Budget Expectations 2024-25: Onus likely on GDP boosting drivers

In spite of best of intentions and launching new initiatives like PLI, the share of manufacturing sector has not grown to the expected levels, which is to account for 25 per cent of GDP. It is now at a poor 17 per cent

Union Finance Minister Nirmala Sitharaman must have been flooded with an overwhelming wish list from across stakeholders with whom she interacted with in the run-up to the Union Budget for 2024-25, which will be presented on July 23.

Like always giving finishing touches to the full-fledged budget must have been a time-consuming exercise, though this time it could have been a herculean task as she to accommodate the ‘requests’ of many alliance partners.

Before taking the final call vis-à-vis structural reforms, it was pertinent to view the suggestions pragmatically as some needed elaborate discussions, while some others would need legislative amendments.

Amid all these, the first budget of Modi.3 must be worked in such a way that it serves as the roadmap for India’s quest to achieve Viksit Bharath.

As things stand, there is a need for structural reforms or big transformational changes to provide the momentum for emerging as a developed economy by 2047.

Currently India is in a better position as to its macroeconomic strong fundamentals, which should ensure a robust GDP growth of seven per cent for the current year. However, we need to take the GDP real growth to an average of eight to nine per cent in the next 25 years for which we have to find new drivers of growth apart from activating the already contributing growth drivers.

India has not been doing well in the agriculture sector due to various reasons, including the adverse impact of climate change. Agriculture and allied activities are the mainstay of important activities and only sources of livelihood for most rural farmers. It is, hence, necessary to substantially enhance rural income if we wish to seen an increase in demand. Despite the absence of the required consumption demand, we have yet to get any enhanced private sector investment, which could be the critical growth driver. Even though some private investments are visible in newer areas, in the absence of full capacity utilisation, there is a noticeable dearth of private sector investments. In the last few years, both central and state governments have been focussing on capex, particularly in infrastructure sectors which has given a momentous eight per cent growth. While the government’s Capex push is required in the core areas of infrastructure, it cannot be the only source of fresh investment and has to be supplemented by higher private investment.

In spite of best of intentions and launching new initiatives like PLI and welcoming MNCs to put up projects in India, which is getting good traction, the share of manufacturing sector has not grown to the expected levels, which is to account for 25 per cent of GDP. It is now at a poor 17 per cent. We need to enhance productive improvement capacity of manufacturing sector and lead to export competitiveness.

We have to allocate larger funds for Research & Development both from the private sector and government as innovation and creating new niche products and new patents having large export potentiality are the need of the hour. The adoption of latest technology like AI, ML and Block Chain should provide new scopes for products efficiency and superiority with a larger market share, both domestically and internationally. The fear that employment opportunities are being reduced with AI and such other technology, should lead to better opportunities for skilled people.

It is therefore imperative that special attention has to be given for better and appropriate skilling of the educated youth as employability will get enhanced with such intervention. The Union Government should incentivise private sector to take up this special skilling initiatives in an organised manner and on a larger scale to improve the ecosystem for better employment. This initiative in the area of skilling and boosting employable opportunities enhancing are expected in this budget.

Even the superiority of our service sector in contribution of GDP and exports need to further enhanced with wide expansion in service sector. Technology sector has been the major factor leading to superior exports which needs to be diversified. As expected even in technology sector, since new competitors are emerging globally from advanced economies, we need to maintain and enhance competitiveness and uniqueness by larger private sector investment. Start-up ecosystem, Fintech, focus on public digital infrastructure for global good can be a good contributors to all-round growth.

India is committed to meet the zero emissions target by 2070 and climate change becoming both domestic and global issue. Our efforts both mitigation and adaptation should attract large domestic and global investment in creating large capacity in alternative source of energy as well in balancing gradually lesser dependence on fossil fuels.

In the aftermath of Covid-19 India had to resort to substantial fiscal deficit. The interim budget talks of bringing down the fiscal deficit to 5.1 per cent of GDP by 2024-25. The Union Government has also reiterated its commitment to bring down fiscal deficit to 4.5 per cent of GDP by 2025-26.

In the background of higher tax collections and an impressive high dividend by the Reserve Bank of India (RBI), the budget can comfortably aim at further reduction in fiscal deficit as it will be good indicator of the fiscal proficiency India has been achieving.

(The author is former Chairman & Managing Director of Indian Overseas Bank)