Roads That Fork With Budget 2025

In the next two years, we'll know the outcomes of the census, and the finance and pay commissions. This budget is a chance to address some issues before the imperatives change

- K M Chandrasekhar

The fact that the Indian economy is on the verge of turbulence is well known to all but those who choose to wear blinkers. But if we take the blinkers off, we would be able to see a number of occasions coming up in the near future that would allow the administration to navigate the storm better.

One immediate fallout of the pandemic was suppressed demand. It resulted in a delusional base effect in the following years, giving us GDP growth rates as high as 7 percent in 2022-23 and 8.2 percent in 2023-24. The rate slumped to 5.4 percent in the second quarter of 2024-25, and the rate for the whole financial year is now expected to be a little over 6 percent. To achieve the dream of a developed nation by 2047, India needs a sustained growth of 8 percent.

Hitherto, the government's policies have been more corporate-friendly, with some sops for the very poor. Even during the pandemic, when many other countries were designing stimulus packages to promote employment and sustain demand, our finance minister chose to sharply bring down corporate taxes at the cost of ₹1.5 lakh crore. The FM obviously believes growth can only trickle down from above. But economic inequalities have grown enormously, the middle class has been squeezed, and, as a consequence, demand has plummeted.

The consumer goods sector showed a 4 percent decline in profit year on year in 2024, and revenue growth was minimal. The automobile sector, a barometer of middle-class prosperity, has mostly shrunk. Geopolitical tensions have hit exports. Inflation, particularly food inflation, has been high, preventing monetary policy intervention to spur demand. As Shaktikanta Das, the former RBI governor, plainly put it, "High inflation reduces the disposable income in the hands of consumers and dents private consumption, which negatively impacts the real GDP growth."