India continues to hold its long-term growth promise intact in an uncertain world. A few decades of demography dividend, political stability, and geo-political alignment will ensure India remains amongst the fastest-growing large economy. India’s current macro scenario is also the envy of the world. The fiscal deficit target of 5.1% of GDP in FY25 set in the interim budget is on track to be met, positioning us to achieve 4.5% of GDP in FY26.
If crude remains range bound as it has been in the last few quarters, the current account deficit will remain around 1% of GDP and with robust services exports, it might turn positive in some quarters.
While core inflation has come down, food inflation remains elevated. With the expectations of a normal monsoon, prices of vegetables are expected to come down and hence cool off food inflation. However, climate change-related uneven weather patterns are massively impacting crop yields and input costs for farmers. Most central banks are now saying that food inflation will remain high for an extended period with monetary policy interventions offering limited relief.
The union budget 2024-25 can play a crucial role in assisting the agriculture sector to mitigate climate change-related risks and aim to achieve USD 100 billion from agricultural exports. Investing in and incentivizing agricultural research using GIS, AI, drones, and remote sensing-based technologies is essential to adapt to climate-related impact as the world is poised to see a temperature increase between 2.5 to 2.9 degrees centigrade above pre-industrial levels this century. Agriculture infrastructure, such as irrigation systems, cold storage, and more food processing units require massive public investment to create a robust food supply chain.
A key priority of the Budget 2025 would be to include job creation. The Commerce Ministry has set an ambitious yet achievable target of US$2 trillion in exports by 2030 with a focus on labour-intensive sectors such as textile, electronics, agriculture, and food processing. It is natural to expect the union budget to announce a few PLI schemes to support this goal including domestic value creation through promotion of local manufacturing. Employment linked incentive scheme, similar to production linked incentive scheme, could also be introduced for incentivizing incremental job creation in labour intensive sectors
Services exports are booming on the back of 1700 odd Global capability centres (GCCs) having created 15 lakhs direct and almost six times that in indirect employment. GCCs have become global innovation nerve centres with application development and management, and a large number of business services and management processes that are AI-enabled are getting delivered out of GCCs.
The government can encourage more such GCC investments by doing road shows through our missions abroad, providing transfer pricing clarity by giving quick advance pricing agreement (APAs) and incentivising GCCs to move to Tier 2 and 3 cities and towns.
Targeted skilling initiatives should also be launched to address the needs of the industry, including preparing the workforce for the AI and GenAI needs. Similarly, many large construction and engineering, procurement, and construction (EPC) companies have highlighted a significant demand for skilled blue-collar workers.
Managing a smooth energy transition will be critical for India to keep up the momentum in the economy. Grid decarbonization, industrial decarbonization and transportation transition – will need additional impetus. As per IEA, global annual renewable energy (RE) capacity addition increased by a staggering 510 GW in 2023, with China alone adding 220 GW, EU 69 GW, and USA 40 GW. India aims to reach 500 GW of RE capacity by 2030, requiring an addition of 50 GW annually, though the current rate of annual RE addition has been significantly lower around 20 GW.
Almost ₹40,000 cr collected from coal cess should be directly invested in energy transition to enable this RE capacity addition, and meet other energy transition technology targets like 5 MT of Green Hydrogen and 60 GW of battery and pumped hydro storage capacity by 2030. With all things favouring the country, India cannot afford to once again face an energy deficit situation, crippling the economy.
Local pollution, often only highlighted during the winter months, deserves consistent attention. Seasonal stubble burning, municipality waste management, and link to biofuel programs need to be provided more resources in the budget.
One can safely predict that the momentum of infrastructure spending of the government will continue from the previous few years as the interim budget already has an outlay for FY25 of ₹11.1 trillion. With healthy bank and corporate balance sheets and capacity utilisation in many sectors signalling investment needs, the private sector is finally expected to join the capex bandwagon.
Finally, what is expected of every budget – one would expect relief for the middle class in terms of raising the taxable income threshold and rationalisation of GST slabs. Indian corporations and foreign investors will expect further simplification of tax laws relating to tax deducted at source (TDS), capital gain, and angel tax, etc.
Debasish Mishra, Partner and Chief Growth Officer, Deloitte South Asia.
