India’s strong economic growth momentum is expected to continue in the coming years, with the upcoming interim budget playing a crucial role in propelling the country’s ambitions to become the third-largest economy. The budget, which will be presented in early February, is anticipated to focus on inclusive and prosperous policies that align with India@100’s roadmap.
In an election year, the government typically presents an interim budget to seek approvals for essential expenditure outlays before the regular budget is presented by the incoming administration. This provides an opportunity to announce pro-demand and growth measures, as seen in previous elections.
The interim budget is expected to address the challenges faced by the rural and farming community, including poor weather conditions, the impact of climate change, and inflationary pressures. Targeted support through transfers to compensate for output losses, increased farm insurance outlays, and boost to rural employment schemes and irrigation facilities may be implemented. Administrative measures such as export restrictions or incentives on fertiliser purchases and farm inputs could also be included to relieve purchasing power.
Additionally, the budget might focus on initiatives such as the development of the food-processing industry, skill development, social spending on education and health, and the improvement of rural infrastructure. These measures are not expected to pose significant risks to fiscal stability in the near term and are likely to be supported by strong revenue generation.
From a structural perspective, the budget is expected to emphasize two key areas. Firstly, there will be a continued push for capital expenditure, with the government leading the way in this regard. The total capex expenditure, including both the federal budget and public sector entities, is set to rise above Rs 15 trillion this year. Private-sector participation will be encouraged to further boost growth. The government will also focus on indigenizing manufacturing activity.
Secondly, fiscal rationalization will remain a priority. The central government’s fiscal deficit has significantly narrowed, and efforts will be made to further reduce it. Strong direct and indirect tax collections, along with better-than-expected dividend receipts, contribute to these efforts. The government aims to meet the fiscal deficit target of -5.9% of GDP for this year, with further consolidation to -5.2-5.4% of GDP in subsequent years.
The upcoming budget is expected to strike a balance between short-term priorities and incremental steps toward achieving the country’s longer-term goals of a $5 trillion nominal GDP and eventually reaching the $10 trillion mark.
India’s economic growth rate has been impressive, with the country’s GDP projected to increase to 6.6% in 2025. The interim budget is seen as a critical tool to sustain this growth momentum and propel India’s aspirations to become the third-largest economy.
In conclusion, the upcoming budget presents an opportunity for India to reinforce its economic growth through targeted measures, a focus on capital expenditure, fiscal rationalization, and a balanced approach to short-term priorities and long-term goals. By leveraging these strategies, India can continue its remarkable economic trajectory and solidify its position as a global economic powerhouse.
