Mumbai, India – Prema Salgaonkar wakes up hours before dawn to prepare nearly 100 vegetable-stuffed parathas from her suburban Mumbai home. After losing her job at a nonprofit nearly a year ago, she finds herself relying on this small-scale production to support her family. Her son, Amar, 35, also faces job struggles after his position selling mobile phones evaporated six months ago due to hiring freezes. Instead, he has taken up temporary night jobs driving transport trucks.
This week, with Finance Minister Nirmala Sitharaman set to present the federal budget on February 1, 2025, the government faces immense pressure to generate growth and job opportunities for countless Indians like the Salgaonkars. Prema emphasizes their hard work, saying, "We don’t sit at home," undermined by rising costs of living. With inflation soaring, struggling families find little relief to cover even basic necessities.
India's economic conditions are alarming, with gross domestic product (GDP) growth slipping to 5.4 percent for the quarter ending September 2024—the slowest rate recorded over the last seven quarters. Projections suggest the economy will grow only 6.4 percent for the fiscal year ending March 31, 2025, marking the weakest performance since 2021. Yet this time, the government is strapped for cash, as increasing spending during the pandemic has resulted in India’s fiscal deficit ballooning to 9.3 percent.
Analysts, such as Dhiraj Nim from ANZ Bank, warn there is "no room for fiscal leniency" this year. Sitharaman's challenge lies not only in reviving the economy but also fulfilling government's self-imposed targets to reduce the deficit to 4.9 percent for this fiscal year and below 4.5 percent next year. "The government is burdened by expectations to boost growth," says Nikhil Gupta, chief economist at Motilal Oswal Securities. Even with reduced corporate tax rates introduced previously, private sector investment remains disappointingly low due to weak consumer demand.
The pressure for economic revival is compounded by issues of employment habits post-COVID. "Demand for goods and services recovered to pre-pandemic levels only for wealthier segments, luxury markets, and international tourism," explains Sunil Sinha from the Institute for Development and Communications. Prema and Amar represent the vast majority, wherein demand for everyday products like soaps and biscuits continues to fall.
Under these circumstances, the government’s ability to stimulate growth seems compromised. The new US administration’s uncertainty around policies impacts India’s foreign investments, prompting skepticism amid US-China trade tensions. India's historical infrastructure projects may also struggle under fiscal limits, with both local and state governments debating the necessity of such large expenses versus smaller, community-centric developments.
While some families benefit from government schemes like Maharashtra's direct cash transfer to women at 1,500 rupees (approximately $17) per month, the overall effectiveness of such plans remains contentious. Gupta questions whether cash handouts truly encourage growth or merely serve as political tools. He asks, "What are these schemes based on, and are they necessary?" The Balancing Act is delicate, as states are also urged to avoid overspending during elections for fear of attracting political fallout.
The upcoming budget presents potential pathways for hope. Economists argue for job creation initiatives and increased capital expenditure, especially within urban construction, which can serve as catalysts for economic revival. Gupta states improving access to labor, land, and capital are structural necessities for increased production and sustainable job creation.
Alongside such challenges, one can look to the urgent need for improving India's human capital through skills enhancements and educational reforms, as emphasized by analysts like Nim. “Establishing a vision and roadmap to improve human capital will be welcome,” he asserts. It’s recognized as the key to boosting long-term growth—essential for such a populous nation.
While the immediate concerns draw attention, broader issues of governance emerge as significant hurdles. Many see the policymaking environment influenced by legacy systems of corruption and inefficiency. Political hesitancy to pursue merit-based changes skews opportunities, leaving talent ignored. Reservations based on caste continue to draw scrutiny, as the general populace debates the need for systems favoring economic status instead.
The impending budget could provide insights on how India plans to stabilize its economy amid various challenges—ranging from structural inefficiencies to the growing demand for equitable job distribution. Prema has her own solutions—"Lower prices, create jobs, or both"—which reflect the sentiments of many who hope for security amid uncertainty. Whether Sitharaman’s budget will meet these pressing needs remains to be seen, but the growing call for accountability and efficiency will likely shape the nation’s path forward.