Dr. Pamarty Venkataramana analyzes Union Budget 2024-25: Insights on India’s economic outlook amid global shifts and policy initiatives
By Dr. Avi Verma Publisher
In an insightful interview with the IndoUS Tribune, Dr. Pamarty Venkataramana, an esteemed international corporate jurist, business strategist, and author, delves into the implications of the current Union Budget 2024-25. Offering a comprehensive analysis of the budget’s potential impact on India’s economy amidst evolving global dynamics, Dr. Venkataramana explores how fluctuations in global economic conditions, such as China’s accelerated growth or Europe’s slowdown, might influence India’s economic stability and export performance. He emphasizes that despite global uncertainties, India’s robust IT services sector may benefit from international demand, balancing the effects of export declines.
With the implementation of key initiatives like the Production Linked Incentive (PLI) scheme and the National Logistics Policy, he envisions significant growth inflection points that could reshape India’s economic landscape. His perspectives provide a nuanced understanding of the budget’s strategic goals and its potential to drive economic and social transformation, setting the stage for a promising future amidst global and domestic challenges. Below are the excerpts of the interview :
Considering the potential impact of global factors on our economy, how do you anticipate the dynamics playing out if China accelerates its economic growth, potentially causing a spike in commodity prices? Conversely, how might the anticipated slowdown in the European market, with its implications for global growth rates, affect our exports and overall economic stability?
Ans: Regardless of whether the global economy performs better or worse than expected in the past few months, both scenarios will have mixed implications for India. We need to assess whether the positive effects outweigh the negative ones or vice versa. Overall, I believe a global economic slowdown might be more beneficial for India than an unexpectedly strong global economy. While export growth will undoubtedly be affected by a slowdown, it’s important to note that India’s services sector, particularly IT services, tends to be recession-proof.
When advanced economies slow down, the demand for Indian IT services often increases as companies look to tighten back-end operations and control costs. Global oil demand and prices would likely decrease, reducing our import costs. Developed world central banks might stop raising interest rates or even lower them, easing the pressure on the US dollar and providing relief to emerging economies, including India. This scenario would also make it easier for India to attract external financing as investors from slowing economies seek opportunities in countries with current account deficits like India.
While goods exports might suffer, the combination of reduced import costs, stabilized currency pressures, and increased foreign investment could result in overall positive effects for India.
China is currently a significant variable in the global economic landscape due to its growth trajectory and its influence on globalization sentiment. The potential for alternate supply chains and their realignment will directly affect India, particularly in manufacturing. Given that India’s manufacturing sector has remained stagnant at around 17-19 percent for decades, how do you foresee India’s role in these evolving supply chains? As the policy maker/ Adviser, how do you envision these global scenarios driving an increase in India’s manufacturing output?
The current global scenario presents a significant opportunity for India’s industrialization. I believe India’s industrial story isn’t one of missed chances but one that is still unfolding. We now have critical infrastructure in place, including roads, railways, ports, telecom networks, and digitalization, which collectively form the foundation for rapid manufacturing growth.
Moreover, the geopolitical environment is encouraging many companies to explore opportunities in India, even if they don’t openly state it. While countries like Vietnam, Bangladesh, and Mexico are also attractive, their smaller size limits their capacity for large-scale manufacturing. India, on the other hand, offers a vast domestic market and the potential for large-scale manufacturing, making it an appealing destination for foreign companies.
India aims to build local manufacturing capacity that can serve both domestic and international markets. The Production Linked Incentive (PLI) scheme is a key initiative supporting this goal. In addition to the PLI scheme, the National Logistics Policy and the PM Gati Shakti program are crucial elements in making India’s manufacturing sector a significant economic force.
With some of the key building blocks now in place, leading to reduced infrastructure costs and more stable power supply for companies, what kind of outlook do you foresee for the next 5 years in terms of economic growth and industrial development?
The next 5 years, we should start seeing the impact of the policy initiatives currently being implemented. However, we’ve faced several significant disruptions recently, including the pandemic, commodity price shocks, and coordinated monetary policy tightening. These factors have made investors more cautious, as they need to reassess risks in light of higher capital costs and commodity prices. For instance, disruptions like a ship being blocked in the Suez Canal for two weeks highlight the kind of risks investors have to consider.
