Union Budget, RBI MPC: Will India Inc Get the Growth Boost it Desperately Needs?  

With Finance Minister Nirmala Sitharaman set to present the Union Budget 2025 in just a few days, India’s corporate sector is desperately awaiting the announcements. Every budget is important, but there are many reasons why this one could prove crucial for India’s corporate sector.  

The financial year 2025 has not been very rosy for Indian corporates. In the Q2 earnings season, Bloomberg data suggested that 22 Nifty companies missed their profit estimates. As per JM Financial, 44% of companies under its coverage missed profit estimates. The sluggish performance of corporates reflected in the overall economic growth as the country recorded just 5.4% growth in Q2.  

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Investors in India Inc’s growth story have also taken a step back. In the last six months, the benchmark index Sensex has declined by over 6%. Foreign investors have led the selling spree so far. In January, these investors sold equities worth over Rs 66,000 crore.   

As investors turn cautious owing to the dam growth environment, the attention has been towards two major policy events in February. Apart from the Union Budget 2025, the Monetary Policy Committee of the Reserve Bank of India is also set to meet. Gobal central banks' easing of high interest rates have increased expectations of RBI following suit this time.   

A growth-centric boost from policymakers would come as a relief to India Inc. Arsha Mogre, Economist-Institutional Equities at Prabhudas Lilladher, says that the corporate sector is expecting a dual boost. “India Inc. is looking forward to a combination of fiscal and monetary policies that can stimulate demand, reduce the cost of capital, and create a favourable environment for business growth,” he said.  

Eye on Consumption  

Consumption has been in the spotlight for the last few months owing to the slowdown in the economy and India Inc.’s earnings. The results in the last few earnings seasons of consumer-facing firms like Hindustan Unilever and Dabur have suggested that firms are facing challenges in tackling the consumption slowdown. 

In Q3, the revenue of HUL grew by 1.2% while profit before exceptional items remained flat. Dabur’s profit in Q2 declined by 17%.  

There are demands from corporate leaders to help in aiding consumption. Speaking on the sidelines of the Consumer Electronics and Appliances Manufacturers Association (CEAMA), Dixon Technologies Chairman Sunil Vachani said that a lot needs to be done to boost consumption in the country. 

“Industry needs to cut costs for consumers for which it needs help from the government. We need a reduction in GST and relaxation of tariffs on components and commodities to cut costs,” he said.    

Industry bodies have also asked the government to do more to boost consumption in the country.  

“Domestic consumption has been critical to India’s growth story, but inflationary pressures have somewhat eroded the purchasing power of consumers. Government interventions could focus on enhancing disposable incomes and stimulating spending to sustain economic momentum,” said Mr Chandrajit Banerjee, Director General, CII.  

It remains to be seen what the finance minister chooses to do in her 8th consecutive budget. A Reuters report suggested that the government might cut income tax rates for individuals earning up to Rs 15 lakh per annum.   

Along with the push for consumption, India Inc. is also hoping for liquidity conditions to be eased to spur investments which can drive growth in the country.   

Boosting Liquidity  

The central bank has started the process of pumping liquidity into the economy. As per its announcement on Monday, RBI will inject Rs 1.5 lakh crore into the economy via purchases of government bonds, variable rate repo auctions and dollar rupee swaps.  

This is expected to boost liquidity in the banking system. As per the sectoral breakdown of credit activity, the loans to industry have lagged the overall credit growth. CMIE data showed that year-on-year growth in credit to industry was close to 9% as compared to 13% overall growth in the September 2024 quarter. The loans to the industry have had growth in the 6-9% range at least for the last year.   

The RBI has kept the repo rate at 6.5% for over two years now owing to inflationary pressures. High interest rates are reflected in the balance sheets of the corporates. For Nifty 50, the aggregate interest cost recorded a 15% year-on-year growth in the September quarter.   

With just days remaining for the monetary policy meeting, India Inc. would hope for some relief.   

However, Vivek Iyer, Partner at Grant Thornton Bharat, said that the corporate sector should not expect immediate short-term relief. “Liquidity support, continued neutral stance on monetary policy with no rate cut, infrastructure focus, liberalisation of foreign exchange norms and initiatives around strengthening market infrastructure institutions are some key announcements that the corporate sector can expect, that will create an ecosystem for sustained economic growth,” he noted.  

As the build-up to the Union Budget 2025 and the monetary policy meeting nearly ends, the stakeholders in India’s corporate sector will soon know whether the much-awaited growth boost comes or not.