Budget must focus on consumption, capex, jobs: CII president Sanjiv Puri

This Monday (January 6) Indian share market fell sharply on concerns over Q3 earnings. This came on the heels of a lower-than-expected GDP growth estimate for 2024-25. In your assessment, what is the situation on the ground? Will we achieve a growth rate on the upper side of the official range of 6.5% to 7%?

Despite a challenging global environment, India’s structural demand drivers are firmly in place, imparting resilience to the economy. CII expects the economy to grow in the range of 6.4-6.7% in FY25. While the forecast is lower than the 8.2% growth recorded in the previous fiscal, it reflects a transition to stable growth, as the pent-up demand from the pandemic subsides and the economy grows closer to its long-term potential. Moreover, the growth forecast remains reasonably healthy in the face of the rising global uncertainties.

With a continued emphasis on reforms and support from the domestic demand drivers of consumption and investment, we expect the Indian economy to move to a higher growth trajectory in the next year.

What could the Union Budget do to sustain and accelerate economic growth?

Since the presentation of the full budget for FY25 in July 2024, various transitory factors, primarily stemming from global- and weather-related changes, have caused a slowdown in consumption and investment. Hence, in the upcoming budget, the government must focus on revitalising these two critical demand drivers to sustain and accelerate economic growth.

Consumption, which constitutes the lion’s share of GDP with a weight of over 56%, could be given an impetus through a cut in excise duty on fuel in addition to reducing the personal income tax rates for incomes up to ₹20 lakh per annum. Moreover, enhancing resilience in agriculture will help control food prices, thereby boosting consumption demand. Our analysis of the Household Consumption Expenditure Survey (HCES) data shows that low-income rural households allocate a high share of their expenditure to food, making them more vulnerable to the effects of rising food inflation. The Budget should continue to support the upward trend in public capital expenditure spending seen in November, given its significant multiplier effect on the economy. We suggest that the public capex should be increased by 25% over the 2024-25 (BE) numbers which will take capex to around ₹13.9 lakh crore in 2025-26.

What else can the finance minister do to sustain and accelerate growth?

Along with a continued focus on strengthening the key domestic demand drivers – consumption and investment — government can consider the following five action points to sustain and accelerate India’s economic growth further:

The budget should stick to the fiscal deficit glide path, targeting 4.5 % of GDP in 2025-26.

Government should undertake calibrated disinvestment of public sector enterprises to augment revenue.

It should create large-scale and quality employment opportunities by launching an integrated National Employment Policy in addition to facilitating the growth of the small business sector by upgrading Udyam Registration Portal into ‘a single one stop’ platform. To generate employment at scale, targeted intervention for certain sectors like construction & real estate, tourism, readymade garments, etc. would also help.

Economic growth is hugely dependent on natural resources; setting up a National Commission on Adaptation to build resilience and adaptive capacity could be considered.

To integrate into the global value chains, the government should adopt a three-tier tariff structure along with developing an integrated foreign trade, investment and industrial policy.

The economy is still dependent on public investments? What are the necessary factors to attract private investments?

The private investment cycle is picking up pace. There are certain sectors which are doing well, such as renewable energy, electronics, chemicals etc. RBI data also suggests that the capital investment of private corporates based on cost of projects sanctioned by banks and financial Institutions during 2023-24 reached a record high of ₹3.91 lakh crore.

In addition, CII has received an optimistic outlook of the investment scenario in its various forums and discussions with industry leaders. This sentiment also aligns with the on-ground feedback gathered through a dipstick survey of private investments conducted in October which showed that notable 78.8% of participating firms view the present economic environment to be conducive for private investment.