As India anticipates the announcement of the Budget for 2024-25, the nation faces a complex array of economic challenges that demand strategic and effective solutions. It's hence essential to focus on the key issues confronting the Indian economy today and see tomorrow whether the upcoming budget addresses these critical concerns.
To propel India toward becoming the third-largest economy and achieving a $5 trillion GDP by the mid-2020s, the 2024-25 Budget must adopt a sharply defined strategy.
This includes strategic, sharply focussed, value oriented and merit based deployment of available budget, reducing the fiscal deficit to below 4% of GDP through comprehensive tax reforms and stringent expenditure control, while addressing the ₹160 trillion sovereign debt with strategic restructuring.
Critical to this strategy is a robust crackdown on corruption and tax avoidance, which undermine economic stability and growth. Balancing investment in infrastructure to stimulate industrial growth, streamline regulatory processes to support SMEs with Investments for faster growthin selected sectors. Focus on job creation and launching a national skills development program to align education with market demands and sharply reduce youth unemployment. Enhance agricultural productivity with targeted investments for crop diversification towards higher value growth, invest in irrigation, storage, and rural infrastructure. Increase R&D funding for technologies like AI and renewable energy, and expand digital infrastructure. Combat environmental challenges with green projects and efficient water management. Strengthen trade policies and attract substantial foreign investment by improving the investment climate. Finally, boost healthcare funding and expand social safety nets to ensure inclusive growth and reduce inequality.
This strategy can address critical economic challenges and pave the way for achieving India's ambitious growth targets.
Fiscal Deficit
India's fiscal deficit remains a pressing issue. The deficit for the fiscal year 2023-24 was notably high, driven by substantial government spending on subsidies and welfare programs. The challenge lies in balancing this spending with revenue collection to avoid exacerbating debt levels. According to Dr. Arvind Subramanian, former Chief Economic Advisor, "Managing the fiscal deficit requires a balanced approach that combines prudent fiscal management with strategic investments to ensure economic stability." The upcoming budget will be scrutinized for its approach to fiscal consolidation and strategies to enhance revenue without stifling growth.
Sovereign Debt Management
Sovereign debt has become a significant concern for India, with high debt levels posing risks to fiscal stability and economic growth. As of the latest reports, India's sovereign debt stands at approximately $1.7 trillion, reflecting ongoing fiscal pressures. Effective management of this debt is crucial to maintaining economic stability and avoiding financial crises. Dr. Arvind Panagariya, former Vice Chairman of NITI Aayog, notes, "Effective management of sovereign debt is critical to ensuring long-term economic stability and avoiding potential financial crises." The forthcoming budget will be keenly observed for measures aimed at controlling debt and improving fiscal sustainability.
Trade Deficit
The trade deficit has been a persistent challenge, with recent figures indicating a widening gap due to higher imports of crude oil and electronics. For the fiscal year 2023-24, the trade deficit reached $225 billion, up from $200 billion the previous year. This imbalance has implications for the balance of payments and foreign exchange reserves. The Directorate General of Foreign Trade (DGFT) highlights the need for a strategic approach to manage the trade deficit. Dr. Bibek Debroy, Chairman of the Economic Advisory Council to the Prime Minister, emphasizes, "Addressing the trade deficit requires enhancing export competitiveness and developing a robust trade strategy to manage the growing imbalance effectively." The budget's approach to trade policies and export incentives will be crucial in tackling this issue.
Banking Sector Woes
The banking sector in India continues to face challenges related to Non-Performing Assets (NPAs). As of March 2024, NPAs stand at 7.4% of total advances, affecting the availability of credit and overall financial stability. The Reserve Bank of India's Financial Stability Report points to the need for reforms to address these high levels of NPAs. Dr. Viral Acharya, former Deputy Governor of the RBI, stresses, "Resolving the NPA issue is crucial for restoring confidence in the banking sector and ensuring that credit flows efficiently to businesses and consumers." The budget's measures to tackle banking sector issues will be critical for economic stability.
