Budget 2025: More reforms, private investments must for India to become $30 tn economy

India is charting an ambitious course toward its vision of a $30-trillion economy by 2047 and to realize this, India must sustain double-digit growth over the next two decades. (Reuters)
India is charting an ambitious course toward its vision of a $30-trillion economy by 2047 and to realize this, India must sustain double-digit growth over the next two decades. (Reuters)

Summary

  • Govt must lead by enhancing labor productivity, and infrastructure and energy efficiency, besides setting up large free-trade zones along the coast 

India is charting an ambitious course toward its vision of a $30-trillion economy by 2047. To realize this, India must sustain double-digit growth over the next two decades. Hitherto, services sector has been the engine that has powered the economy, but manufacturing sector must also fire up for this vison to become a reality. Manufacturing must contribute 30%-plus to the incremental GVA to achieve our targets, significantly increasing its contribution from the current 15-17%, competing with its peers such as China (26%), South Korea (29%), and Vietnam (24%).

Over the past decade, the government has launched strategic initiatives such as Make in India, production-linked incentives (PLI), and large-scale infrastructure expansion to propel the manufacturing ecosystem. PLI has successfully attracted $17-billion investments, especially in critical sectors such as pharmaceuticals and bulk drugs, electronics and components, and solar PV or panels. Infrastructure witnessed rapid expansion through the Bharatmala and Sagarmala projects, with road construction tripling to 34 km/day in the past decade. We have seen green shoots emerging of Indian companies investing in sunrise sectors such as electronics, cell manufacturing and EV, as well as sectors requiring self-reliance such as defence. A testament to this being that 14% of global iPhones are now produced in India, projected increase to 32% by FY27.

Also Read | Budget strengthens the backbone of India’s consumer economy

The task for Union Budget 2025 was clearly cut out–spur consumer demand and introduce structural reforms to rekindle the animal spirits of the Indian economy.

The Budget 2025 has announced multiple key initiatives to address both demand- and supply-side challenges. Consumption is expected to accelerate given the income tax exemptions. Dedicated measures have been announced for sectors such as toys, footwear and leather with high job-creation potential aiming to create 2.2 million-plus jobs with the development of clusters, skills, and a robust manufacturing ecosystem. Sunrise sectors such as solar PV and batteries will continue to receive comprehensive ecosystem support alongside a strong focus on heavy industries such as shipbuilding through the ₹25,000 crore Maritime Development Fund and 10-year extension of basic customs duty (BCD) on raw materials and components.

Also Read | Online platforms and workers to benefit as Budget formalises gig economy

The budget also announced improved access to funds— ₹10,000 crore fund of funds for startups, enhanced credit guarantee up to ₹10 crore for (micro, small and medium enterprises) MSMEs, and 50-year interest free loans up to ₹1.5 trillion for state infrastructure projects. Further, the Jan Vishwas Bill 2.0 and focus on enhancing investment friendliness for states are expected to improve the ease of doing business. The National Manufacturing Mission will bring increased focus on skill development in manufacturing with the new excellence centres and an AI-focused education hub. Focus on increased research and development (R&D) funding is expected to drive innovation and enhance manufacturing competitiveness.

Lower factor costs, create free-trade zones

India’s vision of a $30 trillion economy by 2047 and 25% share of manufacturing in gross domestic product (GDP) requires the government to continue building on the strong foundation of earlier reforms and industry to significantly accelerate investment in capex, R&D and upskilling.

Also Read | In economy's shifting sands, a budget to boost demand

The government must lead in two critical areas. First, reducing factor costs by enhancing labor productivity, and infrastructure and energy efficiency. Comprehensive labour law reforms will standardize regulations and boost productivity, while a National Land Policy will ensure transparent and efficient land acquisition and monetization. Infrastructure investment must continue to increase to 8-9% of GDP as we focus on enhancing efficiencies and reducing logistics costs. Second, setting up large free-trade zones near coast (like Shenzen) to ease administrative and regulatory hurdles with superior infrastructure and services ecosystem services to boost manufacturing. This will also enable our MSMEs to transition into larger enterprises. Focus on de-regulation must continue to improve the ease of doing business. Additionally, enhancing trade agreements with regions such as the European Union and the UK are critical, going forward.

Industry, on the other hand, must enhance spending in R&D (0.6% of GDP vis-à-vis China's 2.4% and US's 3.5%) and upskilling to enable shift towards higher value-addition products. Moreover, enhancing product quality to export standards and adopting a more sustainable manufacturing footprint is crucial to compete in the global markets.

Turkey's growth in manufacturing offers valuable lessons for India. Key drivers included setting up Organized Industrial Zones, energy subsidies, $50-billion R&D investments (1.38% of GDP), upskilling and training in advanced technology, and corporate tax reductions of up to 90%.

Global geopolitical tensions and changes in the world order are creating significant opportunities for India to turbocharge manufacturing. With the right reforms and supporting ecosystem, India can embed itself into global supply chains as well as serve the strong domestic demand.

Rahul Jain is India head, Boston Consulting Group

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

topics

MINT SPECIALS