Employment is a function of growth. Hence, emphasis has been on growth maximisation in recent years through ease of doing business, production-linked incentive (PLI) schemes, and large expenditure on infrastructure besides targeted welfare initiatives for inclusive growth. The trickle-down theory to reduce inequality and provide employment doesn’t seem to have delivered to the desired extent. Has Budget 2024-25 addressed these issues?

The focus areas in the Budget are employment, skilling, MSMEs and the middle-class. The underlying message of the Budget is four-fold: the government is concerned about reducing inequality, increasing employment, supporting MSMEs and providing relief to the middle-class. About 50 per cent of graduates are currently not employable. About 38 per cent of IIT graduates could not get campus placement this year. The skill gap between industry requirements and knowledge imparted by Indian universities is high, except for a few premier educational institutions that provide skilled manpower to India and abroad. While the new education policy would take time to tackle the skill gap problem, the Budget wanted to address the unemployment problem upfront by skilling/reskilling/upskilling job-seekers (internships included) to be absorbed mostly in the employment-intensive MSME sector.

New jobs likely to be generated by the government due to large infrastructure spending, including flagship housing projects for the poor, may not be sufficient. Quality employment needs to be generated in the private sector. The employment-linked incentive (ELI) scheme proposed in the Budget may nudge the private sector to create new jobs. The PLI scheme, introduced earlier, is still in force. Hopefully, both the ELI and PLI schemes will enthuse the private sector.

Priority areas

There are nine priority areas documented in the Budget speech. The first five priorities — productivity and resilience in agriculture, employment and skilling, inclusive human resource development and social justice, manufacturing and services, and urban development — largely address the immediate problem of inequality and unemployment. The last four priorities — energy security, infrastructure, innovation, research and development, and next-generation reforms — mostly fulfil medium-to-long-term requirements for Viksit Bharat by 2047. The Budget proposals are a well-thought-out package balancing immediate needs and long-term goals.

The middle-class will benefit from a hike in standard deduction, changes in the tax slabs, deduction on family pension, hike in education loans, and reduction in import duty on gold, mobile phones, etc. Investors will benefit from the abolition of angel tax, reduction in corporate tax on foreign companies, change in import duties, and next-generation reforms. Speculative activities may be reduced to some extent due to hikes in securities transaction tax on F&O (futures and options).

Capex heavy fiscal consolidation shall continue, which would ensure macroeconomic stability. Gross fiscal deficit (GFD) as a proportion of GDP is estimated to decline significantly from 5.8 per cent in FY24RE to 4.9 per cent in FY25BE despite the highest-ever capital expenditure at ₹11.11 trillion or 3.4 per cent of GDP in FY25. The effective capital expenditure, which includes grants-in-aid to States for capital asset creation, would be ₹15 trillion in FY25. Are these sufficient?

According to NITI Aayog, India’s GDP will be $30 trillion by 2047. This is based on the assumption that India’s real GDP will grow at an annual average rate of over 9 per cent. As against this requirement, the Budget assumes a real GDP growth of 6.5-7 per cent in FY25. The RBI recently projected India’s real GDP growth at 7.2 per cent in FY25. These projections are far below the requirement.

As India’s investment-GDP ratio is unlikely to grow significantly, GDP growth has to accelerate through improving productivity.

The writer is RBI Chair Professor at Utkal University, and former Head of the Monetary Policy Department at RBI. Views are personal