As the Modi 3.0 Government engages in pre-budget consultations with key industry stakeholders, the national economy has high expectations of continuity. The government in its two previous terms has delivered budgets marked by concerted efforts to bolster capital investment, instill fiscal discipline by incorporating off-budget borrowings, and significantly enhance manufacturing and infrastructure development.
The ongoing pre-budget deliberations have underscored diverse sectoral concerns, including calls for reduced income tax burdens, increased capital expenditure, measures to mitigate food inflation, and support for the MSME sector, among others. As anticipation builds for the budget announcement scheduled next month, it is crucial to highlight key areas that are likely to be the government’s foremost priorities in its third term.
Urban infrastructure and Ports, Manufacturing and Renewables
Infrastructure spending, both social and physical, a cornerstone of recent budgets, is anticipated to retain its pivotal role. The increased budgetary allocations towards the social sector have already demonstrated positive impact, such as heightened female labor force participation (rising from 23.3% in 2018 to 37% in 2023) and improved mortality rates (notably reducing neonatal mortality from 29.5 to 24.9, infant mortality from 40.7 to 35.2, and under-five mortality from 49.7 to 41.9 between 2016 and 2021). This budget is expected to sustain the momentum. Given the rising young population aspiring to enter the labor force and fast changing job requirements, there is a rising demand for a healthy and skilled workforce. We anticipate heightened government spending in health, education, reskilling, and vocational training under the ambit of building social infrastructure.
In terms of physical infrastructure, there is expected to be a heightened emphasis on several key areas. This includes significant attention directed towards the enhancement of ports and shipping facilities, the expansion and development of renewable energy projects, and the improvement of urban infrastructure networks.
Over the past few years, India has made continuous strides to gradually move upstream and downstream of the manufacturing value chain to enhance benefits from participation in GVCs in the long run. Government policies, therefore, were targeted specifically towards high-end manufacturing sectors and the outcomes have been favorable. The rising exports in engineering goods and electronics during FY 2024, despite a slight downturn in merchandise exports is a case in point. We expect this momentum to continue with policies focusing more on innovation, building a robust business ecosystem, ensuring a business-friendly environment, and most importantly, creating jobs. Ongoing efforts to streamline regulations, lighten compliance burdens, leverage FDI-friendly policies and incentives to attract global manufacturers, and promote the adoption of advanced manufacturing technologies like automation, robotics, and Industry 4.0 to enhance productivity and competitiveness are a few measures that will be watched out for.
With India’s ambitious clean energy targets, including its leadership in the International Solar Alliance and commitments under the Panchamrit goals, there are expectations around GST reductions, streamlined FDI norms, and increased capital investment. Support is anticipated through Production-Linked Incentive (PLI) schemes aimed at domestic manufacturing of renewable energy components, aiming to reduce reliance on imported solar panels and stimulate domestic demand.
Eye on $2 trillion export target
To achieve the ambitious $2 trillion export target by 2030, strategic roadmaps are essential. The government is expected to speed up its Free Trade Agreement negotiations with Oman, Peru, then UK, the EU, Chile, the South African Customs Union, and the Gulf Cooperation Council to bolster export prospects amid global uncertainties. This would include efforts such as streamlining exports and enhancing foreign trade facilitation through initiatives like the Trade Connect Platform.
Fiscal Consolidation
The government’s adept management of its finances, as evidenced in the sharply declining fiscal deficit to 5.63% in FY 2024 (outperforming its estimate of 5.8%), reflects the commitment to fiscal prudence. We expect the fiscal deficit to fall further to 4.5% of GDP by FY 2026.
Dr. Rumki Majumdar, Economist, Deloitte India
Debdatta Ghatak, Manager, Deloitte India