Morgan Stanley report lauds fine balance between boosting demand and stability
The emphasis of the Union Budget 2025-26 on enhanced credit support for MSMEs and measures to improve ease of doing business reflects a concerted effort to encourage entrepreneurship and industrial revival
India’s economic landscape is witnessing a strategic change, with fiscal and monetary policies increasingly focused on supporting economic growth. After years of balancing between fiscal prudence and development needs, this shift underscores the Government’s intention to bolster domestic demand, spur investments, and navigate global economic uncertainties.
On the fiscal front, the Union Budget 2025 has set the stage for growth-driven initiatives. With a notable increase in capital expenditure allocation — rising to 4.5 per cent of GDP — the Government aims to stimulate infrastructure development and job creation. This move is expected to have a multiplier effect, boosting ancillary sectors such as construction, manufacturing, and services. The emphasis on enhanced credit support for MSMEs and measures to improve ease of doing business reflects a concerted effort to encourage entrepreneurship and industrial revival.
A recent Morgan Stanley report corroborates this trend. The report states “In our view, both fiscal and monetary policy are pivoting to support growth, which is in line with our view of a cyclical recovery in growth.” The Government’s approach aims to strike a balance between stimulating demand and maintaining macroeconomic stability.
Another critical highlight is the rationalisation of income tax structures to increase disposable income for middle-class households. By reducing tax burden and simplifying compliance, the Government hopes to stimulate consumer spending, a crucial driver of India’s economy. Moreover, targeted social welfare measures — including higher allocations for healthcare, education, and rural development — seek to foster inclusive growth and bridge socioeconomic disparities.
Monetary policy has also pivoted towards growth-oriented strategies. The Reserve Bank of India (RBI), while maintaining vigilance on inflation, has adopted an accommodative stance, with key policy rates adjusted to encourage borrowing and investment. This policy recalibration aims to address liquidity concerns in the financial system and support sectors hit hardest by global disruptions, including manufacturing and real estate.
Despite these positive strides, challenges remain. Fiscal slippage risks persist due to global uncertainties, rising crude oil prices, and geopolitical tensions. The Government’s ability to sustain higher public investments without exacerbating the fiscal deficit will be closely watched. Additionally, inflationary pressures, although moderating, need continuous monitoring to ensure that they do not derail the consumption recovery.
There is an imperative need for the private sector to rise to the occasion and complement public investments. For sustained growth, the Government’s efforts must be matched by private sector participation in job creation, technological innovation, and global market penetration.
India’s trade dynamics in a fragmented global order present both opportunities and challenges. The emphasis on Atmanirbhar Bharat (self-reliance) must not lead to protectionism but instead foster competitive domestic industries capable of integrating into global value chains.
Looking ahead, the success of these policies hinges on efficient implementation and a delicate balancing act between supporting growth and maintaining macroeconomic stability. Transparent governance, robust financial sector reforms, and strategic global partnerships will play a pivotal role in achieving these objectives.
Overall, India’s shift towards growth-oriented fiscal and monetary policies marks a significant and timely recalibration. By nurturing a favorable environment for investment, innovation, and inclusive development, the country is better positioned to unlock its vast economic potential. However, vigilance, adaptability, and collaboration across public and private sectors remain imperative to sustain this momentum and navigate future challenges effectively.
