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Budget 2025: Joblessness and Unemployment will haunt Modi government

Nirmala Sitharaman’s 8th budget since 2020 – An analysis – The world economy slows down, but India is resilient and becomes the fastest growing in the world overtaking China, UK to rank 5th. By 2050 it could become 3rd largest economy of the world if the economic reforms continue and a stable government is in place, going far beyond Premier Modi’s dream of a $5 trillion economy – It's already a $ 3.41 trillion economy.

What about jobs?

India’s finance minister Ms. Nirmala Sitharaman presented her 8th budget since 2020, and this time around announced major tax breaks — making people earning up to Rs 12 lakhs a year not to pay a dime in income tax to the government.
This would benefit one crore or 10 million people to get Rs 1.40 trillion in monies in their hands ( $ 10 billion nearly) to go out and spend so that manufacturing sector which has been in limbo for some years , showed signs of recovery post pandemic, slowed down again due to wars in Ukraine and Middle East that curtailed supplies of infrastructure materials require for nation building.
That is the essence of the budget. The global economy has slowed down in the post pandemic shock growing at only 3.2%, as estimated by the pre-budget economic survey based on IMF forecast, and India’s economy has braved the headwinds of the pandemic and emerged strong to become the fastest growing economy in the world overtaking China and UK.

The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman along with the Ministers of State for Finance, Shri Pankaj Chaudhary as well as her Budget Team/senior officials of the Ministry of Finance arrived at the Parliament House to present the Union Budget 2025, in New Delhi on February 01, 2025.

India is now in the 5th place, not third place as most TV hosts in India Have Claimed, in rankings in the global economic growth – but they failed to emphasize that it would be in 2050 not 2025, a good 25 years from now on.
But India has overtaken the UK under Indian origin Premier Rishi Sunak who could not clean up the mess created by his predecessors Boris Johnson and the foreign secretary Ms Theresea Williams, who was PM for a brief period. India now has an economy that’s about $3.41 trillion, overtaking Britain’s $2.67 trillion economy, and Germany that tipped Japan to 4th place over to become the 3rd largest economy of the world. As of 2024 October, Japan was $ 4 trillion plus and Germany $3.85 trillion.
But the narrative has changed completely. An unstable government in Japan and the two wars in Ukraine and Middle East has completely disrupted global supply chains and led to lack of infrastructure materials for growth, leading to a standstill. It was left to each country’s resilience to growth at a time when they were recovering from the post pandemic shocks but dealt a severe blow by the wars in Ukraine and Middle East. The UK and Japan suffered badly losing out on their global positions.
India proved to be the most resilient. But the USA and China have retained their position in the global rankings mainly because the dollars is still the most tradeable currency in the world and the Yuan is emerging as one of the strongest currencies in the world.
USA tops as the largest economy of the world despite a $1.3 trillion budget and its debt with China burgeoning to $780 billion, estimated to be something like $22 trillion, and China’s near 18 trillion, which is suffering from post-pandemic shocks with an overheated economy with a gigantic inventory pileup of infrastructure items such as majorly steel, cement and alumina and other materials, Japan has slowed down and Germany has speeded up.

Here are the stats on the world economic growth country wise.
Top 15 Countries by GDP in 2024
Understanding the economic landscape of various countries will help you as you prepare for global expansion. Many businesses go global to access greater talent pools, reach new markets, andiversify their teams for better business continuity. With that being said, we’ve listed out the top 15 countries by GDP in 2024 as a guide. Click on any of the links to gain more in-depth reviews of these top countries. This is based on the most recent data available from the World Bank for Gross Domestic Product (GDP).
Top 15 countries by GDP in 2024
United States: $25.43 trillion, China: $14.72 trillion, Japan: $4.25 trillion, Germany: $3.85 trillion, India: $3.41 trillion, United Kingdom: $2.67 trillion, France: $2.63 trillion, Russia: $2.24 trillion, Canada: $2.16 trillion, Italy: $2.04 trillion, Brazil: $1.92 trillion, Australia: $1.69 trillion, South Korea: $1.67 trillion, Mexico: $1.46 trillion, Spain: $1.41 trillion