Inflation
Inflation has been a significant concern, with the Consumer Price Index (CPI) inflation rate hovering around 6.2% in June 2024, exceeding the Reserve Bank of India's (RBI) target range of 2-6%. Persistent inflation, driven by supply chain disruptions and rising fuel prices, impacts consumer purchasing power and living costs. Dr. Manohar Bhandari, an economist at the National Institute of Public Finance and Policy, states, "Persistent inflation requires targeted interventions to manage supply chain disruptions and stabilize prices." The budget's policies on controlling inflation and supporting affected sectors will be closely examined.
Unemployment
Unemployment remains a critical issue, with the rate at 7.8% in July 2024, and youth unemployment significantly higher at 23%. Job creation has not kept pace with the growing labor force, particularly impacting the younger demographic. The Ministry of Labor and Employment has emphasized the need for robust job creation strategies. According to Dr. Raghuram Rajan, former RBI Governor, "Addressing unemployment requires a multi-faceted approach, including enhancing skill development and creating opportunities in emerging sectors." The budget's focus on employment generation and skill development programs will be pivotal.
Industrial Growth
Industrial growth has slowed, with the growth rate at 3.1% in the first quarter of 2024 compared to 5.7% in the same period the previous year. Factors such as policy uncertainties, investment shortages, and supply chain issues have hindered industrial performance. The Ministry of Commerce and Industry has stressed the need for policy stability and investment incentives. Dr. Rajiv Kumar, Vice Chairman of NITI Aayog, asserts, "Reviving industrial growth requires clear policy direction and targeted investments in infrastructure and innovation." The budget's industrial policy and investment strategies will be critical for stimulating growth.
Agricultural Distress
Agriculture continues to face significant challenges, with the sector's contribution to GDP at 15.4% in 2023-2024. Despite employing over 40% of the workforce, agriculture is plagued by issues such as indebtedness and climate impacts. The Ministry of Agriculture and Farmers Welfare has highlighted the need for reforms and improved infrastructure. Dr. M.S. Swaminathan, renowned agricultural scientist, had emphasized, "Addressing agricultural distress requires comprehensive reforms to improve productivity and support farmers." The budget's support for agricultural reforms and infrastructure development will be essential.
Infrastructure Bottlenecks
India's infrastructure remains underdeveloped, ranking 70th in the World Economic Forum's Global Competitiveness Report 2023. Poor infrastructure hampers industrial growth and economic development. The Ministry of Road Transport and Highways has called for increased investment in infrastructure projects. Dr. Amitabh Kant, former CEO of NITI Aayog, had noted, "Investing in infrastructure is crucial for economic growth and improving competitiveness." The budget's focus on infrastructure investment will be key to addressing these bottlenecks.
Regulatory and Bureaucratic Hurdles
Regulatory and bureaucratic inefficiencies continue to pose challenges, with India ranked 63rd in the World Bank's Ease of Doing Business Report 2020. Complex regulations and slow business processes deter investment and growth. The Ministry of Commerce and Industry has emphasized the need for regulatory reforms. Dr. Bibek Debroy suggests, "Streamlining regulations and reducing bureaucratic delays are essential for improving the business environment." The budget's approach to regulatory reforms will be vital for enhancing ease of doing business.
Environmental Concerns
Environmental issues remain a significant concern, with India ranked 168th out of 180 countries in the Environmental Performance Index 2024. Degradation and pollution impact health and productivity. The Ministry of Environment, Forest and Climate Change has stressed the need for stronger environmental policies. Dr. Sunita Narain, Director General of the Centre for Science and Environment, states, "Addressing environmental concerns requires stringent policies and investments in sustainable practices." The budget's focus on environmental protection and sustainability will be crucial.
