How can the Union Budget 2025 stimulate India’s economic growth?
By Ranen Banerjee, Partner and Leader Economic Advisory, PwC India
In a world facing economic challenges and geopolitical tensions, the Indian economy has shown remarkable resilience and achieved an average growth of 8.3% in the last three years.1 However, as per the first advance estimates of GDP,2 India’s GDP growth is projected at 6.4% in 2024-25 due to several domestic and global challenges. Recognising the current challenges facing the Indian economy, it is crucial to understand the context in which Union Budget 2025 is being presented and the positive impacts it can generate.
Reviving demand
While rural demand has recovered in FY25, urban demand is facing stress as reflected by several high-frequency indicators, such as a slowdown in passenger vehicle and FMCG sales.
Budget imperatives
- Increase disposable income for households through direct tax measures such as raising the basic exemption limit and reducing income tax rates for lower income brackets.
- Rationalise indirect tax rates on essential goods and services and reduce prices of fuel and cooking gas to mitigate inflationary pressures.
- Support MSMEs through improved access to credit, simplified regulations and incentives for adopting new technologies.
- Develop manufacturing hubs in underdeveloped regions and rationalise import tariffs and duties.
- Encourage innovation through tax incentives and grants for R&D activities.
- Increase allocation under MGNREGA and link it to projects to build rural infrastructure such as schools, healthcare facilities and sanitation.
Human capital strengthening
The key reasons for unemployment and low workforce productivity in India include lack of necessary skills among the workforce; shortage of good quality training institutes, infrastructure and qualified trainers, especially in rural areas; and lack of alignment between the curriculum of educational institutions and current industry requirements.
Budget imperatives
- Expedite implementation of the Employment Linked Incentive (ELI) and PM Internship schemes.
- Increase allocations for training institutes.
- Provide easier access to affordable skill development loans.
- Support labour-intensive sectors with easy and enhanced credit for skilling.
- Improve women’s workforce participation through skilling in the areas of international and domestic skills.
- Invest in digital literacy programmes and support e-governance projects.
- Invest in medical infrastructure, hospital facilities and mobile health units.
- Enhance training programmes for healthcare professionals to meet domestic and international needs.
Maintaining capex momentum
Growth of gross fixed capital formation (investment) is expected to ease to 6.4% in FY25 from 9% in FY24 mainly due to a slowdown in both private and government capex. A pick-up in government capex will be required to strengthen investment growth in the economy as well as continue enabling infrastructure development. In addition, an enabling environment should be created to facilitate private investment.
Budget imperatives
- Allocate a robust capital expenditure (capex) budget focused on critical infrastructure projects such as roads, railways, ports, airports, power generation and transmission, urban development, and internet connectivity.
- Enhance efficiency of capex utilisation by improving project planning, approval processes, management, monitoring and quality assurance.
- Improve ease of doing business through simplified tax laws and streamlined business regulations.
- Develop manufacturing clusters near ports and key infrastructure projects and provide incentives for sectors aligned with sustainability and innovation goals.
- Boost investor confidence in long gestation infrastructure projects through contract enforcement on the part of government agencies.
- Support the development of efficient irrigation systems, modern storage facilities, improved rural road networks and soil health management programmes.
- Promote the use of digital tools for climate smart farming and water use efficiency in agriculture.
- Expand internet access in rural and underserved areas and provide incentives for the rapid deployment of 5G networks.
Sources
- Annual estimates of GDP at constant prices, Ministry of Statistics and Program Implementation (MoSPI)
- https://www.mospi.gov.in/sites/default/files/press_release/PR_NAD_07012025_0.pdf
