Navigating India's Economic Future: Strategic Insights From Union Budget 2024-25 - IMPRI Impact And Policy Research Institute

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The IMPRI Center for the Study of Finance and Economics (CSFE), IMPRI, Impact and Policy Research Institute, New Delhi, hosted an interactive panel discussion on the topic “Viksit Bharat – Developed India @2047 and Union Budget 2024-25” on 24th July 2024, under IMPRI 5th Annual Series of Thematic Deliberations and Analysis of Interim Union Budget 2024-25, as part of IMPRI #WebPolicyTalk.

The session was chaired and moderated by Dr Prof Nilanjan Banik, Professor and Program Director (BA, Economics and Finance), Mahindra University, Hyderabad; Visiting Consultant, IMPRI. To start, Prof. Nilanjan provided an insightful overview of India’s budget and its position in the global market. Despite global economic fluctuations, India’s inflation has remained stable due to a controlled fiscal deficit. The country’s export sector is thriving, and India has become a preferred destination for multinational corporations (MNCs) seeking online and offshore business opportunities. The Indian economy benefits from a strong domestic market, with two-thirds of consumption demand met internally. This resilience underscores India’s significance in the global market.

However, he also highlighted some pressing challenges. Despite the economy’s overall positive trajectory, income inequality remains a concern, with disparities in per capita income across states. North Indian states generally lag behind the national average, while South Indian states exceed it by two to three times. Additionally, there is a need for more job creation and quality employment opportunities, as current schemes like the Production Linked Incentive (PLI) and Employment Linked Incentive (ELI) aim to address these issues.

Dr. S.P. Sharma, Chief Economist & Deputy Secretary General of the PHD Chamber of Commerce and Industry (PHDCCI), addressed key economic issues affecting India. He noted a softening in both inflation and export trajectories due to various factors. Drawing on data from the economic survey, Dr. Sharma emphasized the need for the government to enhance human resource capabilities to strengthen the workforce. He called for greater collaboration between the private sector and academia to better align university programs with industry needs.

He highlighted the six-point strategy of the 2024 budget which is aimed at driving inclusive development and sustainable growth. This strategy focuses on infrastructure investment, green growth, digital economy advancement, reaching the last mile, and youth empowerment. It includes boosting agriculture, healthcare, and social welfare, expanding both digital and physical infrastructure, promoting renewable energy, and fostering innovation. Key initiatives involve increased funding for skill development, employment-linked incentives, and substantial investments in infrastructure and research and development (R&D).

He also discussed the four pillars of the 2024 budget: Garib Kalyan (welfare of the poor), Anna Yojana (food security), Nari Shakti (women empowerment), and Mitron (infrastructure and investment). He asserted that Budget 2024 lays a solid foundation for future economic prospects, reinforcing the macroeconomy with a strong focus on fundamental growth drivers.

Ms Yuvika Singhal, the next panelist, points out the goal of the Viksit Bharat 2047 which includes transforming into a $30 trillion economy with a per capita income rising from $2,600 to $17,000. This projection assumes manageable inflation rates and strong prospects for reaching these targets, reflecting India’s potential shift towards a developed economic status. Recent advancements in research and significant macroeconomic reforms—such as the introduction of the Insolvency and Bankruptcy Code (IBC), Goods and Services Tax (GST), revamped banking policies, and a rule-based monetary system—highlight the country’s evolving economic landscape.

Additionally, India’s strides in digitalization and financial inclusion, exemplified by the rapid expansion of bank accounts and tax compliance, have positioned the nation closer to advanced economy benchmarks. The focus now is on consolidating the fiscal deficit to 2.9% of GDP and driving capital expenditure (capex). Despite India’s strengthened economic resilience, which mitigates the adage that a U.S. economic downturn would directly impact India, challenges remain, such as uneven distribution of growth and a stagnant middle-income segment. The recovery trajectory appears K-shaped, driven largely by investment, with varying impacts across different economic strata.

Mr Saugata Bhattacharya, the next panelist, emphasized the roles to be played by the federal units- the states in the journey of India towards Viksit Bharat. He discussed the pursuit of economic transformation, particularly for states like Bihar, the crucial factor is the effective utilization and implementation of funds. Bihar’s ability to execute its spending plans, especially on large-scale projects, will significantly impact its progress. Andhra Pradesh, in contrast, exemplifies a goal-oriented approach, having successfully implemented major reforms.