Rising Poverty
Poverty remains a critical issue, with significant portions of the population struggling to meet basic needs. The Planning Commission's latest data indicates that poverty rates have seen a modest decline but still reflect substantial challenges. Dr. Jean Drèze, an economist and development specialist, highlights, "Effective poverty alleviation requires targeted social programs and economic opportunities to uplift the most vulnerable." The budget's allocation for poverty alleviation programs will be closely scrutinized.
Health
India's healthcare sector faces significant challenges, with healthcare expenditure at only 1.5% of GDP, among the lowest globally. The sector needs substantial investment to improve infrastructure and access. The Ministry of Health and Family Welfare has emphasized the need for increased funding. Dr. K. Srinath Reddy, President of the Public Health Foundation of India, notes, "Strengthening health infrastructure and increasing funding are critical to improving healthcare access and outcomes." The budget's focus on health sector reforms and investments will be crucial.
Education
Education remains a priority, with India ranked 115th in the Global Education Index 2023. The education system requires reforms to meet future workforce demands and improve quality. The Ministry of Education has called for increased investment in schools and vocational training. Dr. Amartya Sen, Nobel Laureate in Economics, asserts, "Reforming the education system to focus on quality and skill development is essential for economic growth and social mobility." The budget's commitment to educational reforms will be key.
Science and Technology
Investments in science and technology are essential for innovation and growth. The Ministry of Science and Technology has emphasized the need for increased funding for research and development. Dr. N. R. Narayana Murthy, founder of Infosys, highlights, "Investing in science and technology is crucial for driving innovation and maintaining global competitiveness." The budget's allocation for R&D and technology initiatives will be important for sustaining technological advancement.
Assistance to Critical States
Several states face unique economic challenges and require targeted assistance. The Ministry of Finance is expected to address these needs through specific support measures. According to Dr. Praveen Chakravarty, Chair of the Data Analytics Group of the Indian National Congress, "Targeted assistance to critical states is essential for addressing regional disparities and ensuring balanced growth." The budget's provisions for state-specific assistance will be crucial for addressing these disparities.
Defense
Defense spending is a key aspect of India's national strategy, with a defense budget of $76.6 billion for 2023-2024. This expenditure reflects ongoing regional security concerns and the need for modernization. Investments are expected in new technologies and infrastructure to bolster national security. Dr. C. Raja Mohan, a distinguished fellow at the Institute of South Asian Studies, asserts, "Strategic defense investments are vital for national security, but they must be balanced with investments in other critical sectors to ensure comprehensive development." The budget's allocation for defense and its strategic priorities will be pivotal in shaping India's security landscape.
Technological Disruption
Technological advancements, particularly automation and artificial intelligence (AI), are poised to transform the job market. According to a McKinsey report, up to 25% of jobs in India could be displaced by 2030 due to these technologies. Managing this disruption requires substantial investment in reskilling and creating new job opportunities. Dr. Nandan Nilekani, co-founder of Infosys, emphasizes, "Embracing technological change while investing in reskilling the workforce is critical for mitigating job displacement and fostering growth." The budget's approach to technology-driven job creation and skill development will be essential.
Climate Change
India faces significant economic challenges related to climate change, with projected losses of up to 2.5% of GDP annually by 2030 due to climate-related events. These impacts affect agriculture, infrastructure, and overall economic stability. The Ministry of Environment, Forest and Climate Change has called for robust adaptation strategies. Dr. Rajendra Pachauri, former Chair of the Intergovernmental Panel on Climate Change (IPCC), warns, "Climate adaptation strategies are essential for protecting economic stability and ensuring sustainable development." The budget's allocation for climate adaptation and mitigation will be crucial for addressing these challenges.
Energy Security
With India's energy demand expected to double by 2040, ensuring energy security is a key concern. The International Energy Agency (IEA) emphasizes the need for a balanced energy strategy that includes both fossil fuels and renewable sources. Dr. Anil Kakodkar, former Chairman of the Atomic Energy Commission, notes, "A sustainable energy strategy that integrates renewable energy sources and enhances energy efficiency is vital for long-term energy security." The budget's investment in energy infrastructure and renewable energy initiatives will be vital for meeting future energy demands.
