Union Budget 2024: Will Nirmala Sitharaman prioritise infra, energy, and manufacturing?

As India awaits the announcement of the upcoming Budget this July, there are three critical areas where expectations are high. The forthcoming Budget has the potential to significantly influence the nation’s economic growth trajectory, and stakeholders across various industries and sectors are eagerly waiting to see how the government addresses key issues. We highlight three key issues that may get the government's utmost attention.

One of the foremost expectations is the continuous focus on infrastructure development. Over the years, the government has focused on building physical, digital, and social infrastructure by increasing budgetary allocation towards these. Consequently, we have seen favourable outcomes in terms of the falling logistics costs from 10% of GDP in 2013 to 8.9% of GDP in 2022. According to a study by NASSCOM, matured digital entities such as Aadhaar, UPI, and Fastag have enabled value creation of approximately 0.9% to India’s GDP in 2022. On the social front, investment in social enablers has helped 135 million Indians escape multidimensional poverty between 2015-16 and 2019-21, according to a Niti Aayog report. Women's participation in the labour force increased from 23.3% in 2018 to 37% in 2023. 

We expect a continued focus on these sectors in this Budget as well. Within infrastructure, we would expect changes in allocation priorities this year leading to a higher allocation towards improving the port and shipping; energy, especially green and sustainable energy; and urban infrastructure. The Budget is expected to highlight the importance of expanding digital public infrastructure to support the nation's digital future. With an aim to make India a USD 1 trillion digital economy by 2025-26, the government  will prioritise investments in digital infrastructure, cybersecurity, and skill development to achieve better financial inclusion and digital literacy. We might also see tech leaders collaborate with the government to enhance IT and digital infrastructure, supporting the nation's digital transformation journey.

We expect the government to continue prioritising spending on health, education, and skilling in the social sectors. Allocation towards health and education has only marginally increased and is much lower than what is needed to improve India’s human capital and take advantage of India’s demographic dividend. Along with funding disbursement, there must be a focus on the full utilisation of the allocated Budget and on improving the quality of services.

The second emphasis would be on energy reforms. Energy demand is expected to accelerate for the fastest-growing nation. India will have to prioritise energy security and self-reliance while ensuring a push towards alternate cleaner energy sources. The government will likely allocate funds towards improving green and sustainable energy infrastructure, including investments in renewable sources and energy storage solutions. We also expect green mobility and alternate energy sources such as natural gas, and green hydrogen, amongst others, to get an investment boost. The government will likely emphasise building the supporting infrastructure and accelerating its efforts in encouraging the private sector to uptake the PLI schemes in solar photovoltaic modules and advanced chemical cells.

We might also see an overhaul of the power supply ecosystem through energy reforms that address legacy issues. These reforms will likely tackle challenges such as transmission inefficiencies, distribution losses, poor management, and tariff structures, which lead to financial difficulties for DISCOMS and power supply shortages affecting households and industries.

Finally, we expect the government to underscore its efforts in promoting manufacturing in the country. The government will be required to broaden the scope of the PLI schemes, especially to sectors that can create more jobs such as textile, handicraft, and leather amongst others. By providing incentives to these sectors, the government may encourage bringing in fresh investments in new technologies and processes that can increase productivity and competitiveness. MSMEs are crucial for job creation and economic diversification and there will be a focus on broadening the scheme to ensure inclusivity of MSMEs.  This could include measures that improve access to credit, technology, and market linkages, helping them scale up their operations and scope of production. 

That said, the scheme must continue in the sectors that have seen success such as electronics, auto, and semiconductors. These sectors also have the potential to create many direct and indirect jobs and increase exports, which is important for reducing India’s trade deficit and improving the country's balance of payments. Continuing the PLI scheme in these sectors will ensure continuity and consistency, allowing invested companies to plan for the long term.

Views are personal. The author is economist, Deloitte India.