
Economic uncertainties in the world, spurred by armed conflicts involving big powers, impacted our economy. Indian exports dropped by about Rs 10 lakh crore from 2022 to 2024, and imports by about Rs 12 lakh crore, so also the aggregate demand. As a result, the rupee dwindled against the dollar. With the global Purchasing Managers Index (PMI) decreasing across countries, Indian manufacturing growth slowed as a significant contributing factor.
This year’s Economic Survey opened with an elaborate discussion of the geopolitical and economic uncertainties that stand as a caveat for domestic performance. That had amassed a dark cloud, adding to the five irritating issues. These are decelerating growth, inflation crossing the projected threshold, neglect of agriculture, unemployment and sectoral imbalance.
Growth in GDP in the first two quarters gave the warning signal, though it recovered in the third quarter with the same hope for the fourth, which would end up between GDP growth of 6.3% to 6.8% for the year. We must note that this resurrection is possible only through growth in the services sector and agriculture.
Therefore, it was expected that the FM would focus on these five issues in the budget by boosting the manufacturing sector, savings and investments, and agricultural sector besides attracting FDI. At the same time, she cannot afford to compromise on the welfare orientation that has been necessitated due to the competitive election promises (Free-Free-Free) across parties.
The finance minister had taken note of the warnings in the Economic Survey, but did not address all the constraints indicated in it. Following her usual style of displaying the crucial stages in the budget, she used four engines to drive the economy further this time. The objective here is set, and includes growth, inclusive development, investment and the private sector, and focuses on the middle class.
She started with the engine of agriculture, which indeed calls for immediate attention as farmers remain one of the neglected components on the policy front. The long-pending issue of price policy has not been addressed; there are quite a few schemes she has put out to accelerate the growth of the agricultural sector.
Enlisting many objectives for achieving Viksit Bharat, the FM began with small schemes, hoping to make a significant contribution. After picking up pulses, makhana, cotton, fisheries and Kisan Credit Cards, but overlooking declining areas under cereals and nutri-cereals, she came up with the innovative idea of using Post Offices as catalysts for growth in rural areas.
The neglect of price policy, marketing policy, agricultural trade, land quality and irrigation will undoubtedly come in the way of accelerating rural growth. Between 1991 and the 2011 Population Census, we have seen that 5 million cultivators have preferred to leave their profession, and a significant amount of land has gone out of agriculture. The efficiency of irrigation, the degradation of land, and its preparation as a climate-resilient sector are essential.
Besides, the rain-fed regions of India required immediate attention as their productivity and growth pulled down the aggregate performance. Despite all these constraints, the agricultural sector is the second most contributing sector through aggregate growth of the economy. Among the other three engines, she focused on MSME, as this sector had the worst experience during the pandemic.
It is essential to boost this sector's morale, and the manufacturing sector also needs greater attention to attract domestic and foreign investment. The performance of the manufacturing sector has been a worrisome issue for the aggregate development of the economy. The Economic Survey brought this out.
However, the finance minister seems to have taken it lightly. With many elections coming up, she was possibly compelled to invest in various schemes touching different groups’ welfare. While discussing the second engine of growth, which focuses on the MSME and manufacturing sectors, the finance minister suddenly appears to have shifted towards investing in people and other investment areas, such as innovations.
The Economic Survey revealed that the investment needs of the manufacturing sector will not be fulfilled by the proposed ‘Manufacturing Mission’ alone. A sudden shift from investment in the manufacturing sector to investment in people seems driven by political pressures.
These encompass numerous new initiatives, including the Special Window for Affordable and Middle-Income Housing (SWAMIH), tourism, research and development, PM research fellowships, Gene Bank and several others, with investment spread across these programmes, which ultimately signifies investing in the people.
The most critical segment that requires focused attention is India’s slowdown in international trade. The economic survey revealed a significant decline in our trade and a growing trade deficit, affecting other sectors, as the necessary spillover effects need to be addressed. However, this occurs while balancing the budget and maintaining the fiscal deficit at 4.4% and primary deficit at less than 1% of GDP.
The primary deficit is 8% of revenue receipts, compared to 13% in last year’s revised estimate. The engines of growth chosen by the FM will help accelerate the economy, but their differential strength (horsepower) may not reach the planned destination in the given time.