Growth is driven by strong domestic demand, export potential, government infrastructure efforts, private sector investment, and initiatives like ‘Make in India’ According to a Study Report by IDBI Capital, India is set to add US$ 1 trillion to its gross domestic product (GDP) every 18 months over the next six years. It goes on to say that “with this momentum, the country is on track to become a US$ 10 trillion economy positioning itself as the world’s third-largest economy by 2030”. Currently, India has a GDP of US$ 4 trillion. The report has also highlighted that “India’s accelerated growth will be driven primarily by the manufacturing sector, which is projected to contribute 32 per cent to the incremental Gross Value...
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Category: Growth & employment
Budget is pro-growth but stability concern remains
Major expenditure items may go out of control, raising concerns about the budget’s feasibility; moreover, the Government’s gross tax revenue target of Rs 38.40 lakh crore is overly ambitious On top of a GDP (gross domestic product) growth of 8 per cent plus for three consecutive years, the Union Budget for FY 2024-25 presented by Finance Minister Nirmala Sitharaman on July 23, 2024, has all the ingredients to sustain the momentum during the current year as well. For the current year, she has proposed capital expenditure at Rs 1111,111 crore, which is 17 per cent higher than the revised estimate (RE) for FY 2023-24.In her Budget for 2019-20, she had laid a roadmap for catapulting the Indian economy to US$5...
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Income tax amendment promises relief for MSMEs
The biggest problem faced by small enterprises is delayed payment of their dues by large enterprises as it results in a shortage of working capital severely impacting their production An amendment to the Income Tax Act, introduced through Finance Act 2023, and effective from April 1, 2024 stops businesses from claiming tax deductions for payments beyond 45 days to the Micro, Small and Medium Enterprises (MSMEs) for supply of goods and services has caused much consternation. The MSMEs are ancillary units engaged in the production, manufacturing and processing of goods and commodities (mostly intermediate goods) which are supplied to large enterprises or master units. These units operate on a small scale and are further categorized into micro, small and medium enterprises...
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Redistribution of wealth – a dangerous idea
Addressing a rally in Rajasthan’s Banswara on April 21, 2024 Prime Minister Narendra Modi referred to plans of the Congress party (if it were to come to power) to conduct a survey of the wealth held by individuals and redistribute it. The trigger for what Modi said was Rahul Gandhi’s speech on April 6, 2024 in Hyderabad, wherein the latter promised what he termed as “financial and institutional survey” for re-distribution of the country’s wealth. The re-distribution would be taken up after a nation-wide Socio-Economic and Caste Census promised by the Congress party in its manifesto. The manifesto dwells on income and wealth inequalities, though not redistribution. There is an inherent connection between economic growth and income inequalities. Economic growth happens when...
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Budget 2023 targets inclusive growth
The Finance Minister has given a push to growth through a judicious blend of encouraging investment and consumption Guided by the overriding objective of laying the foundation of putting India on a rapid and sustainable growth trajectory, for three years in a row, the Narendra Modi government has presented an investment-led Budget. Most of the budgetary allocations are going into building infrastructure, while the government has taken measures to promote investment by the private sector. The Budget for 2023-24 continues with this overarching strategy. In her maiden Budget for 2019-20, Finance Minister Nirmala Sitharaman had laid a roadmap for catapulting the Indian economy to $5 trillion by 2024-25. In sync with this target, she had projected an investment requirement of...
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Bringing back OPS may be catastrophic
The new pension scheme or NPS has addressed the inequity issue by providing a platform to the private sector Even as the finances of states were beginning to look better as reflected in decline in the ratio of state government debt to GDP from 31.2 per cent during 2021-22 to 29.5 per cent during 2022-23—as per the budgetary estimate (BE) —the political brass in different states have made populist announcements which don’t augur well for the future. One of these relates to the revival of the old pension scheme (OPS). Making a statement in the Lok Sabha, the Minister of State for Finance Bhagwat Kishanrao Karad said, “The state governments of Rajasthan, Chhattisgarh, and Jharkhand have informed the Central government...
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RBI should pause rate hikes, boost growth
Since inflation is driven primarily by supply-side factors, the RBI should avoid too many interest rate hikes In 2016, the Government had put in place an institutionalised framework, the Monetary Policy Committee (MPC), to formulate monetary policy and determine the key interest rates. It mandated the Reserve Bank of India (RBI) to fix rates, especially the repo rate or RR (interest rate at which the RBI lends to banks), in such a manner as to maintain inflation—as represented by the consumer price index (CPI)—within the target range of 4 per cent (+/- 2 per cent) for a five-year period ending March 31, 2021 (the mandate has now been extended for further five years ending March 31, 2026). In the case...
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Eschew greed, boost demand
Irrespective of their size or industry sector, all businesses are structured to result in concentration of income in the hands of their owners Even as industries and businesses — both domestic and foreign-owned large corporations — expect the government to formulate policies and take fiscal measures to stimulate aggregate demand to put the Indian economy on an ‘accelerated’ and ‘sustained’ growth trajectory. A key question that needs serious introspection is: What are they doing in pursuit of this overarching goal? An analysis of the financials of India’s largest companies — those comprising the BSE 500 index — with focus on revenue, profits and dividend payouts, over the past five financial years (FY) gives us some clues. The profits of corporations...
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Businesses can’t have the cake and eat it too
Record corporate profits, dividend payouts point out to their unwillingness to help boost economy’s strengths Even as the industries and businesses (large corporations, domestic and foreign-owned included) expect the government to formulate policies and take fiscal measures to stimulate aggregate demand to put the Indian economy on an ‘accelerated and sustained’ growth trajectory, it’s worth asking what exactly they themselves are doing in pursuit of this overarching goal? An analysis of the financials of India’s largest companies—those comprising the BSE 500 index (the index covers every sector; besides it includes public sector undertakings (PSUs), as well as overseas subsidiaries of Indian-owned private-sector businesses, hence captures a broad trend)—shows focus on revenue, profits and dividend payouts, which represent a slice of...
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RBI hikes repo rate but more is needed
While there is no guarantee that the RR hike will tame inflation, we can’t rule out the risks to growth Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 per cent to 4.4 per cent. He also increased the cash reserve ratio (percentage of a bank’s total...
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