By Dr. Jaijit Bhattacharya
The International Monetary Fund (IMF), in its recent global economic report, notes that India stands out for not only her resilience in weathering economic uncertainty, but also for its future ready growth trajectory.
The IMF upgraded India’s growth forecast, highlighting the strength of its local demand. This positive outlook comes as the global economy is heading for a smooth landing, with inflation going down, and growth staying strong. As the interim budget was awaited, the IMF’s prediction for India’s GDP growth in the fiscal years 25’ and 26’ was 6.5%, predicting a rosy economic future for the country.
The full budget will come post-election, in July, when the new government is formed, but the interim budget has provided direction for the nation’s aspirations. It is now in the country’s interest to explore how to achieve growth.
Coming to this year’s budget, a lot of questions have been raised on whom it even benefits, or why there have been no significant announcements. It is however positive news that we have what some may call a ‘boring’ budget, because given that it is an election year – several populist announcements could have easily been included for mass appeasement.
What this year’s budget does differently is in fact that it places the spotlight on our forthcoming generations to try and address gaps in our growth aspirations. The rate of growth of private investment has not been growing as rapidly as we expected, and this is what this year’s budget has tried to address.
The increased capital expenditure constituting 3.4% of the GDP, bodes well for the infrastructure-led GDP growth we need. With the increase in capital expenditure by 11.1%, demand for raw materials will also see a significant uptick.
This will essentially mean that we can expect a significant increase in demand for steel, thus spurring investments and job creation in other input industries as well. It is much needed today because to grow private investment, we need investors to be convinced that they can earn profits.
For example, our domestic ferrous alloys industry, which manufactures ferro molybdenum (a vital component in the manufacturing of military grade steel), have manufacturing capacities much higher than our domestic demand for their product. Yet they are unable to service the entire demand for India because of predatory imports from other countries.
Along with an uptick in budget allocation for industries such as semicon and mobile hardware PLI schemes in this year’s budget, we also need to safeguard a lot of our domestic industries that are in nascent stages of development so that they become future-ready.
Sometimes, even sector’s such as pharmaceuticals, where we are the leader’s globally, we can see that some key pharma input manufacturers are unable to grow and seek new investment because of the predatory exports from countries (primarily China).
While the allocation for the pharma sector has experienced an exceptional 15-fold surge from 2018 to 2024. A key insight arising from the challenges encountered by the sector amid the COVID-19 pandemic is that while we need to not only develop capacity for manufacturing end-products, we also need to enhance the internal capacity to manufacture input ingredients.
The case of IPA (IsoPropyl Alcohol, which is an active ingredient in manufacture of medical grade sanitizers) is something that needs much greater attention in the Government.
With a significant chunk of our IPA needs pre-2019 being served by Chinese manufacturers, they were rather quick to stop supplying when we needed it most during the covid phase. But the exports have now risen to a level higher than the pre-covid numbers. We need significant investment to ramp up production in critical input industries.
The Budget has been relatively quiet on the agriculture sector side. Some analysts have determined that there is insufficient allocation of funds to support farmer livelihoods, but what seems to be forgotten in these analyses is that the interim budget is more focused on making us future ready rather than placing appeasement driven populist announcements.
While there is certainly a need for individual farmer centric support through insurance and direct income support, the budget has looked towards enhancing the overall earning potential and capacity by encouraging R&D and value addition in the post-harvest supply chain.
Jute, for example – is an attractive crop for many reasons. It not only has a guaranteed market place for government procurement, it is also the third crop in an agricultural cycle that adds significant fertility to the soil.
Despite this, jute farmers have faced headwinds in the past few years due to uncertain rainfall patterns, and lower earnings. R&D is needed to explore higher value jute products and expand the market beyond government led procurement. Jute diversified products, and retail jute bags can effectively open the market for higher earnings and more private investments flowing in which will ultimately increase the earnings of our farmers.
The IMF’s positive outlook on India’s economic resilience and growth potential sets an optimistic tone for the future. The interim budget’s emphasis on future generations and addressing growth gaps is noteworthy. The increased capital expenditure, particularly in infrastructure, is poised to fuel GDP growth and job creation.
The budget’s focus on safeguarding domestic industries, promoting research and development, and enhancing the agricultural supply chain signals a strategic approach to ensure long-term economic sustainability. However, one of the key areas where we would have liked to see strong budgetary allocation and signaling, is in the area of pollution, and specifically air pollution. We hope that as and when the full budget comes out, there will be an allocation for urgently fighting air pollution.
As India navigates its path towards future-ready growth, the budget’s measured initiatives reflect a commitment to fostering self-sufficiency and growth across various sectors.
This article first appeared in ET Government, https://government.economictimes.indiatimes.com/blog/interim-budget-2024-showcases-govts-intent-to-foster-self-sufficiency-growth-across-sectors/107428305?utm_source=latest_news&utm_medium=homepage
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