‘Viksit Bharat’ Needs Growth-Oriented Steps And Major Reforms In Union Budget 2025

There is a need for further private sector investment in manufacturing and other uprising newer areas like alternative energy, which is really catching up, higher adoption of technology to enhance quality and higher manufacturing productivity and high-end value products

The first advance estimates of Gross Domestic Product 2024-25 that was released by the Ministry of Statistics has put the real GDP growth for 2024-25 at 6.4 per cent as compared to the growth rate of 8.2 per cent in the provisional estimate for 2023-24. Incidentally, the first half of 2024-25 saw real GDP growth dip to a low of 5.4 per cent.

This estimate is much lower than RBI’s earlier estimate of 7.2 per cent, which has since been revised to 6.6 per cent. All eyes will be on the second advance estimates of 2024-25 along with the quarterly GDP estimates for the quarter ended December 2024-25 that will be released on February 28. In between there could be further improvements and may be better than the projected 6.4 per cent.

Agriculture, livestock, forestry and fishing are likely to do substantially better than the previous year’s 1.4 per cent to 3.8 per cent in 2024-25. It could be enhanced by way of more investments, technology adoption, going in for climate resilient seeds for a higher productivity, sound marketing and better price realisation. Given this situation, the ensuing Union Budget must focus on measures to drive growth of agriculture and allied sectors.

It is quite surprising that there has been a sharp fall in mining and quarrying expectations from 7.1 per cent in 2023-24 to 2.9 per cent in 2024-25. A bigger concern is slowing down of manufacturing from 9.9 per cent to 5.3 per cent in the aforementioned period. This decline has to be arrested.

Recent data related to industrial production growth quickened to a six-month high of 5.2 per cent in November, up from 3.5 per cent in October. Manufacturing output rose by 5.8 per cent while mining production increased by 1.9 per cent and power output grew by 4.4 per cent. Meanwhile, for the period from April to November, industrial output increased by 4.1 per cent compared to the same period last year.

According to ICRA, IIP growth will moderate to approximately 3-5 per cent in December (+4.4 per cent in December 2023) from 5.2 per cent in November (+2.5% in November 2023) partly on account of an unfavourable base.

There have been concerns as urban demand has been lesser than in the interiors, which has adversely impacted manufacturing. As against the goal of taking manufacturing to 25 per cent of GDP, we are currently at a lower level on a comparative note. This has drawn the attention of the government which has found solutions in the form of promoting production linked incentive (PLI) scheme in 14 sectors, including electronics, pharmaceuticals, white goods, telecommunication and drones, among others, with an outlay of Rs. 1.97 trillion. The endeavour is to boost domestic manufacturing, attracting both domestic and international investments and increase in exports.

According to Ministry of Commerce & Industry as of July 30, 2024, approximately 755 applications were approved across 14 sectors, while investments to the tune of Rs. 1.23 lakh crore came under the PLI scheme till March 2024.

This must have certainly attracted more investments in the current year, which should enable higher manufacturing sector contribution to the GDP. As of December 20, 2024, the PLI scheme clocked Rs. 1.46 lakh crore in investments, Rs, 12.5 lakh crore in production, Rs, four lakh crore in exports and generated 9.5 lakh jobs.

Over 1300 manufacturing units were established across 14 sectors in 27 states/UTs under the PLI scheme. Meanwhile, the FDI in the manufacturing sector increased from the $98 billion (2004-2014) to $165 billion (2014-2024). FDI inflows surged by 26 per cent to $22.5 billion in Q1 FY 2024-25 as against $ 17.8 billion in FY 2023-24. These figures indicate progressive improvement across areas that need higher traction.

There is a need for further private sector investment in manufacturing and other uprising newer areas like alternative energy, which is really catching up, higher adoption of technology to enhance quality and higher manufacturing productivity and high-end value products for developed economies to capture better share of international trade.

In spite of government repeated calls for private sector to take the mantle of higher investment along with the government’s focus on capex, which itself provides scope for private sector investments, there may be further thrust on reforms and ease of business both at the Centre and state levels to attract higher domestic and international investments. Private investment is expected to increase by 6.4 per cent in 2024-25, which is lower than the nine per cent growth recorded in the previous year.

India has to catch up with higher growth on an average of plus eight per cent to become a developed economy by 2047.

The recent report of UN World Economic Situation and Prospects 2025 states that Indian economy is set to grow at 6.6 per cent in 2025, maintaining its position as a major driver of global growth at a time when the overall world economy is projected to remain relatively stagnant. This statement amplifies the fact that the world looks to India performing better, particularly in South Asia, where the GDP is anticipated to grow 5.7 per cent in 2025. This is because it is fuelled by India's robust economic performance and recoveries across neighbouring nations.

The report states that high borrowing costs and level of debts, particularly to low income and less developed countries and vulnerable nations, will potentially hamper progress towards achieving the Sustainable Development Goals (SDGs). The report talks of emerging opportunities in critical minerals for energy transition and adds that South Asian nations, among other developing countries, stand to benefit from the rising global demand for lithium, cobalt and rare earth elements.

While every international report highlights the opportunity for higher growth for India, we need to enhance it further as this is the golden period for India given that most other countries are at a lower growth rate.

India has the potential and capacity to register continuous higher real GDP growth in the near future. The next budget will need more promising measures so as to become Viksit Bharat.

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