
Global uncertainties loom large as countries increasingly turn inward, imposing trade regulations. An open global economy fosters trade growth, a key driver of economic expansion.
India, one of the largest agricultural exporters, recorded a trade surplus of $119.48 billion in services from April–November 2024, with agricultural exports valued at $48.9 billion in 2023-24. However, amid a global polycrisis, trade alone cannot be relied upon to drive growth.
Consequently, self-reliance becomes imperative to prevent rising trade deficits and further depreciation of the rupee. Strengthening logistics and supply chains is crucial to reducing import dependency. Given this global context, Budget 2025 can be described as ‘business as usual,’ with limited structural changes to address evolving economic challenges.
India’s GDP grew by 8.7% in 2021-22, 7.2% in 2022-23, and 8.2% in 2023-24. However, the revised growth projection for 2024-25 has been scaled down to 6.3% from an earlier estimate of 7.2%, following a slowdown in the first two quarters.
The Reserve Bank of India (RBI) subsequently revised its estimates downward. Expectations for the coming years remain in the range of 6.3% to 6.8%. This raises doubts about whether India can achieve a USD 5 trillion economy by 2027, securing its position as the world’s third-largest economy.
Sustaining high growth requires robust investment as a percentage of GDP. In 2011, investment stood at 41% of GDP, dropping to a low of 21.8% in 2020 due to the pandemic. Post-Covid, investment has rebounded, reaching 34.7% of nominal GDP in 2023. State-funded capital expenditure has been a key economic driver since 2020. While the government continues to allocate funds for capital expenditure, the first three quarters of the current fiscal year have seen a compression in such spending.
Meanwhile, private investment has not sufficiently followed public investment, possibly due to a contraction in domestic consumption. Private investment as a percentage of GDP stands at 21.9%, and private gross fixed capital formation has been declining since 2011-12, despite corporate tax reductions from 30% to 22% in previous budgets.
Would reducing income tax exemptions and rates in the new tax regime boost much-needed consumption? The expectation is that tax cuts would increase urban consumption, which in turn could drive private investment. However, only 1.6% (22 million) of India’s population paid income tax in 2023. Expecting IT relief alone to significantly boost domestic consumption may be unrealistic.
A more effective approach could be increasing incomes for the bottom 80% of earners, which would directly enhance rural consumption. Increased revenue expenditure in social sectors—agriculture, rural development, education, and health—would raise workers’ incomes, leading to a higher income multiplier effect and potentially stimulating private investment. The allocation of Rs 85,428 crore to MGNREGA in the current budget may have a positive impact in this regard.
The Budget’s overarching focus is on GYAN — Garib, Youth, Annadata, and Nari — alongside inclusive growth. In agriculture, the Dhan Dhanya Krishi Yojana has been introduced, although last year’s emphasis on Shree Anna (millets) appears diminished.
Notable new initiatives include term loans with five-year tenures for women from SC/ST communities. A promising move is the cotton productivity programme, which could benefit states with significant cotton cultivation, including Telangana.
Manufacturing has historically been India’s weak spot, and the government continues to push for improvements, particularly in MSMEs. Youth skilling initiatives, such as the establishment of national centers of excellence, are welcome steps.
Additionally, the rise of gig work necessitates formal recognition and social protection, with registration through the e-Shram portal being a positive move. Urban transformation is also a focus, with a Rs 1 lakh crore urban challenge fund allocated. However, past trends suggest inconsistent implementation. The Smart Cities Mission, aimed at improving quality of life in 100 cities, saw high allocations in 2022-23 and 2023-24 but faced a 50% budget reduction in 2024-25.
Every Budget introduces new schemes, but the broader direction should remain clear. A positive sign is the continued emphasis on food processing industries in 2024-25. Similarly, the focus on the automobile and auto components sectors has been sustained. The effectiveness of the Budget, however, will depend on strategic continuity, with well-designed programs and adequate financial support ensuring sustained economic impact.