The full year budget for FY 2024-25 is to be presented on 22nd July in the parliament by the honorable Finance Minister. Let us examine what are the major issues that the Indian economy faces today which needs to be addressed in this budget.
The Government of India published the Annual estimates for the FY 2023-24. As per the estimates there has been a significant decline in the growth of consumption demand which has the bulk share of the total GDP of India (over 50 percent). The consumption demand grew by only over 4 percent which is the lowest in the last two decades without considering the COVID affected years. The growth in consumption demand in the previous year was around 6.7 percent which dropped to 4 percent in FY 24 as per data published by the Ministry of Statistics & Programme Implementation, Government of India.
This drop in demand has a ripple effect. Lower demand is a signal for the private investors to invest less in the economy leading to lesser job creation and hence further lower demand. We are seeing a decline in newer projects investments as per CMIE data in the first quarter of FY25 as per as private investment is concerned. The new private investments in a quarter was the lowest in twenty years. All of these portray an alarming picture of the demand situation.
Now why are we seeing a drop in consumption demand. This needs to be analysed to understand the possible solutions for the same. The agriculture sector which employs the highest proportion of people in India saw a decline in growth and grew by only 1.7 percent as against a growth of over 4 percent in the previous financial year as the data published by Government of India.
The tertiary sector which contributes the highest in the economy also saw a decline and grew by 7.6 percent as against 10 percent in the previous FY. Apart from agriculture, the other people’s intensive sector, the construction sector maintained its growth rate. So the drop in growth in the people intensive agriculture sector and growth intensive tertiary sector explains the reasons behind drop in demand which ranged both in rural ( because of drop in growth of agriculture sector) and urban sector( because of drop in growth of tertiary sector).
To add up to this decline in demand situation with drop in growth of the most people intensive and most growth intensive sector, there has been a surge in food inflation. The food inflation rate as of June, 2024 stood at 9.36 percent as against 4.55 percent the same month last year. The vegetable inflation was as high as 29 percent and pulses inflation was at 16 percent in the month of June, 2024. The impact of lower output in agriculture has severely impacted the supply side along with policies of the government.
The drop in growth rate of agriculture is alarming as since 2018 there has been a trend of an increase in the share of agriculture in total employment at least till 2022. The share of agriculture went as high as 45 percent from 42 percent in 2018. The share of manufacturing in total employment stagnated. The share of manufacturing remained in the range of 11-12 percent between 2018 to 2022 as per PLFS data.
Moreover there has been an overall rise in the proportion of self employed workers in the total working population with the share of regular wage earners declining. As per the PLFS data published by the Government of India the share of self employed increased from 52 percent to 57 percent while the same for regular wage earners dropped from 22 percent to 20 percent between 2017-18 to 2022-23. This is alarming as the same PLFS data suggests that the monthly average wage earning of the self employed people is significantly less than that of the regular salaried people. In 2017-18 the average monthly earnings of regular salaried people was Rs 19450 while the same for self employed was Rs 12318. The same gap continued over the years.
Along with this the unemployment numbers have been a reason to worry. The latest CMIE data suggests that the unemployment rate stood over 9 percent in the month of June.
The decline in demand with the growing food inflation adds up to the challenges of the finance minister in planning for the budget. Any policy towards the rise in demand has a potential to further rise in inflation. There has been high unemployment and the quality of employment has been poor as well. The policies need to be taken towards reversal of the agriculture sector as well as the tertiary sector as that is the way to revive the demand and to solve for the employment scenario.
Indian Political Debate 
well summarised.
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