Finance Minister Nirmala Sitharaman is gearing up to present the Interim Budget 2024-25 on February 1, against the backdrop of India's anticipated status as one of the world's fastest-growing economies. Amidst this positive outlook, significant challenges loom large, notably escalating geopolitical tensions and a persistent rise in inflation, which threaten to exert a dampening effect on growth prospects for the fiscal year 2024-25.
A recent economic review report issued by the government underscores India's poised trajectory towards robust growth in FY25 while also shedding light on the array of hurdles that Sitharaman may grapple with in her forthcoming budget presentation. As the Lok Sabha elections loom on the horizon in April and May, this report serves as a condensed economic survey, offering valuable insights into the nation's economic trajectory and flagging potential obstacles for the upcoming fiscal period.
The report highlights the intricacies of India's growth dynamics, emphasizing that domestic economic performance is intricately linked with global trends and developments. Heightened geopolitical uncertainties on the global stage pose a tangible threat to India's growth trajectory, with the report underscoring the impact of increased geoeconomic fragmentation and the recalibration of global trade dynamics.
Furthermore, the report underscores the nuanced balance between energy security imperatives and the imperative of transitioning towards sustainable energy frameworks. This multifaceted challenge encompasses geopolitical considerations alongside technological advancements, fiscal implications, and socio-economic ramifications, demanding a judicious policy approach.
In addition to these multifaceted challenges, the rising prominence of Artificial Intelligence (AI) emerges as a significant concern, particularly within the services sector. Citing an IMF paper, the report highlights the dual nature of AI adoption, presenting both opportunities for enhanced productivity and risks of displacement across various sectors, thereby necessitating proactive policy responses.
Amidst this backdrop of complex challenges, rising inflation emerges as a central concern confronting the government. Sitharaman is anticipated to announce targeted measures aimed at mitigating the adverse effects of inflation, with a particular focus on vulnerable segments such as farmers, rural communities, and disadvantaged households. While these measures are expected to offer some relief, the broader economic landscape remains susceptible to the lingering specter of inflationary pressures, requiring a multifaceted policy response.
