With the Lok Sabha election results indicating a coalition government at the Centre, economists predict that the forthcoming Budget will likely take a populist turn, emphasizing welfare and support schemes. “Every government emphasizes welfare schemes, but the larger the coalition, the more pronounced the focus on such schemes,” said an economist and vice-chancellor of BR Ambedkar School of Economics University, Bengaluru.
However, this emphasis might not be beneficial for the economy. “Freebies like free electricity and loan waivers should not dominate the agenda, as they could harm economic growth,” he noted. Instead, the new government should prioritize scaling up existing schemes, such as the rural employment guarantee scheme (MGNREGA), which acts as an automatic stabilizer for the economy, alongside irrigation and energy-related initiatives in rural areas, he added.
Major political parties have made several promises in their manifestos. Congress has pledged an annual ₹1 lakh cash transfer to women, a one-time student loan waiver, and a significant increase in the minimum selling price for farmers. The BJP has promised to expand the Ayushman Yojana health insurance scheme. The new government is expected to focus on rural areas.
Experts have highlighted rural distress caused by high inflation over the past year and a below-normal monsoon last year, which affected agricultural incomes. While the economy grew by 8.2% in FY24, agricultural output grew by only 1.4%, compared to 4.7% in the previous year. Experts also suggest that the muted 4% growth in personal consumption was due to rural distress.
“There is a need for targeted interventions to support the distressed population,” said the chief economist at India Ratings and Research. “If the trickle-down theory hasn’t worked, there is a case for targeted intervention.” However, economists warn that a significant increase in such interventions could disrupt growth. “An increase in the scale of these interventions could have implications for fiscal consolidation and growth prospects,” he said. “However, we don’t foresee a significant increase; it is likely to remain around current levels,” he added.
The government, in the interim budget, set a fiscal deficit target of 5.1% of GDP for FY25, aiming to reduce it to 4.5% by FY26. The Reserve Bank of India projects 7% growth for FY25, while international agencies like the International Monetary Fund forecast India to grow by 6.8% in the current fiscal year.