New Delhi [India], February 4 : India's fiscal and monetary policies are now focusing more on supporting economic growth, aligning with expectations of a cyclical recovery, according to a report by Morgan Stanley.
The report highlighted that the Union Budget has maintained the path of fiscal consolidation, though at a slightly faster pace than anticipated.
It noted that despite the accelerated fiscal consolidation, the Budget includes measures that encourage consumption and increase capital expenditure, which should help drive economic growth.
The report stated, "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.
The Budget has focused on both fiscal discipline and economic expansion, with a lower fiscal deficit target of 4.4 per cent of GDP for FY26 (compared to Morgan Stanley's estimate of 4.5 per cent of GDP).
A key measure in the Budget is the reduction in income taxes, particularly for low- and middle-income taxpayers, which is expected to support consumption.
The Finance Minister has estimated that direct tax changes could lead to a revenue loss of Rs 1,000 billion (0.3 per cent of GDP), helping to boost spending power.
On the expenditure side, the government has prioritized capital expenditure. Effective capital expenditure (which includes direct capex and grants for asset creation) is expected to grow by 17.4 per cent in FY26 Budget Estimates, compared to 5.3 per cent growth in the revised estimates for FY25.
A significant portion of this increase comes from grants to states, aimed at infrastructure and long-term economic development.
Morgan Stanley emphasized that this synchronized approach between fiscal and monetary policies reflects the government's commitment to strengthening economic recovery.
The targeted spending and fiscal prudence suggest a strategy designed to sustain growth while keeping macroeconomic stability intact.
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