Navigating uncertainty: The Union Budget’s prerogative for resilient growth

As India gears up for the Union Budget 2025, set to be announced on February 1, anticipation is rife across various sectors. This year’s budget holds special significance as it comes amidst a complex mix of global uncertainties, domestic economic challenges, and the need to sustain growth while fostering inclusivity. Stakeholders from Technology, Finance, Healthcare, Infrastructure and Manufacturing industries are pinning hopes on the government to address pressing issues and lay a roadmap for a resilient future.

The recent GDP growth figure of 5.4% YoY for Q2, FY 2024-25 is significantly below Reserve Bank of India’s projection of 6.8%, prompting the central bank to revise its annual growth forecast down to 6.6%. According to Deloitte, the revised GDP growth forecast for India now stands at a range of 6.5% to 6.8% for the current fiscal year and 6.7% to 7.3% for the next one.

Manufacturing activity in India experienced its weakest growth of 2024 in December, with the Manufacturing Purchasing Managers' Index (PMI) slipping to 56.4, down from 56.5 in November despite a strong year overall. Data suggests weaker demand, despite easing cost pressures and robust job growth. Similarly, India’s services sector saw its slowest growth in over a year in January, as the HSBC India Services Business Activity Index (services PMI) dropped to 57.9, down from 59.2 in December. This marks the slowest expansion in 14 months.

Some additional challenges include:

1. Employment, while showing signs of improvement in the past few months, remains a concern. According to data from the Centre for Monitoring Indian Economy (CMIE), urban unemployment stood at 7.2% in December 2024.

2. Rising income inequality is becoming an increasingly pressing issue, underscoring the need for more robust social safety nets to address the widening disparity.

3. Geopolitical tensions and a slowdown in major economies have dampened export demand, affecting overall economic performance.

4. Climate-related challenges, such as erratic monsoons and natural disasters, have taken a toll on agricultural output and rural livelihoods.

Employment and Workforce Development

Employment generation is expected to be a top priority, with initiatives focused on enhancing skill development and creating jobs that align with the cost of living. A strong emphasis may be placed on policies that support emerging sectors like artificial intelligence and green technologies, both of which have the potential to drive new job opportunities.

As India continues to advance technologically, workforce development remains a critical priority. Manmeet Singh, CEO of FirstMeridian Global Services and Innovsource, emphasized the need for initiatives that address skill gaps and support high-growth sectors such as manufacturing, IT, and green energy. “With the Union Budget for FY’25 approaching, expectations are clear—there needs to be a roadmap that strikes a balance between fiscal prudence and growth acceleration. Businesses are looking for targeted incentives, like the Employment Linked Incentives (ELI) introduced in the previous budget, to drive formal job creation. There’s also a call for a stronger focus on skill development, upgrading ITIs, and expanding apprenticeship programs, particularly in industries like manufacturing, the digital economy, and renewables/green energy.

The government must prioritize addressing workforce skill gaps by establishing new training institutes and bridging disparities across high-growth sectors such as IT, semiconductors, automotive, telecom, MSMEs, agriculture, and healthcare. From a workforce solutions perspective, we anticipate initiatives that foster formal job creation and invest in upskilling India’s workforce to meet the demands of Industry 4.0. This budget represents a key opportunity to empower India’s human capital, ensuring inclusive and sustainable growth for the decade ahead.”

Capital Expenditure

In recent years, the government has made infrastructure development a key priority, increasing capital expenditure from 1.63% of GDP in FY2019 to 3.4% in FY2025. As India strives to achieve the vision of Viksit Bharat by 2047, the government is expected to maintain its strong focus on infrastructure investment, recognizing its crucial role in driving broader economic growth.

The upcoming Budget is likely to set a capital expenditure target of around Rs 11 lakh crore, with a continued emphasis on infrastructure development. Indian Railways is expected to receive a significant boost, with a proposed capital allocation increase of 15-20%, raising its Budget from Rs 2.65 lakh crore to over Rs 3 lakh crore.

Additionally, the government plans to enhance road networks, develop multi-modal logistics parks, and improve the overall logistics framework to support more efficient economic operations.

Below are the expectations from the budget for some key sectors

Manufacturing

India aims to become the world's third-largest economy by 2027 and a developed nation by 2047 by strengthening its manufacturing sector. The government’s focus includes MSMEs, infrastructure development, and global value chain integration, addressing challenges like funding access and skill upgrades.

1. MSMEs at the Core of India’s Manufacturing Growth

MSMEs contribute 45% of India’s exports and 35% of manufacturing value addition, making them pivotal to the country’s economic progress. While recent budgets introduced measures to improve credit flow, challenges persist in addressing the sector’s specialized needs. A targeted approach is essential for labour intensive sectors like leather, textiles, gems & jewellery and handicrafts, as well as emerging industries like EVs, food processing, and solar batteries.

