Union Budget 2024


Budget 2024 Expectations : Policy and economy

Dr. Rumki Majumdar, Economist


Current environment

Upside risks

  • Growth: In FY2024, India’s GDP grew by 8.2 percent year over year.*Despite global geopolitical challenges, a significant portion of this growth was driven by strong domestic demand. Exports also saw a significant uptick in growth in the last quarter. India’s GDP is expected to grow by 6.5–6.7 percent in FY2025. In April, the IMF predicted the country to grow by about 6.8 percent in FY2025. Additionally, it expects India’s GDP to reach US$5 trillion by 2027, making it the world’s third-largest economy.
  • Sectoral growth: After contracting by -2.2 percent in the previous year, manufacturing growth remained strong at 9.9 percent this fiscal year. Services grew by 7.6 percent, but agriculture growth suffered a setback due to intertemporal and spatial rainfalls. All three sectors are expected to maintain the growth momentum, with the agriculture sector performing better due to an above-normal monsoon.
  • Robust infrastructure spending: The government has consistently increased budgetary allocation for infrastructure from 1.7 percent of GDP in FY2020 to 3.2 percent in FY2024. It is expected to increase up to 3.4 percent of GDP in FY2025. Calibrated policy actions are likely to reduce logistics costs and improve the supply chain.
  • Credit growth accelerating: Steady improvement in the bank’s balance sheets over the past couple of years and a decline in NPAs across sectors have led to increased lending by banks. Credit growth has recovered quickly after the pandemic and has been in double digits for the past two years. The services sector has witnessed the highest credit growth, followed by growth in personal and industry loans.


Downside risks

  • Geopolitical uncertainties: Geopolitical concerns are affecting global investors’ sentiments. The US-China trade war, election outcomes in key economies and tensions in Central Asia may result in global supply disruptions and capital outflows in emerging markets. Crude prices above US$90/bbl can put pressure on India’s current account deficit and inflation. The slowdown in China and lacklustre growth in the US may also affect trade and export demand.
  • Inflation: Inflation has been one of the major concerns for policymakers. High food prices are a cause of concern, especially the double-digit growth in pulses and cereals, which have a significant share in the CPI food basket. However, core prices (net of food and fuel prices) have declined steadily since May 2023, and are now below the RBI’s target inflation rate of below 4 percent. Steady oil prices have led to a reduction in fuel inflation in recent quarters. The trend is likely to continue in FY2025 unless there are surprise oil price shocks. Food inflation may remain a concern, although better and more equitable rainfall could ease the pressure. The RBI will likely keep its policy rates steady until it sees a steady decline in overall inflation below 4 percent target levels.


Top three asks

Ask #1

The government has increased its budgetary allocation over time to focus on developing physical and social infrastructure. This has led to a decline in logistics costs (10 percent of GDP in 2013 to 8.9 percent of GDP in 2022) and improved women participation in the labour force (23.3 percent in 2018 to 37 percent in 2023). The upcoming budget is also expected to focus on these sectors. Within infrastructure, we expect changes in allocation priorities leading to a higher allocation towards improving port and shipping; energy, especially green and sustainable energy; and urban infrastructure. The government is expected to continue prioritising spending on health, education and skilling in the social sector.

Ask #2

One of the biggest challenges will be to revive merchandise exports that contracted by 3 percent in FY2024. To achieve its US$1 trillion target by 2030, it will have to create a roadmap to reach it. We expect the government to soon complete the FTA talks with Oman, Peru, the UK, the European Union, Chile, the South African Customs Union and the Gulf Cooperation Council. This could boost exports in these regions amid global uncertainties. The government is expected to expedite digital networking opportunities, such as the Trade Connect platform, to facilitate exporters’ connections with international trade counterparts.

Ask #3

Energy demand is expected to increase for the fastest-growing nation, and India must prioritise energy security and energy self-reliance while ensuring a push towards alternate, cleaner energy sources. We expect an overhaul of the power supply ecosystem through energy reforms that address legacy issues. Green mobility and energy sources are also expected to get a leg up as the government emphasises building the supporting infrastructure and accelerates its efforts for the uptake of PLI schemes in solar photovoltaic modules and chemical cells.

Policy recommendations

Recommendation #1

With the record INR2.1 trillion dividend from the RBI, the government must adopt a balanced approach and further reduce the fiscal deficit target for FY2025. A part of the additional resources must be allocated to the social sector.

Recommendation #2

The government must expand the scope of PLI schemes, especially for sectors that can create more jobs, such as textiles, handicrafts and leather. The schemes must continue in sectors that have seen success, such as electronics, auto and semiconductors.

Recommendation #3

To improve global liquidity (once the Western central banks start easing their monetary policies), the government can raise the ceiling for investment size and remove location restrictions to attract more foreign investment. Multi-brand retail and e-commerce are some sectors that may benefit from this.


*All growth numbers are represented as Year over Year unless mentioned otherwise

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