competitiveness.
Morgan Stanley revealed its sectoral outlook, expressing optimism in key areas such as Financials, Consumer Discretionary, Industrials, and Technology, while maintaining a cautious stance on others. “We see strong growth potential in sectors benefiting from increased consumption and infrastructure investments,” the report concluded.
With strategic measures in place, India appears well-positioned to achieve sustained growth and greater macroeconomic stability, setting a promising tone for the years ahead.