It’s in this context that one has to view the 8th budget of FM Nirmala Sitharaman. She has gone all out to please the middle class with a humongous tax break, that’s about Rs 1.75 lakh rupees of earnings in a year is exempted from income tax. It’s estimated that one crore or 10 million of its population will no longer be expected to pay income tax.
The tax payers still constitute a fraction of the near 1.4 billion people, the world’s most populous state displacing China. We still need a lot of catching up to do. While most economies were recovering from the post pandemic shock, India was also hit, and the two wars in Ukraine and the middle east disrupted growth globally with shortage of raw materials for infrastructure growth.
As manufacturing slowed down , growth slowed down, consumer spending shrunk, a savings oriented economy is not good for an economy to grow, people have to go out and spend and then only manufacturers and investors take out their monies to put in growth The finance mandarins understood this well and found that incentives to manufacturers is not enough to spur growth it had to be matched by an incentive to spend, and the only way to do that was put more money in the hands of the people , the middle classes which is the backbone of any economy in the world.
The tax exemption will help bring out consumers to take out their wallets to spend, especially with the phenomenal growth of mobile applications and online shopping platforms such as Amazon, Snapdeal, Walmart, and Flipkart. The sudden surge to spend would lead to a slight kicking up of inflation, but that’s moderate and can be controlled by rate increases, the repo rate that RBI enforces on commercial banks. And commercial banks can up the rate of lending to borrowers in personal, automobiles, housing loans.
But that’s not going to happen, as it will refrain customers from borrowing. The federal bank will keep the interest rates steady so that commercial banks can lend at easy rates and also maintain the statutory liquidity ratio.
Let’s look at the economic scenario that has gone behind the budget making. The economic recovery India made post pandemic and post demonetization seemed to have lost steam because of the wars in Ukraine and Middle East. Consumer spending became very weak in tier one and tier two cities that help the manufacturing sector due to anaemic growth of labour incomes, joblessness and unemployment, but incomes were still high at the top of the economic or salary pyramid, top executives and industrialists continued to make m0nies at the cost of the middle classes and the larger population.
Corporates were sitting on a huge cash pile with their profits soaring sky high, but they were not willing to invest in new capacities unless they saw robustness from consumers who were resistant to spending.
The new tax cuts will leave one crore middle class people with a cash on hand of Rs one trillion or nearly $12 billion. This works out to about 0.3% of India’s overall GDP. The huge tax cuts are meant to spur spending by the middle classes, hitherto resistant, and hopefully stimulate wider economic activity.
Interestingly, personal income tax revenues contribute to government revenues much more than corporate taxes. This was not the economic scenario before the pandemic. Due to government efforts to increase the tax net and getting more people to pay income tax, even the small shopkeeper, tax buoyancy has gone up considerably.
Finance ministry figures show that Rs 22 out of every Rs 100 collected in tax revenues majorly comes from the middle classes. And only 17% comes from the corporate sector and high net worth individuals. (HNIs)– the Ambanis, Adanis, Kotaks, Goenkas, Mahindras, etc.

What is the fiscal deficit, the word has foxed many people. It simply means the difference between the government’s borrowings and earnings and government expenditure, if the governments spend on public welfare programs outpaces its revenues, mainly garnered through taxes, then the fiscal deficit is high, which is not good for the economy. The government would have to trim its expenditure.
This is a tough task for any government as reducing public debt incurred on social welfare programs through government borrowings and the associated interest payments on debt requires extraordinary skill without raising taxes, interest rates, or making life difficult for the people.

100 % Foreign Direct Investment to Insurance

Also, the vote banks come into the picture. It’s a tight rope walk.