These external shocks from the past two years, and beyond, naturally contribute to a slower response from investors. While this can be frustrating and may cause concerns about the delayed results, we should begin to see the benefits of these policy measures once these exceptional circumstances subside. The focus on boosting India’s manufacturing sector will gradually become more apparent as these shocks are absorbed and the policies take effect.
As a corporate Jurist/ policymaker, do you believe the current policy framework is agile and responsive to changing conditions? Is it designed to adapt quickly to market demands and attract investment, rather than being rigid and unchangeable?
The intent is evident both in public statements and in actual policy decisions. India has complemented the Production Linked Incentive (PLI) scheme with the logistics policy, which aims to ensure timely and cost-effective implementation of government projects. Additionally, we’ve introduced tax policies that offer lower rates for new domestic manufacturing establishments and have extended these benefits to cooperatives.
The reduction in corporate tax rates in September 2019 onwards was another step to help companies rebuild their financial health. These measures are all part of a coordinated policy approach designed to achieve our aspirational goals. They align with our efforts to enhance public infrastructure while the private sector recovers.
The goal of becoming a $10 trillion economy is a significant aspiration for India. While we understand that achieving this target won’t happen overnight, do you share this aspiration? Do you believe it is attainable, and if so, what path do you envision for reaching it?
Personally, I don’t place much emphasis on specific GDP targets, as they can be more symbolic than practical. Achieving a certain GDP level involves numerous factors beyond just government policies and project implementations; external factors as well as such as ongoing wars between member countries of the United Nations Organisation in different parts of the world.
However, if we look at the current situation, in March 2023-24, India’s GDP is projected to be around USD 3.5 trillion. To put this in perspective, in 1993, our GDP was about USD 300 billion, so we’ve seen a tenfold increase in 30 years. This reflects an average annual growth rate of about 9.1-9.2% in dollar terms, despite the depreciation of the rupee from around Rs 30-32 to Rs 83 per dollar. Given our past performance and potential future conditions—such as a weaker dollar due to low or negative real interest rates in the developed world—it is realistic to anticipate that if the rupee appreciates rather than depreciates, we could reach this target even sooner. Therefore, aiming for a $7 trillion economy by the end of the decade is not an outlandish goal.
What are your thoughts on the key government initiatives aimed at driving growth? How do you view the impact of upcoming free trade agreements and new strategies for exploring fresh growth opportunities? What areas do you see as potential inflection points for growth?
Significant growth inflection points for India are likely to come from the revival of the credit and capital investment cycles, as well as advancements in digital technology and the digitization of the economy. Free trade agreements (FTAs) will also play a crucial role, particularly in enhancing our energy security and facilitating market access for exporters. Initially, these agreements might lead to a widening trade deficit because we may lower our duties more than our trade partners, especially if we start from a higher duty level. This could result in increased imports at first.
It’s important to remember that economic growth is not solely the government’s responsibility. The private sector and households also have crucial roles to play. Skilling and educating our youth are shared responsibilities between the government and individuals. Similarly, the private sector should focus on investing in research and development, maintaining social stability for business viability, and balancing labor and technology
What are your perspectives on the nine key areas of focus outlined in the budget, including productivity ,social justice, manufacturing support for MSMEs, urban development, energy security, infrastructure, and innovation?
The recent budget is a forward-looking initiative aiming to boost productivity through sectoral reforms in urban development, energy security, and innovation. It focuses on generating employment and enhancing social justice by creating one lakh new jobs per district, which will improve household incomes and address social inequities. The budget also prioritizes urban development, promoting balanced growth and better infrastructure to manage migration and improve living conditions. Energy security is emphasized with a push towards green energy to address climate change. Investments in infrastructure, including healthcare and transportation, are seen as essential for growth. Innovation is encouraged to make India a global leader. Additionally, the budget calls for continuous reforms to enhance governance, reduce bureaucracy, and improve judicial efficiency. This comprehensive approach aims to drive economic development and social progress effectively
