Pre-Budget Analysis
Celebration All Around Domestic Front: But Some Worrying Lines Abroad
By Manohar Manoj
The country’s current domestic economic conditions are extremely robust ahead of the upcoming budget to be presented on February 1. However, some worrying lines persist on the foreign front. On the domestic front this fiscal year, several heartening events have occurred. First and foremost, there is strong confirmation that the country’s estimated growth rate for this year, previously at 6.5 percent, has now risen to 7.5 percent. In this regard, the Reserve Bank of India has not only revised its estimate but international institutions like the IMF and World Bank have also raised their growth projections for the Indian economy above 7 percent.For the first time since the Corona pandemic, the country’s fiscal deficit is expected to remain at the targeted estimate of 4.2 percent. Most importantly, reducing the number of GST tax slabs from four to two, lowering the maximum tax rate from 28 percent to 18 percent, exempting several products and services from taxes, and cutting taxes on many other products and services have led to a tremendous surge in domestic demand, consumption, and sales turnover in the country. During the Diwali festive season alone, an additional business of 10 lakh crore was recorded in the economy.As a result, the country’s manufacturing sector received a new lease of life. On the other hand, inflation—whether retail or wholesale—has recorded a historic decline, remaining below 2 percent. Development momentum persists across all sectors of infrastructure in the country.In other words, most domestic macroeconomic indicators of the economy are excellent for the Finance Minister. However, unprecedented worrying lines persist for India on the foreign front. The additional tariff burden from the US has had a threefold impact on India’s external economy. Its immediate effect has been on exports to the US, which until recently was our largest trading partner, with whom we enjoyed a trade surplus of nearly $100 billion.
This has now seen an immediate drop of 20 percent.The second impact is on India’s foreign exchange reserves, for which it was known to be growing; now they are declining rapidly. Our reserves, which were at $700 billion, have now fallen below $600 billion. As a result, the value of the rupee continues to depreciate against the dollar, reaching 91 rupees per dollar. All these effects have significantly impacted India’s stock markets as well. Indian share markets have been fully affected by foreign institutional investors withdrawing and placing investments. Over the past 16 months, India’s stock markets have been on a downward slope.On the foreign front, the good news lately is that India has successfully concluded free trade agreements with several countries. The free trade agreement initiated with Great Britain has now extended to New Zealand, the United Arab Emirates, and most recently, the European Union. India’s deal with the European Union is being called the “Mother of All Trade Deals.” A trade agreement with Germany is also in the pipeline.Expectations are high that a trade agreement with the US will also be possible sooner or later; reports suggest that the US may remove the additional 25 percent tariff imposed on India.In line with the new external economic conditions emerging in the country, the Finance Minister has hinted at introducing customs—i.e., import tax—reforms in this budget. Naturally, this will further increase the volume of imports in India’s import-driven economy. On the other hand, free trade agreements are also likely to make the Indian export industry more competitive.In this budget as well, investment in the country’s capital expenditure sector will increase further, a trend that has been consistently maintained for the past six years. Third, the budget allocation for the defense sector will see a substantial increase. Plans are underway with great enthusiasm not only to strengthen this sector strategically but also to develop it as an industry.The current Modi government has faced significant criticism on the employment front. Reports and data confirm that new recruitments in the organized government sector are continuously contracting. However, the Modi government’s approach to employment—especially educational employment—is to emphasize self-employment through startups, provide incentives for job creation in the corporate private sector, and manage with the existing workforce in the government sector. In the previous budget, three major employment incentive schemes were announced in this regard, aiming to generate three crore jobs.No review report on these schemes has been recorded, but the government claims that in 2025, 1.29 crore new members joined the Employees’ Provident Fund Organisation (EPFO). This suggests that the growth rate in private employment is normal and not overly sluggish. On the other hand, an important rural employment scheme, MGNREGA—renamed to Ji Ram Ji—has faced sharp criticism from the opposition for both the name change and alterations to its functioning. People have pointed out that its expenditure has been reduced, shifting the burden to the states. It remains to be seen how much allocation the Finance Minister provides for this head in this budget. In the case of startup businesses, their number in the country has exceeded 2 lakh, and employment has reached 22 lakh.Overall, the likelihood of tax concessions in this budget is low, as reductions have already been made in both direct and indirect taxes. This time, greater focus will be on adapting to changing times with a revised development vision, new budget allocations for the new economy viz; Green energy, E vehicle, Digital Platforms Etc , and exploring new dimensions of the “Atmanirbhar Bharat” (self-reliant India) slogan in response to the external economy.
(The Author is a Sr. Journalist )