Shivanand Pandit
The 2025 Budget comes at a time when the economy is slowing down, burdened by high fiscal deficits and rising debt levels. This presents a challenge for the Finance Minister, who must balance the need for growth-stimulating policies with fiscal discipline. While there is strong advocacy for tax reductions and increased infrastructure spending, this Budget must go further to ensure sustained economic growth.
The data on the economic slowdown is alarming. Apart from one quarter, the economy has steadily declined since mid-2023, with real GDP growth dropping from over 8% to below 6% within a year. High-frequency indicators suggest the post-COVID growth momentum is waning, hinting at a more profound, structural slowdown. Even before the pandemic, the economy was struggling, growing at less than 4% in Q4 2019.
Post-COVID, the economy revealed two contrasting narratives. The ‘Old economy,’ centred on middle and rural India, has been hampered by low private sector investment and weak goods exports. In contrast, the ‘New economy’ experienced a surge, driven by a boom in service exports through global capability centres (GCCs), mainly US-based, employing highly skilled Indian workers in areas like Research and Development. This ‘New Economy’ led to increased luxury consumption, such as SUVs, and spurred a mini-construction boom. However, the ‘Old economy’ has continued to struggle, exacerbated by high food inflation and declining real wages. Now, the ‘New Economy’ is also losing steam, transitioning to a more moderate growth trajectory. These combined factors are creating a significant demand challenge, posing a critical test for the upcoming Budget.
The Indian stock market has experienced a sharp decline since its peak in late September 2024, with sentiment deteriorating rapidly. Over the past three months, India has emerged as the worst-performing market globally. Persistent selling by foreign institutional investors has underscored the urgent need for the Finance Minister to unveil a transformative budget capable of revitalizing investor confidence and drawing capital back to the country. With GDP growth slipping to 5.2%—its lowest level in seven quarters—the finance minister must propose innovative and actionable measures that resonate with Indian businesses and bolster market sentiment. To address the prevailing economic challenges, the government should undertake a thorough internal review to identify the root causes of the slowdown and develop targeted solutions.
An egalitarian society cannot thrive when wealth is concentrated in the hands of a few while many struggle in poverty. As Finance Minister Nirmala Sitharaman gears up to present her eighth Budget, the nation buzzes with anticipation, hope, and curiosity. From business leaders to small farmers, and from corporate giants to everyday citizens, all are eager to understand how the Budget will shape their future. Although India has achieved a few remarkable milestones, reflecting its ambition to emerge as a leading global economy by 2047, the widening gap between the wealthy and the underprivileged remains a pressing concern. It is a collective responsibility to ensure that growth uplifts every segment of society. In this context, there is widespread optimism that the upcoming Budget could indeed be a ‘dream Budget,’ fostering progress and inclusion for all.
Thoughts to propel the vision of Viksit Bharat
The Budget should prioritize streamlining expenditures to achieve fiscal consolidation. In February 2023, the Finance Minister set a target to reduce the fiscal deficit to under 4.5% by 2025-26. However, this goal is challenging given the slowing economy and a nominal GDP growth rate below 10%. Nevertheless, lowering the fiscal deficit remains essential for ensuring macroeconomic stability, which is a key driver of sustainable long-term growth. To attain fiscal consolidation, the government should prioritize cutting revenue expenditure, which makes up nearly 77% of total spending, particularly in areas like schemes and transfers. For instance, is it still necessary to provide free food grains to 800 million people every year, especially when the pandemic emergency has long passed?
Mass consumption of goods and services triggers a virtuous cycle of investment, employment, production, demand, and supply. To maintain this cycle, it is crucial to control production costs, keep expenses low, and encourage both local and foreign investment. A stable or moderate rate of inflation ensures that increased incomes truly benefit the people. While the government must raise funds for infrastructure and public services, it should avoid placing undue financial strain on ordinary citizens. Striking this balance is a complex but vital task in realizing the vision of a developed India. When it comes to growth, there’s widespread demand for more government spending on infrastructure. While some infrastructure development is necessary, it is unclear whether it alone will significantly boost GDP growth. For sustained economic progress, a revival of private-sector investment is key, but public infrastructure spending does not seem to stimulate this. Furthermore, with much infrastructure already in place, the marginal returns from new roads or highways are decreasing. Government spending on infrastructure may not be an effective tool for driving growth if private sector confidence remains weak.
In the current economic environment, it is essential for the Budget to consider liberalising import tariffs, removing non-tariff barriers in cases where there are no concerns about import dumping, and eliminating Quality Control Orders that unnecessarily restrict crucial imports for the manufacturing sector. A comprehensive reform of the tax system is also needed. This includes implementing residence-based taxation to attract foreign investment, simplifying the Goods and Services Tax (GST) system further, eliminating cesses and surcharges, and reducing excessive industrial policy interference to ensure a level playing field for all businesses. Moreover, incentivising states to implement land and labour reforms, which have been long overdue, should be a priority. Regulatory reforms, which are essential for the economy’s growth, must be fast-tracked and brought back into focus, as the conversation around them has slowed down.
