Press Release
Devananda S
The IMPRI, Center for the Study of Finance and Economics (CSFE), IMPRI Impact and Policy Research Institute, New Delhi, hosted an interactive panel discussion on the topic Viksit Bharat – Developed India @2047 and Union Budget 2025-26 on 2nd February 2025, under the IMPRI 6th Annual Series of Thematic Deliberations and Analysis of Union Budget 2025-26.
Mr. T.K. Arun, a senior journalist and columnist, in his opening address, provided a critical analysis of the government’s recent budgetary measures, highlighting their primarily political nature rather than an effective economic remedy. As the economy experiences a slowdown, with the growth rate declining from 8.2% to 6.4% despite increased capital expenditure, the government has resorted to income tax concessions to appease taxpayers. However, the overall impact of these concessions remains limited, with the total giveaways amounting to just 0.2% of GDP, while overall expenditure compression results in a net negative boost of -0.2%. The government’s failure to fully utilize its capital outlay and the absence of a concrete investment strategy to stimulate growth further underline the limitations of the budget. The lack of support mechanisms for small and medium enterprises (SMEs), despite rhetoric on rural economic development, remains a critical gap. Mr. Arun pointed out that Viksit Bharat or economic growth is not solely a function of fiscal policy; it requires good governance, social cohesion, and an environment where individuals feel secure and empowered. Moreover, the structural inefficiencies in India’s financial ecosystem, particularly the reluctance of banks to lend to SMEs due to higher risk assessment costs, exacerbate economic stagnation. The absence of a well-functioning corporate bond market further restricts private sector participation, which is crucial for sustainable growth. While the government acknowledges the need to involve the private sector, the lack of an efficient framework, such as a properly structured Public-Private Partnership (PPP) model, hinders progress.
Prof. Radhika Pandey, a senior economist at the National Institute of Public Finance and Policy (NIPFP), provided a nuanced analysis of the recent tax cuts and their potential effects on the Indian economy. She emphasized that while these cuts are expected to increase disposable income, the direct correlation to heightened consumption is not straightforward.
One primary consideration is the propensity to consume among households. Prof. Pandey notes that many households are currently leveraged, with rising credit levels. The Reserve Bank of India’s Financial Stability Report highlights an increase in household credit, leading the RBI to implement measures to curb personal loan growth. In this context, any additional income from tax reductions may initially be directed towards reducing existing debts or bolstering savings, especially given that household savings rates have recently declined. Therefore, the assumption that increased disposable income will automatically lead to a surge in consumption may not hold true. On the fiscal front, Prof. Pandey pointed out potential challenges. While inflation is anticipated to remain under control in the near term, any unexpected decrease could result in a lower nominal GDP. This scenario would pose difficulties in maintaining the fiscal deficit to GDP ratio. Additionally, the budget’s optimistic assumptions regarding direct tax buoyancy, particularly income tax, may not materialize if corporate profits continue to decline.
Looking ahead, Prof. Pandey underscored the importance of sustained reforms to achieve long-term economic growth. The vision of a “Viksit Bharat” necessitates an average growth rate of 8% over the next decade. Achieving this target requires comprehensive strategies, including deregulation, a robust reform agenda, and significant investments in skill development. She stresses that without the simultaneous activation of various growth engines, reaching this ambitious growth trajectory will remain challenging.
Subhomoy Bhattacharjee provided insights into the challenges of achieving rural revival through government budgeting. He expressed skepticism about the budget’s capacity to directly stimulate rural revival, suggesting that other factors must play a role. Bhattacharjee highlighted that wage growth in rural areas has been lagging behind inflation rates for an extended period. Only recently have real wage rates begun to align with inflation, indicating early signs of improvement. He emphasized that this underperformance in wage growth is a fundamental issue addressed in the current budget. He concurred with economist T.K. Arun’s observation that the multiplier effect of government expenditure is limited, especially given the reduction in revenue expenditure. A critical point raised was the inefficiency in state-level spending. The Government of India plans to spend ₹50 trillion in the current fiscal year. Excluding committed expenditures like wages, pensions, and interest payments, approximately ₹5.5 trillion is allocated to the central sector and centrally sponsored schemes. However, data indicates that states have not fully utilized these funds. As of December 31st, states held ₹1.6 trillion—about 30% of the centrally sponsored schemes’ funds—without spending them. This underutilization is particularly evident in crucial sectors such as health, education, and support for lower-income groups. For instance, many schools report annual spending on activities like painting boundary walls, which may not directly enhance educational quality. He also criticized the tendency of states to favor distributing freebies over undertaking the more challenging task of effectively managing expenditures.
N.R. Bhanumurthy emphasized the importance of clearly defining what constitutes a “freebie” in the context of state government expenditures. He argued that not all state initiatives should be labeled as freebies, especially those targeting critical issues like nutrition. For instance, certain states have implemented cash transfer schemes aimed at women, with the goal of improving household nutrition, a sector where both central and state efforts have historically fallen short. However, he also pointed out that some state governments lack a comprehensive understanding of the number of schemes they operate, leading to potential inefficiencies. Bhanumurthy advocated for expenditure rationalization, suggesting that states should prioritize and streamline their numerous social sector programs. He emphasized the need for states to assess and possibly discontinue legacy schemes that no longer serve their intended purpose, especially in light of modern Direct Benefit Transfer (DBT) systems. Addressing the broader fiscal landscape, Bhanumurthy commended the recent fiscal consolidation roadmap presented by the finance minister, noting its positive implications for monetary authorities. He underscored the effective coordination between fiscal and monetary policies over the past three years, which has contributed to macroeconomic stability. This stability, he noted, has been instrumental in attracting both private and foreign investments.
Saranjit Das emphasizes that the recent tax reductions are anticipated to inject approximately ₹1 lakh crore of additional disposable income into the sociological middle class, leading to an uptick in consumption and a corresponding multiplier effect on GDP growth. However, he cautions that in an open economy like India’s, the multiplier effect may be diminished due to potential import leakages. Furthermore, Das suggests that allocating these funds to social sectors such as health and education, which predominantly benefit the poorer segments of the population with a higher marginal propensity to consume, could have resulted in a more substantial multiplier effect. He acknowledges that while there isn’t a direct trade-off between tax concessions and social sector spending, the current economic climate—characterized by declining profit and investment rates over the past decade and a global economy teetering on the brink of recession—necessitates strategies to bolster domestic demand. Das concludes that while increasing disposable income for certain population segments is beneficial, ensuring that this doesn’t come at the expense of essential social expenditures would be more advantageous for stimulating economic growth.
In conclusion, the panel discussion on “Viksit Bharat – Developed India @2047 and Union Budget 2025-26” underscored the critical importance of effective fiscal policies and strategic investments in achieving India’s long-term development goals. The discourse highlighted the need for balanced budgetary allocations that not only stimulate immediate economic growth but also ensure sustainable development through investments in health, education, and infrastructure. Panelists emphasized the significance of efficient implementation of government schemes, particularly at the state level, to maximize the impact of allocated funds.
IMPRI’s 6th Annual Series of Thematic Deliberations and Analysis of Union Budget 2025-26
IMPRI’s 6th Annual Series of Thematic Deliberations and Analysis of Union Budget 2025-26
Watch the event at IMPRI #Web Policy Talk
Viksit Bharat – Developed India @2047 and Union Budget 2025-26
Acknowledgement- This article was written by Devananda S, a second year undergraduate student in Economics from Miranda House, Delhi University.