2. Enhancing MSME Participation in PLI Schemes

MSMEs’ participation in PLI schemes is limited due to capital and technical constraints. Tailored measures, such as lower production thresholds and extended timelines, could boost MSME involvement. A dedicated umbrella scheme for MSMEs, focusing on labor-intensive and sunrise sectors, would accelerate their integration into value chains.

3. Policy Support for MSMEs in the Budget

The Budget must address long-standing issues like dumping and inverted duty structures while ensuring trade agreements safeguard domestic MSMEs. Facilitating global value chain integration through digitization, technical upgrades, and innovation is vital to achieving the $1 trillion export target by 2027-28.

4. Infrastructure Development

India’s infrastructure has advanced, but further investments are required to fuel its manufacturing ambitions. Addressing cost overruns, delays, and promoting R&D and skill development will be crucial for creating a competitive ecosystem.

Agriculture

Agriculture employs 45% of India’s workforce and contributes 15% to the US$ 3.5 trillion economy. Despite being the second-largest global producer of several agri commodities, India has faced high food inflation, peaking at 10% YoY in October 2024. While prices have slightly eased, inflation remains a challenge. To curb price rise, the government has imposed export restrictions on wheat and extended duty-free imports of pulses.

With the upcoming budget, India plans to increase spending for the agriculture sector by 15% to around US$ 20 billion, making it the biggest increase in six years. The agriculture and allied sectors are expected to see allocations rise to ?1.75 trillion in 2025-26, up from ?1.52 trillion. This includes increased spending on research and climate-resilient farming practices. The budget is expected to prioritize agriculture while aiming to grow farm exports from US$ 50 billion to $80 billion by 2030, balancing domestic needs and export goals for economic growth.

Gems and Jewellery

The gems and jewellery industry in India is a vital pillar of the economy, celebrated globally for its craftsmanship and cultural significance. Employing a vast skilled and semi-skilled workforce, the sector spans mining, processing, manufacturing, and exports, contributing to economic growth and heritage preservation.

Vipul Shah, Chairman of GJEPC (Gems and Jewellery Export Promotion Council), met Finance Minister Nirmala Sitharaman during a pre-budget consultation in Delhi, presenting key recommendations to address the sector’s challenges:

1.????? Safe Harbour Rule FAQs: GJEPC sought approval for a list of FAQs on the taxation rule for trading rough diamonds, addressing concerns from foreign mining companies.

2.????? Diamond Promotion Campaign: To counter geopolitical challenges, GJEPC requested a matching government grant to support its ?15 crore global campaign promoting natural diamonds, safeguarding jobs and exports.

3.????? Jewellery Parks: GJEPC proposed including Jewellery Parks, such as the one under development in Mumbai, in the harmonized list of infrastructure to boost growth.

4.????? Platinum Ecosystem: Recommendations included duty-free platinum supply through nominated agencies, a tariff rate for platinum, duty drawbacks like gold and silver, and a new HS Code for gold-platinum alloys.

These initiatives aim to ensure India’s global leadership in diamond exports while fostering sustainable growth.

Tourism

India continues to be a prime destination for global tourism, and with the upcoming Budget 2025, the travel and hospitality industry has high expectations. Industry leaders have openly shared their hopes for the budget, focusing on measures that could spur growth and development in the sector. "The travel and hospitality industry anticipates that the forthcoming budget will introduce measures to boost growth, with a particular focus on strengthening domestic tourism initiatives and increasing budget allocations to promote tourism in emerging destinations," experts have stated.

Additionally, the sector is looking for policies to attract more international tourists and improve connectivity, which is crucial for expanding the industry. There is also a strong push for a reduction in GST rates on travel services, which could lead to more affordable travel options for consumers and help stimulate demand. Industry leaders also advocate for investments in sustainable transport and skill development to drive long-term growth in the sector.

Renewable energy

India’s commitment to achieving net-zero emissions by 2070 necessitates a budget that prioritizes sustainability. The upcoming Budget is expected to prioritize the development of charging stations, particularly in Tier-2 and Tier-3 cities and rural areas, where access is currently limited. To encourage private investment in these underserved regions, financial support mechanisms like Viability Gap Funding (VGF) may be introduced. This is crucial for building consumer confidence and driving the widespread adoption of electric vehicles (EVs).

The industry is advocating for a strong continuation of the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, potentially evolving into FAME III. This would provide necessary subsidies and incentives to both manufacturers and consumers, making EVs more affordable.

A key expectation is the introduction of a uniform 5% GST rate across all EV components and charging infrastructure. The current inverted duty structure places a financial burden on manufacturers, and tax rationalization could help alleviate this issue.

