The Indian Budget: A Roadmap for the next 25 years  

by Shruthi Ananth

During his Independence Day address, Prime minister Narendra Modi announced the government’s vision for India’s development into a global economic powerhouse by its 100th national anniversary. The roadmap for the delivery of this goal was presented by the Finance Minister, Nirmala Sitharaman, in the 2022-2023 budget. The three key aims of the Indian government are inclusive development, energy transition and targeting new growth opportunities in the green economy and technology industries to drive economic growth.   

According to the World Inequality Report 2022, India is among the most unequal countries in the world. The top 10% and top 1% in India hold 57% and 22% of the total national income respectively, while amidst the pandemic, the bottom 50%’s share has gone down to 13%. India’s 2022 budget aims to address this by expanding governmental support. They plan to focus on especially vulnerable groups such as girls, women, senior citizens and farmers. The budget expands social welfare programs, while economically empowering marginalised groups through job creation. The government sees inclusive development aligning with the digital and green economic agenda, whilst multimodal transport and logistics projects target better connectivity.   

With the economy rebounding to a greater size compared to pre-pandemic levels and a predicted economic growth rate of 9.2%, the government aims to create 6 million jobs in 14 key sectors over the next five years through its Productivity Linked Incentive. While consumer spending still lags behind pre-pandemic levels, and industries like hospitality and tourism still suffer from the pandemic, the government hopes to gain momentum through new avenues like the green and digital economies. According to a World Economic Forum white paper, “climate change, emerging technologies, global trade tensions and now COVID-19 are driving fundamental shifts in global value chains.” In this evolving narrative for global manufacturing, there is an opportunity for India to deliver on its manufacturing potential. Success in manufacturing may be critical for the nation to create economic opportunities for the 100 million people who could enter its workforce in the coming decade, distribute wealth more equitably as a society and contain its burgeoning trade deficit. With most of the developed world’s populations projected to age significantly in the coming decades, India could hold the key to the next wave of growth in global manufacturing. For corporations seeking new resilient manufacturing destinations and attractive international markets, India could offer the perfect balance of demand potential and supply capabilities. However according to the white paper, “capitalizing on this opportunity will require coordinated action from national, state and local government stakeholders, and players across the full spectrum of the private sector.”  

Despite Modi’s and the budgets restatements on inclusive development goals, another key feature of his speech has been about freeing people from the “clutches of unnecessary laws” which he stated as being necessary “for both Ease of Living as well as Ease of Doing Business.” Labour laws and tax laws have been some of the main areas of simplification. Modi stressed, in his Independence Day speech, that Indians “have to get rid of every rule, every process which has become a hindrance and a burden for the people of this country.” He went on to say that he knows “what has accumulated in 70-75 years will not go away in a day or a year. But if we start working with a purpose, we will definitely be able to do this.” Although the new labour codes will mean a higher quantum of benefits such as higher gratuity, overtime pay and leave encashment in the hands of employees. The focus on abolishing labour laws may be a cause for concern as the government may feel under pressure to reduce labour rights to attract MNCs and meet their economic growth objectives. This is especially of concern considering that over the past three years, the quality of inequality data released by the government has seriously deteriorated, which has made it difficult to assess recent inequality changes and hold the government accountable for their promises on inclusive development.     

Another key theme is a move to self-reliance. Signalling a move to protect domestic industries Finance Minister Nirmala Sitharaman on Tuesday introduced a slew of higher customs duties on items of daily use such as umbrellas, headphones, earphones, loudspeakers, smart meters, and imitation jewellery. Most of these products are imported from China, either as complete units or as knocked down units which are then assembled in factories in India. For example, the customs duty on umbrellas was doubled to 20 per cent, while exemptions provided on import of parts of umbrellas were withdrawn. Similarly, the customs duty on single or multiple loudspeakers was hiked to 20 per cent from 15 per cent.   

This idea of self-reliance is also stressed in the context of energy. Modi has stated that “to build a self-reliant India, India’s energy independence is the need of the hour.” The government aims to make India energy independent by its 100th national anniversary. The plan to meet this goal is mainly through a mix of a gas-based economy, mixing sugarcane extracted ethanol in petrol and electric mobility. Also, India has set a target of 450 GW of renewable energy by the end of this decade (2030), based on the adoption of solar energy as well as investing in green hydrogen production.

The next 25 years is set to be a period of transition in India as the government works towards the goals they’ve set out. The government intends to seize growth opportunities for India to become a global economic powerhouse. However, there are concerns about rising inequality and how exactly the general population will benefit from these measures.   

The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.

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