Inequality in India has declined with the Gini coefficient, she said.

India will witness the steepest rise in living standards of the common man on the back of the government’s initiatives and the efforts towards doubling per capita income in a few years, Finance Minister Nirmala Sitharaman said on Friday.

Addressing the 3rd edition of the Kautilya Economic Conclave, the minister stressed that inequality in India has declined with the Gini coefficient, a statistical tool to measure inequity, showing improvement in urban as well as rural areas.

“I expect these improvements to continue as the effects of the last ten years of economic and structural reforms manifest more thoroughly in the data in the coming years as the Covid shock fades from the economy,” Ms Sitharaman said.

The upcoming decades, the minister said, “will see the steepest rise in living standards for the common man, truly making it a period-defining era for an Indian to live in”.

“While it took us 75 years to reach a per capita income of USD 2,730, as per IMF projections, it will take only five years to add another USD 2,000.

“The upcoming decades will see the steepest rise in living standards for the common man, truly making it a period-defining era for an Indian to live in,” she said.

The Indian government, she said, will try to double the per capita income in a matter of a few years for its 1.4 billion strong population (which makes up 18 per cent of the global total) notwithstanding the geopolitical challenges threatening world peace.

By 2047, as India crosses the 100-year mark of independence, she said, the new Indian era will have core characteristics similar to developed countries.

Viksit Bharat will usher prosperity not just to Indians but to the rest of the world by becoming central to a vibrant exchange of ideas, technology, and culture, she added.

Speaking on the country’s financial system, she said the soundness and resilience of India’s banking sector have been underpinned by a sustained policy focus on asset quality improvements, enhanced provisioning for bad loans, sustained capital adequacy, and a rise in profitability.

NPA (non-performing asset) ratios are at a multi-year low, and banks now have efficient debt recovery mechanisms.

Ensuring that the financial system stays healthy and the cycle lasts longer is another of our core policy priorities, the minister said.

Highlighting the forces that will shape the Indian era, Sitharaman said, the country’s youthful population provides a large base for total factor productivity improvements, savings, and investment.

While India’s share of the young is set to rise over the next two decades, several other developing economies are past their demographic peak.

This will drive domestic consumption in the coming decade, she said, adding, “As of now, 43 per cent of Indians are younger than 24 years old, and they have yet to explore their consumption behaviour fully.

“There will be organic growth in consumption as they become full-fledged consumers. Simultaneously, a rising middle class will pave the way for strong consumption, inflow of foreign investment and a vibrant marketplace.” Besides, she said, India’s innovation ability will mature and improve over the coming decades.

With regard to fiscal prudence, Sitharaman said, the government continues to uphold its commitment to reducing the fiscal deficit.

“Aided by buoyant revenue generation, restrained revenue expenditure growth and healthy economic activity, the fiscal deficit is estimated to decline further from 5.6 per cent of GDP in FY24 (provisional actuals) to 4.9 per cent in FY25. The commitment to fiscal discipline will not only help keep bond yields in check but will translate to lower economy-wide borrowing costs,” she said.

Talking about the capex plan of the government, the finance minister said, the government has budgeted to increase its infrastructure investment by 17.1 per cent to Rs 11.1 lakh crore in 2024-25. This amounts to 3.4 per cent of GDP in FY25.

Additionally, she said, a larger proportion of fiscal deficit is now accounted for by capital outlays, indicating an increasingly investment-oriented deficit financing.

The decline in commodity prices has facilitated the lowering of the budgeted allocation for subsidies on fertiliser and fuel, she said, adding, that this has contributed to restraining the growth in revenue expenditure, which is estimated to increase by 6.2 per cent year on year.

To ensure policy continuity, the bedrock of sustained growth, she said, “our government has initiated and sustained reforms across infrastructure, banking, trade policy, investment, and ease of doing business”.

Ultimately, the largest stakeholders and beneficiaries of the growth process towards Viksit Bharat will be the four major castes, namely ‘Garib’ (Poor), ‘Mahilayen’ (Women), ‘Yuva’ (Youth) and ‘Annadata’ (Farmer), she said.

Accordingly, the budgets in Amrit Kaal will be devised with these stakeholders in mind, she said.

Budget for FY26 is likely to be tabled in Parliament on February 1. 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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More than 100 countries, including India, face serious obstacles in becoming high-income countries in the next few decades, and New Delhi may take nearly 75 years just to reach one-quarter of US income per capita, a World Bank report said.

It will take China more than 10 years to reach one-quarter of US income per capita and Indonesia nearly 70 years, according to the World Development Report 2024: The Middle Income Trap.

Drawing on lessons of the past 50 years, the report finds that as countries grow wealthier, they usually hit a “trap” at about 10 per cent of annual US GDP per person – the equivalent of USD 8,000 today. That’s in the middle of the range of what the World Bank classifies as middle-income countries.

At the end of 2023, 108 countries were classified as middle-income, each with annual GDP per capita in the range of USD 1,136 to USD 13,845. These countries are home to six billion people – 75 per cent of the global population – and two out of every three people living in extreme poverty.

The road ahead has even stiffer challenges than those seen in the past: rapidly ageing populations and burgeoning debt, fierce geopolitical and trade frictions, and the growing difficulty of speeding up economic progress without fouling the environment, it said.

“Yet many middle-income countries still use a playbook from the last century, relying mainly on policies designed to expand investment. 

That is like driving a car just in first gear and trying to make it go faster,” the report said.

