Equity markets* have rallied on hopes of a corporate earnings revival in 2025, buoyed by easing inflation and the prospect of rate cuts from the RBI. But this rebound risks running ahead of fundamentals. Fiscal spending is cooling, wage growth is subdued, and labour market quality is deteriorating—hardly the ingredients for a broad-based income recovery.The fiscal engine that once powered demand is now pulling back. The central government’s real revenue expenditure, excluding interest payments, shrank 1.6% over the three months ending January 2025, after a burst of 23.6% growth in October 2024. With tax revenues faltering, fiscal consolidation has returned, dragging on public sector demand and denting corporate toplines. This fiscal retreat is already weighing on business revenues.
.png)
