Finance Minister Nirmala Sitharaman. Image: Punit Paranjpe / AFP
As India approaches the pre-poll Interim Budget announcement, the BJP-led government is expected not only to come up with a plan for the coming years but could also have underpinnings for the next 25 years leading up to the country's centennial of independence. On February 1, international attention will firmly rest on Finance Minister Nirmala Sitharaman. Even though this is a vote-on-account, a confident government that believes it will return to power after elections will use this opportunity to present a summary of its achievements so far and lay down the path for governance reforms and fiscal consolidation in the coming years. Moreover, it will aim to take a solid step in its quest to emerge as a preeminent destination for global investment and solve the problems of the global south.
Under the stewardship of its government, India, the world's largest democracy with the most populous electorate, has navigated through a labyrinth of unprecedented challenges. Areas like the cost of doing business (compliance cost), inflation and jobs are challenges that will be mentioned. The upcoming budget, laden with substantial expectations, is anticipated to unveil a plan for India's "Amrit Kaal" – a defining 25-year period leading up to the nation's centennial of independence. The PM has already spoken about farmers, youth, women, and socially backward as critical for India, and one expects the budget to focus on them as well. I discuss the need for unwavering commitment to eight key areas that will shape India's economic and social destiny and will be critical for achieving this tall vision:
1) Balancing Growth and Fiscal Deficit
The economic growth rate for India is forecasted to be around 7 percent in 2024, primarily driven by robust internal demand, even as the worldwide economic outlook continues to be muted. In the financial year 2024-2025, the Government of India faces the challenge of maintaining this growth over the medium term. To navigate this terrain successfully, India must balance fiscal responsibility and strategic capital expenses. The increasing formalisation of the economy, resulting in robust tax collection, provides a cushion. Still, the need for higher allocation across social programs (something an election year will demand even more) and capital expenditure on infrastructure will always require a focus on managing fiscal deficit. In the last few years, the RBI and government have collaborated well to manage the overall finances. India's growth will depend on savings, but the declining household savings are a concern. This has resulted in the government borrowing more, impacting private investments. The government can aim to keep its budget in better shape by borrowing only up to 6 percent of the total value of India's economy (GDP) and ensuring that the money it borrows is spent primarily on long-term economic health vis-à-vis capital expenditure. This will guarantee that every rupee borrowed is an investment in its prosperous future, not just an expense in the present. We must also emphasise efficiencies in allocation to keep borrowings low, including PPP for co-mingling government funds with private capital and ensuring subsidies are used.
India's demographic dividend isn't merely a statistic, where half of the graduates still qualify as a potential solid workforce to be employed, but also economic drivers that need mobilising. Skilling initiatives need to be laser-focused on sectors like renewable energy and digital infrastructure, including AI, telecom and cybersecurity, which are collectively expected to witness a boom earning billions in investment and market size. Evergreen sectors of construction, MSME manufacturing and FMCG will also need support in reskilling and efforts towards a digital-like directory. Streamlining its labour laws, as seen in the recent fixed-term employment reforms, and incentivising startups in these high-growth areas can create not just jobs but high-value careers. Re-envisioning Skill India is something that could be on the agenda.
3) Nurturing Innovation
India's tech prowess is undeniable, but its deeptech ambitions require aggressive nurturing. The National Deeptech Startup Policy effectuates a good start to the process. India should have dedicated and increased allocation in GDP (benchmarking against global leaders like Israel's 4.8 percent) to R&D in AI, robotics, space tech and quantum computing. The current allocation is less than one percent. The growing momentum around semiconductors suggests that India should pivot its policy focus to design and manufacturing rather than the current focus around assembly, especially when the former can avail the large talent pool. Other emerging trends like blockchain and web3 will also require an ecosystem of immense support, including industry collaborations, to redefine India as the global thought leader in innovation.
4) Governance 3.0
A 21st-century India needs a 21st-century government. Mission Karmayogi needs to be turbocharged, upskill bureaucrats in data analytics and digital governance, streamline processes through automation, and leverage technology for enhanced transparency. Proactive problem-solving platforms, similar to Singapore's 'Smart Nation', can foster public trust and gather valuable data for policymaking. This isn't just about efficiency; it's about establishing India as an international benchmark in good governance.
5) Farmers' Income
The agriculture sector can see a new wave of change. The Soil Health Card Scheme can tailor irrigation interventions and help optimise fertiliser use. The role of R&D, extension services, and rural physical infrastructure for the agriculture sector has been well documented. Cold chain facilities, previously introduced by 2016's Pradhan Mantri Kisan Sampada Yojana, need a greater push to reduce post-harvest losses, estimated at a staggering 22 percent. Access to finance also becomes crucial for farmers, including building more financial access points and focusing on implementable loan recovery strategies. Small farmers are more vulnerable, so dedicated support is needed for farmers with small holdings, especially those that use sustainable methods. All these are necessary criteria for realising the efforts towards doubling farmers' income and rural rejuvenation. FPO Scheme needs a push to become more effective on the ground.
6) Going Beyond Individuals
While individual beneficiary schemes have shown commendable progress, the time is ripe for a holistic approach to India's social infrastructure. The budget should explore the concept of family-centric benefit management, where multiple schemes are integrated to deliver a comprehensive support package for each household. This could involve tailoring benefits based on family composition, income level, and specific needs, ensuring greater efficiency and inclusivity in social safety nets. Embracing a family-centric model in social welfare signifies a progressive shift in policy and marks a transformative stride towards nurturing a more resilient and empowered society where every household thrives, not just survives.
India's infrastructure development is set for a significant surge, with spending expected to double to Rs143 lakh crore between fiscal years 2024 and 2030.The role of private capital in this growth phase is pivotal, with infrastructure sectors like roads, highways, renewable energy, and ports attracting investor interest, and further supported by policies and conducive investment climate. To sustain this, consistent policy support will be crucial, alongside a focus on timely execution. The future infrastructure landscape should likely incline towards larger, mega-scale projects. A combination of increased bond market activity, foreign investment, and bank lending will be essential to meet the massive funding requirements.
8) Solving Tax Disputes
As we have seen improvement in the business climate, we have also seen millions of disputes for value, which are relatively small but have grown over the years. The reality also is that many tax demands are set aside during appeal. There may be merit for the government to take a step in using a policy change to end many such small value disputes and bring more clarity on how the tax demands process will work, which creates more tax certainty.
India must strategically navigate many challenges and opportunities, prioritising sustainable development, technological innovation, and inclusive growth. The country must strengthen its infrastructure, streamline regulatory frameworks, and foster a conducive environment for entrepreneurship and foreign investment. Simultaneously, addressing social welfare schemes and environmental concerns will be crucial to ensure a holistic and equitable rise. As India charts its course towards these goals, the collective resolve and coordinated efforts across sectors and communities will be pivotal in transcending these goals and transforming aspirations into tangible realities. India's monumental $5 trillion economy milestone needs to be etched not in ink but by a nation's innovation and the collective spirit on the rise.
The author is co-founder of Primus Partners.
The thoughts and opinions shared here are of the author.
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