While this will incur a revenue loss amounting to 0.2 per cent of GDP, it will provide a strong boost to consumer sentiment and spending, points out Rajani Sinha.
The Union Budget will be presented at a time when domestic economic growth is moderating, there is increased volatility in the financial markets with a sharp depletion of our forex reserves, and heightened global policy uncertainties with a new government in the US.
In these uncertain times, the Budget should focus on accelerating growth while charting a path towards the vision of Viksit Bharat by 2047.
Listed below are five suggested areas the Budget should focus on:
Consumption boost
The government post-Covid has focussed on a capex-led recovery and that has boded well so far.
While the focus on capex should continue, there is a need to supplement this with some consumption-boosting measures.
A wide-based and sustained pick-up in consumption will also help bring in private investment.
The Budget should consider a cut in personal income tax liability by around 5 per cent across tax slabs.
While this will incur a revenue loss amounting to 0.2 per cent of GDP, it will provide a strong boost to consumer sentiment and spending.
Factors like weaker job creation and low real wage growth have dented consumer sentiment.
According to the Reserve Bank of India's Household Survey, consumer sentiment (for current period) has remained in the pessimistic zone since the pandemic.
Gradual move towards fiscal consolidation
The government should slow down its fiscal consolidation efforts while focusing on growth-boosting measures.
It had set a target of achieving a fiscal deficit-to-GDP ratio lower than 4.5 per cent by FY26.
Even if the Centre achieves the fiscal deficit target of 4.7 per cent of GDP in FY26 and reaches 4.5 per cent of GDP only by FY28, the general government debt-to-GDP ratio is likely to be on a downward trajectory.
With economic growth moderating, fiscal consolidation should proceed more gradually, while ensuring that the debt trajectory remains on a downward slope.
Focus on agri sector
A large part of India's population is dependent on the agriculture sector.
India cannot achieve its aspirations of being a developed country without further progress in this sector.
Agriculture employs 45 per cent of India's workforce but contributes only 18 per cent to its gross value added (GVA).
The Budget should focus on increasing productivity in the sector through incentivising technology adoption and focusing on research and innovation in the sector.
Agri startups with high adoption of technology should be encouraged through the agriculture accelerator fund.
There is a need to provide further push to agri-allied sectors like livestock, horticulture, and fisheries, as this will help increase labour productivity and rural incomes.
A greater push to the agri-processing industry and agri-exports should be a critical priority.
Also crucial is the development of adequate infrastructure for food transportation and storage, alongside strengthening agri-industry linkages.
Industrial clusters
The government should identify a few sectors with high potential for export and employment generation, such as electronics, pharmaceuticals, auto and auto-ancillary, textiles, and footwear, and create an ecosystem to attract investment in these sectors.
This could involve growing existing industrial clusters and creating new competitive clusters with complete infrastructure and backward and forward linkages, as also emphasised in the last Union Budget.
The government should focus on facilitating all other aspects, such as improving supply chain movement for these sectors, by reducing import tariffs for input materials where necessary.
Companies should be incentivised to set up skilling facilities or work closely with skilling institutes established in these clusters to enable customised skilling and subsequent absorption within the clusters.
A push to manufacturing through these clusters will help us capitalise on the China-plus-one opportunity presented globally.
It will also help create jobs and facilitate the movement of excess workers from agriculture to the manufacturing sector, which currently employs only 11 per cent of the workforce.
Moreover, 40 per cent of factory employment is concentrated in Tamil Nadu, Gujarat, and Maharashtra.
This underscores the need to develop such clusters in other regions as well, in close collaboration with state governments.
The need for skilling
India has the advantage of a growing working-age population, unlike most global economies that are grappling with ageing demographics.
However, to tap into this opportunity, we must ensure that workers are adequately equipped to be productively employed.
Only around 4.4 per cent of India's workforce is formally skilled, compared to 24 per cent in China and significantly higher percentages in developed countries.
The government in the last few Budgets has been focusing on skilling programmes and upgrading Industrial Training Institutes.
This focus needs to be accelerated sharply to enable us to tap into our demographic dividend.
Equally important is accelerating the growth momentum, while ensuring that it remains sustainable and inclusive.
Continued focus on capex, supplemented with measures to boost consumption, should help the country improve its growth momentum.
For its long-term sustainability, the most critical aspect will be employing our large labour force productively by creating sufficient jobs and ensuring the workforce is adequately skilled, especially in the face of challenges posed by artificial intelligence.
Rajani Sinha is chief economist, CareEdge Ratings.
These are Rajani Sinha's personal views.
Feature Presentation: Rajesh Alva/Rediff.com
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