To finance the ambitious development agenda, the government must ensure it has robust revenue streams. This will require a detailed review of current tax rates and structures. Simplifying and rationalising the tax system is critical to maintaining fairness and generating sufficient revenue. Additionally, addressing tax evasion through the use of technology, artificial intelligence, and better regulatory oversight will help curb these practices. It is also crucial to raise tax awareness by educating citizens, businesses, and other stakeholders about the importance of tax compliance. Incentivising taxpayers and fostering a cooperative, well-informed public will help expand the tax base. A collaborative approach involving policymakers, professionals, academics, and industry leaders is vital to crafting effective, inclusive policies that will support long-term economic growth.
Efficiently managing production costs requires specialized knowledge and a deep understanding of how various factors, such as land expenses, raw material prices, labour costs, interest rates, time, and logistics, interact to shape the overall cost. Each of these components affects the final price, and the total production cost can vary based on how these elements are interconnected. Inflation significantly affects production costs by triggering a chain reaction across different inputs. As the cost of one element, like raw materials, increases, it also drives up transportation and labour expenses, amplifying the overall impact on the supply chain. This inflationary pressure not only hikes production costs but also raises the price of the end product, shifting the balance of supply and demand. The consequences of high inflation are most keenly felt by lower-income groups, particularly when prices for essentials like food, fuel, and basic goods rise. These individuals typically allocate a larger portion of their income to necessities, so even small price increases can significantly erode their purchasing power, making basic needs harder to afford. To safeguard the purchasing power of workers, especially those in lower-income brackets, it is essential to align wages with inflation. If wage growth fails to keep pace with the rising cost of living, economic inequality worsens, and the benefits of economic growth do not reach everyone. Ensuring that wages rise alongside inflation is crucial for creating a more equitable economy, where everyone can meet their basic needs and gradually improve their quality of life.
The ease of doing business continues to be a major concern for many companies. Despite efforts by the government to improve the situation, existing bureaucratic practices remain misaligned with these reforms. One crucial step in addressing this issue would be to put an end to tax terrorism. In 2014, the total tax disputes stood at around 4.5 lakh crores, with Finance Minister Arun Jaitley promising to reduce tax-related harassment, as outlined in the BJP 2014 manifesto. However, by 2024, tax disputes have escalated to approximately 12.5 lakh crores. Taking concrete steps to resolve these disputes and reduce excessive regulatory enforcement would significantly boost business confidence and market sentiment. The government has been prone to overregulation, with various authorities often acting to please political superiors. The government must halt the overbearing regulations introduced by bodies like the RBI, SEBI, and IRDAI. Over the past two years, an influx of regulations has hampered market liquidity. SEBI’s measures, in particular, have led to a decline in stock market trading volumes, especially during a period when foreign institutional investors were selling off their holdings, exacerbating the drop in stock prices. The industry and market participants would welcome any moves to reassess these policies and reverse measures that are detrimental to the market.
While the country’s GDP growth, although somewhat subdued, is commendable, it must be translated into tangible benefits for all citizens. Promoting wealth creation and its redistribution requires comprehensive attention and ongoing monitoring. National wealth generation should go hand-in-hand with ensuring fair distribution. Tax policies must embody this commitment both in principle and practice. The Budget should focus on bridging the wealth gap by creating an environment conducive to growth for all segments of society, not just the wealthy. Special, deliberate efforts must be made to tackle indirect costs, misuse of public funds, corruption, black money, and losses from underperforming institutions, which burden taxpayers and fuel inflation. Effectively addressing these issues will unlock resources for crucial public investments.
High-sounding statistics and complex numbers have a limited impact if people can’t afford the basic goods and services they need. Financial inclusion must be a priority. Banks and financial institutions should take a more proactive role in expanding access to credit and supporting businesses, especially at the grassroots level. Now is the time to restore consumer confidence. When people have the financial means to spend, the entire economy benefits—stimulating growth from producers to retailers, boosting employment, and encouraging even more consumption. The government should leverage artificial intelligence and digital tools to streamline processes, making credit access faster, safer, and more inclusive. The budget could introduce targeted incentives for both lenders and borrowers to ensure this positive cycle remains in motion.
Proposals for next-generation reforms are crucial, especially in light of the government’s ambitious goal of transforming India into a $7 trillion economy by 2030. To achieve this, a comprehensive approach is needed, one that fosters sustainable growth, innovation, and global competitiveness. Industry bodies across various sectors have already submitted their recommendations, which largely centre around reducing taxes and easing government controls. These requests should not be overlooked, as they hold the potential to unlock significant economic growth. Easing regulatory controls in certain sectors could reduce operational costs and bureaucratic delays, making it easier for businesses to thrive. This would encourage entrepreneurship, attract talent, and boost productivity across the economy. These sector-specific requests must be given due consideration, as they reflect the on-the-ground challenges faced by industries striving for growth and global competitiveness. By addressing these issues, the government can create a more conducive environment for businesses to flourish, helping India move closer to its $7 trillion economic goal. Reforms should not only focus on tax cuts or regulatory relief but also promote innovation, infrastructure development, and social welfare to ensure that growth is inclusive and sustainable.
In conclusion, to create a robust and fair economy, we need a Budget that motivates every citizen, regardless of socio-economic status, to contribute to the nation’s growth. By integrating technological advancements, streamlining tax systems, promoting ethical governance, and prioritizing the upliftment of all citizens, we can ensure equitable economic growth that benefits every segment of society. It will help reduce the disparity between the rich and the poor while raising the most vulnerable. May the Budget deliver welfare measures that benefit all.