Stakeholders are also urging measures to boost domestic production capabilities, such as tax relief on imports of critical components like lithium-ion batteries. This would support the government's "Make in India" initiative and reduce dependency on imports. Additionally, there is a call for addressing the high taxation on hybrid vehicles, which are currently taxed at a GST rate of 28%. Lowering this rate could encourage the adoption of hybrid vehicles as a transitional step toward full electrification.

Healthcare

The Indian pharmaceutical and healthcare industry has high expectations from Union Budget 2025, as highlighted in a report by CareEdge Ratings. The sector is seeking increased government support to strengthen infrastructure and foster innovation. The report advocates for a 2.5% to 3% rise in the healthcare budget allocation compared to the previous year, with a focus on improving healthcare infrastructure, particularly in rural and semi-urban areas.

To boost research and development (R&D) in the pharmaceutical sector, the industry calls for the reintroduction of weighted average tax benefits, which were previously available and encouraged innovation in critical therapeutic areas.

Additionally, the report emphasizes the need for more affordable healthcare services and insurance. It recommends reducing the GST rate on health insurance premiums from the current 18% and raising the health insurance premium deduction limit under Section 80D of the Income Tax Act. Reducing customs duties on life-saving drugs and supporting domestic healthcare device manufacturers are also key recommendations.

Technology and Startups

India's DeepTech ecosystem, though still developing, shows significant growth potential. According to NASSCOM's report, India’s DeepTech Dawn: Forging Ahead, India hosted over 3,600 DeepTech startups, with 480 launched in 2023—a twofold increase from 2022. While India is the third-largest startup ecosystem globally, DeepTech ranks sixth worldwide. The government is actively fostering growth through initiatives like the Draft National DeepTech Start-up Policy, a Rs 1 lakh crore corpus in the 2024 interim budget, and a Rs. 1,000 crore Venture Capital Fund for the Space Sector.

The upcoming Budget 2025 offers a unique opportunity to accelerate growth in India’s DeepTech ecosystem. Addressing critical gaps such as high capital requirements, knowledge deficits, regulatory challenges, slow market adoption, and the need for upskilled talent will be essential. A key focus of the budget should be the creation of DeepTech venture capital funds and long-term government grants to support high-risk, high-reward innovations. The effective use of the INR 1 Lakh crore corpus, along with streamlined funding access for startups and researchers, should be a priority. Co-investment models and government-backed guarantees can further attract private investments.

DeepTech advancements require a specialized talent pool with cutting-edge skills. Strengthening industry-academia-government partnerships and developing customized programs can help bridge this skills gap. Additionally, increased funding for IP enforcement, faster registration processes, and IP commercialization hubs can help protect and monetize innovations. Targeted incentives, such as tax benefits and R&D grants, will support startups, fostering further innovation.

As of Startups, India's rapidly growing tech ecosystem, home to over 100 unicorns, is keen on policies that support innovation and ease of doing business. The country's startup sector, a major driver of innovation and job creation, is looking for measures that can sustain its growth and expand globally.

Ahead of Budget 2025, several experts have outlined expectations for reforms to help startups scale. Lalit Kumar, Partner at JSA Advocates & Solicitors, lauded the government's efforts in introducing tax holidays and deductions but stressed the need for simpler compliance processes and better access to affordable credit. "Simplifying compliance and operational processes will significantly benefit the startup ecosystem," Kumar said.

Apoorva Ranjan Sharma, Co-Founder & MD of Venture Catalysts, highlighted the positive impact of the Angel tax abolition in the previous budget, urging further simplification of the tax regime. She also emphasized the importance of supporting Tier 2 and 3 cities, which are emerging hubs of innovation, to compete on the global stage. Additionally, Sharma called for increased investment in AI research and development to establish India as a global leader in tech innovation.

Abhishek Saxena, MD and Founder of Omnicard, echoed the call for tax relief and the extension of tax holiday periods under the Startup India initiative. He also urged the creation of export opportunities to help startups compete internationally. "Strengthening the ‘Atmanirbhar Bharat’ initiative will reduce import dependencies and help bridge the trade deficit," Saxena added.

In order to boost consumption-led growth, discussions are underway regarding potential personal income tax reductions for individuals earning up to Rs 15 lakh per year, aimed at providing relief to the middle class and boosting consumption. There is also anticipation that the government may raise the basic exemption limit from Rs 3 lakh to Rs 5 lakh under the new tax regime.

A key expectation is an increase in the standard deduction limit from Rs 75,000. This would offer immediate tax relief to salaried individuals and pensioners, effectively boosting their disposable income.

The Union Budget 2025 is expected to focus on striking a delicate balance between providing short-term relief and implementing long-term structural reforms to drive sustainable growth. It presents an opportunity for the government to address India’s immediate challenges while setting the stage for long-term growth.

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