India Fights to Retain Position as Second Fastest Growing Economy

 

Indian Finance Minister Nirmala Sitharaman recently announced the Modi administration’s new budget which aims to grow India to a $5 trillion economy by 2024. The plan focuses on increasing investments by lowering corporate tax rates and easing regulations on foreign businesses. Some other key features include lowered interest rates on affordable housing loans and pension benefits for small retailers and local businesses, as well as development in the rural and agricultural sectors.  

In the 2018-2019 financial year, India faced its lowest growth rate in the past five years, losing its status as fastest growing economy to China. Domestic consumption, private investment, and new investment proposals fell to a significant low while overall exports also saw a decline.

As a method of encouraging foreign investment, single-brand retail companies will no longer have to source 30% of their materials in India, in addition to having lowered corporate tax rates. An additional feature to encourage business growth is establishing a TV channel for startup advertising in order to promote startups.

The areas which constitute the largest portion of the budget for the upcoming year are the Ministry of Agriculture and Farmers Welfare; Ministry of Consumer Affairs, Ministry of Food and Public Distribution; Ministry of Defense; Ministry of Finance; and Rural Development. Efforts to boost the agricultural industry include establishing new clusters with a focus on the bamboo, honey, and khadi industries and advancing rural communities through electrification and increased housing construction.

The government plans to invest $11.6 billion into the construction of new roads in rural areas and improving railway infrastructure. The budget also seeks to promote a shift to electric automobiles by decreasing interest on loans for electric vehicle purchases.

Critics such as Congress leader and former Finance Minister Palaniappan Chidambaram have calculated the overall revenue estimate to be far lower, describing the budget’s projections as “unrealistic” and lacking clear structure. Features of the budget that have drawn criticism are the public shareholding reforms as well as defense spending. Some experts are concerned that raising the minimum public shareholding could potentially push come companies to delist. Others feel that defense spending has taken a backseat despite the current security risks that India faces.

FM Sitharaman argues that by implementing the over sixteen various reforms, the projected improvements are in fact achievable, and she contests the recalculations by critics. Overall, she emphasizes the importance of private sector development and infrastructure improvements and is optimistic that improvements in the aforementioned areas will manifest in overall economic growth.

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