Demographic Shifts
India's demographic profile is shifting, with the population over 60 years old projected to triple to 340 million by 2050. This aging population presents economic challenges, including increased healthcare costs and changes in labor force dynamics. The Ministry of Social Justice and Empowerment has highlighted the need for policies that address these shifts. Dr. S. Irudaya Rajan, Professor at the Centre for Development Studies, states, "Addressing demographic changes requires proactive policies to support an aging population while providing opportunities for the younger demographic." The budget's measures to support elderly care and leverage the demographic dividend will be key.
Urbanization
Rapid urbanization is expected to see 40% of India's population living in urban areas by 2030, up from 34% in 2020. This trend necessitates substantial investment in urban infrastructure, including housing and transportation. The Ministry of Housing and Urban Affairs has called for increased funding for urban development projects. Dr. Shakti Sinha, former Director of the Nehru Memorial Museum and Library, asserts, "Effective urban planning and infrastructure investment are essential for managing rapid urbanization and ensuring sustainable cities." The budget's focus on urban development and infrastructure investment will be crucial for accommodating growing urban populations.
Health Infrastructure
With healthcare spending at only 1.5% of GDP, India's health infrastructure requires significant enhancement to cope with potential pandemics and ensure widespread access to healthcare. The Ministry of Health and Family Welfare has emphasized the need for increased funding and infrastructure development. Dr. Randeep Guleria, Director of the All India Institute of Medical Sciences (AIIMS), highlights, "Investing in healthcare infrastructure and expanding access to services are critical for improving health outcomes and preparing for future health crises." The budget's support for health sector improvements will be crucial for addressing these needs.
Educational Reforms
India's education system faces challenges, with a ranking of 115th in the Global Education Index 2023. Reforming the education system to meet future workforce demands and improve quality is essential. The Ministry of Education has called for increased investment in educational infrastructure and vocational training. Dr. Manohar Bhandari, Education Expert, asserts, "Reforming the education system to focus on quality, skill development, and vocational training is critical for preparing a future-ready workforce." The budget's focus on educational reforms and investment will be key for improving educational outcomes.
Science and Technology
Investments in science and technology are vital for driving innovation and maintaining global competitiveness. The Ministry of Science and Technology has emphasized the need for increased funding for research and development. Dr. K. Radhakrishnan, former Chairman of ISRO, notes, "Investing in R&D and technological innovation is crucial for driving economic growth and maintaining technological leadership." The budget's allocation for science and technology initiatives will be important for fostering innovation and technological advancement.
Assistance to Critical States
Several states face unique economic challenges and require targeted assistance to address regional disparities. The Ministry of Finance is expected to allocate resources to support these states. Dr. Praveen Chakravarty, Chair of the Data Analytics Group of the Indian National Congress, states, "Targeted assistance to critical states is essential for addressing regional imbalances and promoting balanced economic development." The budget's provisions for state-specific assistance will be crucial for ensuring equitable growth across regions.
In summary, the Budget for 2024-25 will be a critical document that addresses a range of economic challenges, from fiscal deficit and sovereign debt management to industrial growth and social issues. The effectiveness of the budget will depend on how well it tackles these challenges and supports sustainable development. As the budget is set to be announced, stakeholders will be watching closely to assess its impact on India's economic future.
Disclaimer: The views expressed in this article are those of the author only
Major General Dr Dilawar Singh is an Indian Army veteran who has led the Indian Army's Financial Management, training and research divisions introducing numerous initiatives therein. He is the Senior Vice President of the Global Economist Forum AO ECOSOC, United Nations and The Co President of the Global Development Bank. He is passionate for advocacy for Fintech incorporation for enhancement of financial transparency, efficiency of finmanagement and societal inclusive banking.
