Editorial: Sita’s trial by fire

Finance Minister Nirmala Sitharaman is set to present the first full Budget of the Modi government's third term, an exercise that is expected to balance the aspirations of the middle class, vis-a-vis tax cuts, and the urgent need for boosting consumption to drive economic growth, all while meeting the 4.5% fiscal deficit target by 2026, to be achieved through prudent spending. Sitharaman's record eighth consecutive Budget will contain measures to shore up the weakening GDP while easing the burden on the working class which bears the brunt of inflation and stagnant wage growth, compounded by widespread unemployment.

The Budget is being tabled against the milieu of India's GDP growth rate being projected to fall to 4-year low of 6.4 per cent in the current FY, close to its decadal average. The Economic Survey 2024-25 estimates that our GDP growth will be in the range of 6.3-6.8 per cent in FY26, which is significantly lower than the growth rate in 2023-24, when the GDP grew by an impressive 8.2 percent, maintaining India's position as the fastest-growing major economy. In 2022-23, the economy had grown by 7.2 percent and in 2021-22, the rate was 8.7 percent.

The sluggish growth is a thorn in the side of the government. To drive consumption, the government is mulling measures to leave more money in the pockets of middle income individuals. The ideas include raising the standard deduction further, and lowering the tax liability across slabs, including ones for the higher income segments. A case is also being made to provide higher concessions for spends such as health insurance and pension.

On the entrepreneurial front, experts have sought a second round of GST reforms — including rationalisation of tax rates and inclusion of power tariff, aviation turbine fuel and petroleum products. Startups and venture capitalists are seeking a simplified tax regime and measures to boost availability of domestic capital. Those in the manufacturing space are optimistic about a boost for capex, as well as a widened scope of the PLI scheme, which is known to be one of Sitharaman's signature instruments of industrial policy.

There is also the need for bringing in parity between foreign and domestic funds in taxation, so as to attract foreign investors to Indian Alternative Investment Funds. Wishlists aside, there is the elephant in the room as US President Trump has threatened BRICS member nations like India, as well as US allies like Canada and Mexico with a 25% import tariff. Trump's America First policy is a shortcut for trade wars and the ensuing panic in global markets which will eventually drag down international trade and the GDP growth of nations. This does not bode well for India as it will diminish the nation's attractiveness to foreign investment of all kinds.

Trump's tantrum might throw a spanner in the works of our race toward the Viksit Bharat goal. At present, our per capita income is $2,697, while the IMF benchmark for a high income country is $23,380. RBI research tells us that our economy will have to grow at the rate of 7.6% per annum over the next 25 years to achieve that goal by 2047. Sitharaman and her team have a tall order ahead of them, steering the ship of India's fortunes through the seas of global uncertainty, made stormier by the arrival of a chief disruptor.