Now, the emphasis is shifting towards optimizing the execution of these reforms, with a focus on penetrating down to the panchayat level to ensure tangible impacts. This marks a strategic pivot in government reform efforts, concentrating on eastern states, which have previously lagged. Maintaining fiscal discipline is also a priority, intending to reduce the fiscal deficit to 4.5%, build on the current level of 4.9%. At the state level, efforts are underway to lower deficits further to 2.7-2.8%. Additionally, reducing interest rates is essential to maximize the effectiveness of investments and achieve optimal economic outcomes. By focusing on these areas, states can enhance their financial stability and support broader national economic goals.

Dr Rajesh Shukla, the next panelist, pointed out the significant strides which have been made towards achieving the 2047 vision, yet the next 25 years demand rigorous discipline and goal alignment. In 2021, forecasts for the middle class anticipated a 30% expansion, and progress has indeed accelerated faster than expected under the “Viksit Bharat” initiative. However, income inequality remains a challenge, with the trickle-down effect benefiting many, but failing to reach the bottom 20%, and growth absorption capabilities are still lacking. The budget should be viewed as an ongoing process rather than a one-time event, focusing on continuous improvement.

Three critical areas require attention: First, calibrating agriculture to enhance productivity and support rural development. Second, addressing the widening gap between rich and poorer states, as migration alone is not a viable solution; instead, creating economic hotspots within each state is essential. Third, aligning human resources with market needs is crucial, as there is a mismatch between the required skills and the existing workforce. While many reforms are underway, more work remains. Criticizing the system from the sidelines is unproductive; active engagement and focus on actionable solutions are imperative for fostering inclusive growth and bridging disparities.

Mr Subhomoy Bhattacharjee talked about the mixed reception of the budget with some criticism from the middle class and public mockery, but also recognition of the Finance minister’s prudent fiscal policies. Despite facing backlash, her approach has been largely effective. The budget displayed a focus on economic pragmatism rather than socialism or favouritism, ensuring that fiscal responsibility was maintained. One of her notable decisions was to avoid the temptation of offering freebie schemes, which can often lead to unsustainable fiscal deficits. By resisting such populist measures, she preserved the integrity of fiscal discipline, which was crucial for India’s standing in the global market.

Her strategy of avoiding excessive borrowing and maintaining budget constraints was essential in a context where space for financial manoeuvring was severely limited. This prudence helped avoid potentially dangerous levels of debt and kept the economy on a stable path. The refusal to engage in unproductive boycotts of meetings like those with NITI Aayog also underscored her commitment to constructive governance and economic stability. Overall, her approach aimed to balance immediate political pressures with long-term economic sustainability, reflecting a commitment to responsible fiscal management amidst a challenging global economic environment.

Prof Pooja Misra, discussed about the tri-partite agreement between the government, the private sector, and academia, it is crucial for addressing the K-shaped recovery and enhancing employment prospects in India. The Economic Survey projects the need for 78.5 lakh jobs per year by 2030, highlighting the urgency of effective employment strategies. Programs like the Production Linked Incentive (PLI) scheme and Employment Linked Incentive (ELI) are steps in the right direction, aiming to stimulate private sector growth and create jobs. However, the success of these schemes hinges on effective execution at the ground level, where industry and academia must collaborate closely to align skills with market needs.

To balance regional development and boost middle-income growth, there is a need for focused urban and transit-oriented development. Enhancing infrastructure in cities and improving connectivity can drive economic growth and ensure equitable distribution of opportunities. Additionally, the implementation of Goods and Services Tax (GST) reforms has increased disposable income for many, fostering higher consumption levels. Ensuring that more money remains in people’s hands can further stimulate economic activity and contribute to a more balanced and inclusive growth trajectory. Balancing regional development and leveraging collaborative efforts between industry and academia are key to achieving these goals and addressing employment challenges.

In summary, India’s path to becoming a $30 trillion economy by 2047 includes a focus on effective implementation of reforms, disciplined fiscal management, and targeted regional development. Recent efforts have emphasized avoiding excessive borrowing, maintaining budget constraints, and resisting populist freebie schemes to ensure economic stability. A key challenge is addressing income inequality and improving growth absorption, particularly in eastern states.

The tri-partite collaboration among government, private sector, and academia is crucial for creating jobs and balancing regional development. Programs like PLI and ELI aim to stimulate private sector growth, but their success depends on effective execution and alignment of skills with market needs. Transit-oriented and urban development projects, along with increased disposable income from GST reforms, are expected to boost consumption and support inclusive growth. Balancing these factors is essential for sustainable economic progress and addressing employment challenges.