If they stick with the old playbook, most developing countries will lose the race to create reasonably prosperous societies by the middle of this century, said Indermit Gill, Chief Economist of the World Bank Group and Senior Vice President for Development Economics.

“At current trends, it will take China more than 10 years just to reach one-quarter of US income per capita, Indonesia nearly 70 years, and India 75 years,” the report said.

Gill also said the battle for global economic prosperity will largely be won or lost in middle-income countries.

The report proposes a strategy for countries to reach high-income status. Depending on their stage of development, all countries need to adopt a sequenced and progressively more sophisticated mix of policies Since 1990, only 34 middle-income economies have managed to shift to high-income status – and more than a third of them were either beneficiaries of integration into the European Union, or of previously undiscovered oil, the World Bank said. 

If budget making is a complex task, interpreting the Union Budget can be hazardous given the amount of fine print that one has to pore over. Finance Minister Nirmala Sitharaman’s fifth Budget, and the current Bharatiya Janata Party-led government’s final full-fledged one before next year’s general election, ticks all the right boxes on the face of it. Inclusive development that ensures prosperity for all, especially the youth, women, farmers, Other Backward Classes, Scheduled Castes and Scheduled Tribes, a focus on infrastructure and investment that serves as a multiplier for growth and employment, policies to enable green or environmentally sustainable growth, the rationalisation of direct taxes, including a raft of concessions to the middle and salaried classes, and pensioners, and, most importantly, doing all this while staying the course on fiscal consolidation. Terming it the “first Budget in Amrit Kaal”, Ms. Sitharaman sounded the poll bugle by emphasising the ruling dispensation’s achievements since 2014, when Prime Minister Narendra Modi first assumed office. Per capita income, she said, had more than doubled to ₹1.97 lakh as a result of the economy’s growth to being the world’s fifth-largest and the government’s efforts to ensure a better quality of living for all. She also cited an increase in formalisation of the economy and the widespread adoption of digital technologies, especially in the payments sphere, as other significant achievements.

With an eye on ‘India at 100’, the Budget proposals, Ms. Sitharaman said, were aimed at actualising a “technology-driven and knowledge-based economy with strong public finances, and a robust financial sector”. Emphasising that the economic agenda for achieving this vision would, among other things, require a focus on giving a strong impetus to growth and job creation, the Minister laid out her Budget proposals that were heavy on this government’s trademark acronyms describing the various schemes, but relatively light on details. PM VIKAS or Pradhan Mantri Vishwakarma Kaushal Samman, for instance, would for the first time offer traditional artisans and craftspeople, or Vishwakarmas, a package of assistance aimed at helping them improve the quality, scale and reach of their products, she said. Specifics, including a financial outlay and the likely mechanics of implementation, were, however, not spelt out. Similarly, a ‘Mangrove Initiative for Shoreline Habitats & Tangible Incomes’ or ‘MISHTI’, aimed at undertaking mangrove plantation along the coastline and on salt pan lands leaves the funding to a “convergence between MGNREGS and a compensatory afforestation fund”. With the rural sector’s mainstay employment guarantee scheme, one that was introduced during the Congress-led United Progressive Alliance government’s term, itself increasingly being starved of budgetary support, it is hard to fathom how the new initiative to protect and regenerate the ecologically sensitive mangroves will be funded. The decrease in outlay comes at a time when the rural economy is still to regain vigour from the ravages of the pandemic, the fallout on incomes from the uneven distribution of last year’s monsoon rainfall, and the relatively greater impact of high food inflation on hinterland households.

At a broader level, the Budget estimate for expenditure on rural development in 2023-24 is pegged at ₹2.38 lakh crore, a marginal 0.1 percentage point increase when measured as a proportion of overall expenditure at 5.3%, compared with the 5.2% in the previous Budget Estimate. When viewed against the revised estimate, the outlay is a good 0.6 percentage point lower. Food subsidy too has been sharply pared: at ₹1.97 lakh crore, it is almost 5% lower than the 2022-23 Budget estimate and a steep 31% down from the revised estimate. To be sure, the government’s resolve to stay the course on fiscal consolidation, especially after the COVID-19 pandemic had led it to spend more even as revenue receipts dipped amid the unprecedented economic contraction, left Ms. Sitharaman with little leeway on the expenditure front once she had decided that the government would concentrate its resources on increased public outlays on infrastructure and investment. Capital expenditure has been allocated ₹10 lakh crore, a 33% jump from this fiscal’s Budget estimate. If one adds the almost ₹3.7 lakh crore set aside for grants-in-aid to States for the creation of capital assets, the Minister’s laudable intent to apply the force multiplier of government capital spending as the primary lever to spur economic activity becomes clearly evident. With global demand uncertain this year on account of the slowdown in the developed economies, as the Economic Survey pertinently pointed out, India’s domestic market will necessarily have to serve as the economy’s bulwark. Ms. Sitharaman has also attempted to woo the middle class with a raft of changes in personal income tax that would, in combination with tweaks to customs duties, in total cost the government ₹ 37,000 crore in foregone direct tax revenue. Some of these changes are aimed at leaving more money in the hands of the salaried and pensioners, cash that the Budget planners hope would find its way back either as savings or increased spending on vital consumption. The biggest beneficiaries of the income-tax changes though are likely to be those in the highest income bracket, where the effective rate has been cut by 3.74 percentage points reinforcing a perception that this government bats for the affluent.

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