The idea for the government was to mend public finances without disrupting economic recovery through an overtly dramatic fiscal contraction. Got it.
The Modi government has largely and credibly fulfilled its objective and promise. Fiscal deficit is expected to contract to 4.4% of the GDP by FY 2025-26, which is healthy for the economy. The new thrust and strategy of the finance ministry will be to put the ratio of public debt to GDP on a lower growth trajectory, a downward decline so to speak.
But this is a fiscal framework as yet untested in India, warn economists.
Economists say that the new strategy will give the government, especially finance ministry mandarins, a greater flexibility to manage the country’s overall economy than being chained to a single fixed economic budgetary number.

Fiscal deficit is defined as the difference between government’s borrowings with associated interest payments on it, which is an outgo of payments, against the revenues it raises through taxes. Borrowing is public debt incurred for welfare programs. To name a few concessions to farmers, power subsidies, fertilizer subsidies, cooking gas subsidies, are the bulk of the government’s debt.
The union budget is always based on tenable numbers, an economist says adding, that the government’s estimates of tax revenues are open to debate as it depends on how people anticipate the trajectory of economic growth. Income tax collections are expected to rise to Rs 1.81 trillion or $14 billion, despite relief given to taxpayers in the middle classes.
Government expects tax revenues to grow faster in nominal terms than the underlying economy. The only way to tackle this is either wage earners’ incomes rise substantially, meaning the government increases the pay scales of its employees and the corporate sector gives out hefty pay increases to its workforce, or more people are brought into the tax net. It’s easier to bring more people into the tax net than effect a wage increase deftly which in turn would lead to inflationary growth.

The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman along with the Ministers of State for Finance, Shri Pankaj Chaudhary as well as her Budget Team/senior officials of the Ministry of Finance arrived at the Parliament House to present the Union Budget 2025, in New Delhi on February 01, 2025.

The Modi government has been very conservative in its fiscal approach unlike the USA by keeping public expenditure on a tight leash, therefore incurring lesser public debt and associated interest payouts, , so that public expenditure does not outpace its revenue earning capacities. The US has crossed the threshold of public borrowings at $1.5 trillion while the limit is $1.2 trillion. President Trump has sought to cut this down drastically. He has abolished DEI, cut funding to WHO by withdrawing, and withdrawing from the UN is on the cards. He wants to slash funding to NATO unless others spend 2% if GDP on defence and withdraw from climate change.
The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman along with the Ministers of State for Finance, Shri Pankaj Chaudhary as well as her Budget Team/senior officials of the Ministry of Finance arrived at the Parliament House to present the Union Budget 2025, in New Delhi on February 01, 2025.

Modi on the other hand gave the finance minister. Ms. Nirmala Sitharaman and her finance ministry mandarins once led by finance secretary Somanathan a carte blanche to increase consumer spend through sustained tax breaks over eight years and also keeping a tight leash on public spend on welfare programmes. So that fiscal deficit was under check and the economy became vibrant, but the issue of joblessness and unemployment haunts the government as unless this is tackled, tax breaks percolate only to government staff and not the private sector riddled with unemployment.

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Contributor, IANS - Washington DC/New York
Executive Editor, Corporate Tycoons - Pune, India
Executive Editor, The Flag Post - Bengaluru, India
Contributor, The Statesman, Hindu Business Line, Sarkaritel.com, Diplomacyindia.com

Former Economics Editor, PTI - New Delhi, India
Former Communications Advisor,
Alstom Group of Companies, SA - France/Belgium

Written by
TN ASHOK

Contributor, IANS - Washington DC/New York Executive Editor, Corporate Tycoons - Pune, India Executive Editor, The Flag Post - Bengaluru, India Contributor, The Statesman, Hindu Business Line, Sarkaritel.com, Diplomacyindia.com Former Economics Editor, PTI - New Delhi, India Former Communications Advisor, Alstom Group of Companies, SA - France/Belgium

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