India had an impressive growth rate of 7.6% in 2023-24. But, the recent RBI data suggests that India is set to witness a slower growth of just 6.4% in the financial year 2025, the lowest in the last four years!
Here the question arises: what is the reason behind this deceleration, and what strategic response can be anticipated from the Union Budget 2025-26?
Before understanding the budget expectations, it is vital to know that as India is on its journey of becoming a Viksit Bharat by the end of 2047, there is a need for robust and sustained growth. The government has set several ambitious targets to achieve this goal, such as
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Establishing India as a global manufacturing hub
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Achieving an electronic production of $500 billion
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Boosting textile exports to $600 billion
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Developing world-class infrastructure
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Increase in women’s participation in workforce
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Creating ample amount of job opportunities
To align with these macroeconomic goals, the Union Budget 2023-24 incorporated several supply side policies, such as
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Employment and skill development programs aimed at enhancing human capital, targeting 4.1 crore youth
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Financial assistance for the MSMEs to stimulate the manufacturing sector
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Modification of customs duties on electronics and textiles to promote trade and domestic production
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Establishment of industrial parks under the National Industrial Corridor Development Programme.
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Rental housing for industrial workers through public-private partnerships (PPP) with Viability Gap Funding (VGF)
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Critical Minerals Mission for production, recycling, and overseas acquisition
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Strengthening insolvency frameworks to reduce non-performing assets (NPAs)
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Allocated 3.4% of GDP for the infrastructural development
Despite these supply-side initiatives, the economy is still facing a slower growth rate. What could be the reason?
The answer lies in that the Indian economy is entering a phase of cyclical slowdown, driven by weak performance in key sectors such as manufacturing and a decline in capital formation. Apart from this, the global uncertainties, including the 2024 US Presidential Elections, monetary and fiscal tightening, rupee depreciation, and stock market fluctuations have led to reduced investor confidence and slower investment inflows.
Thus, to bring the Indian economy back on track, it is expected that the government will primarily focus on reviving the manufacturing industries and boosting investments.
Reviving the Manufacturing Sector
With manufacturing being a key focus, it is expected that the government could expand the Production Linked Incentive (PLI) schemes to emerging sectors such as green energy and advanced technologies. It can further promote the One District One Product (ODOP) schemes to boost the export and provide support to the SMEs and MSMEs particularly the mid-sized enterprises with revenue of Rs. 100 to 1000 crores for job creation, foreign partnership and entrepreneurship. Further, the government may raise 15% of the budget allocation to around Rs 5,080 crore, including a 33% rise in budgetary funds for the PLI scheme for textiles.
Stimulating Investments
The Union Budget 2024-25 abolished the Angel Tax for all investors, boosting startups and raising $12 billion in 2024. But 75% of this fund comes from international sources. Thus, in the upcoming budget it can be expected that the government will focus on increasing domestic funding from institutions like insurance companies, private equity, and venture capital. Additionally, the government can focus on providing incentives, easing compliance, and simplifying corporate taxes to strengthen investment and entrepreneurship. The government may simplify the FDI regulations to encourage foreign investments and stimulate domestic, foreign demand while addressing supply-side bottlenecks.
Infrastructure Development
The government may further enhance infrastructure development. In the Union Budget 2024-25, the capital expenditure outlay was Rs. 11.11 lakh crore to drive infrastructure development and economic growth. To meet this target, the government needs to spend around Rs. 1 lakh crore every month throughout the financial year. However, the recently released CAG report says that the government has utilised only 46.2% which is around Rs. 5.13 lakh crore of the budget estimates which indicates a significant shortfall in the pace of spending. Thus, to achieve the goal, the government needs to spend Rs. 1.5 lakh crores during the last quarter of FY25 to maintain momentum in economic growth through infrastructure and capital investments. To overcome this problem, the government should come up with ambitious measures that will focus on high-impact infrastructure, streamline the project-approval process, encourage public-private partnerships, and expedite fund disbursements with quarterly monitoring. Accelerated spending in high-impact infrastructure projects with strong economic multipliers is essential to not only meet the fiscal targets but also to sustain long-term economic growth.
The Union Budget 2025-26 stands as a decisive moment to reignite India’s growth trajectory and align with its ambitious vision of becoming a developed nation by 2047. A comprehensive macroeconomic strategy focused on strengthening the manufacturing base, boosting investment inflows, and accelerating infrastructure development is essential for driving long-term growth. By implementing strategic fiscal policies, enhancing institutional frameworks, and prioritizing high-return investments, the government can address structural impediments, accelerate capital accumulation, and promote inclusive growth.
As citizens, stakeholders, and businesses, it’s time to actively engage, advocate for impactful policies, and collaborate toward building a stronger, self-reliant India.
Author: Prerana Meher
Twitter: @PreranaMeher | LinkedIn