Why Union Budget 2023 is key to realising India's $5 trillion economy dream

India has been eyeing the $5 trillion economy mark over the last few years. It was in 2019 when Prime Minister Narendra Modi set a goal for the country to achieve the target by 2024-25. A pandemic and a European war later, it has become imperative for the world's largest democracy to take strong steps if it seeks to reach its goal and eventually realise its desire to become a developed nation by 2047, when India will mark 100 years of its independence from British rule.    

India's first Prime Minister, Pandit Jawaharlal Nehru, had once remarked, "Never talk to me about profit, Jeh, it is a dirty word." In Nehru's time and the era of Nehruvian socialism that followed, the Indian economy was heavily regulated. In the first 30 years of independence, India's economy grew by an average of just 3.5 percent due to the notorious license raj. 

"India's share of global trade fell steadily from 2.2 percent at independence to 0.45 percent in 1985, and that was actually hailed as a policy triumph by Indian socialists," as per a paper by CATO institute, based in Washington DC.  

Liberalisation and turning a new leaf

India's business environment changed dramatically when it opened up its economy in 1991. Liberalisation, privatisation and globalisation took India on a path to rapid growth. When Narendra Modi became Prime Minister in 2014, he came in with the reputation of being pro-growth. Under his tenure as chief minister of Gujarat, the state became the fastest growing province in India.

According to some estimates, Gujarat's growth rate was even higher than China's growth rate at the time.

Geopolitical power is closely linked with economic power. Britain was the world's most powerful nation when it had the biggest economy. USA is world's preeminent geopolitical power as it has the world's biggest economy. China today views itself as a competitor of the US because it has the world's second-largest economy. 

Why Union Budget 2023 is key to $5 trillion goal 

A budget is an occasion when the government not only announces what it will spend money on but also anounces what schemes it will fund to incentivise certain sectors. The current dispensation is focused on infrastructure development, promoting ease of doing buisness and developing India's manufacturing sector. While it is difficult to predict what the government's new budget will include, the past provides some insight.

The PLI scheme 

The Production-Linked Incentive (PLI) scheme has been a flagship scheme of the Union government. Aimed at boosting India's manufacturing sector, the PLI scheme was introduced in 2020. A strong manufacturing sector is important for several reasons, one of them is the fact that India has a large population and service sector cannot possibly employ a sufficient number of people. 

The expectation for Union Budget 2023 is that the PLI scheme will be expanded and more funds will be allocated for the scheme.

In the 2022 Union Budget, the government had allocated ₹1.97 lakh crore for the PLI scheme, that cover 14 sectors. 

The 14 sectors covered under the PLI scheme are: 

• Key Starting Materials (KSMs)/ Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs): Department of Pharmaceuticals
• Large Scale Electronics Manufacturing: Ministry of Electronics and Information Technology
• Manufacturing of Medical Devices: Department of Pharmaceuticals
• Electronic/Technology Products: Ministry of Electronics and Information Technology
• Pharmaceuticals drugs: Department of Pharmaceuticals
• Telecom & Networking Products: Department of Telecommunications
• Food Products: Ministry of Food Processing Industries
• White Goods (ACs & LED): Department for Promotion of Industry and Internal Trade
• High-Efficiency Solar PV Modules: Ministry of New and Renewable Energy
• Automobiles & Auto Components: Department of Heavy Industry
• Advance Chemistry Cell (ACC) Battery: Department of Heavy Industry
• Textile Products: MMF segment and technical textiles: Ministry of Textiles
• Specialty Steel: Ministry of Steel
• Drones and Drone Components: Ministry of Civil Aviation

PM Gati Shakti

PM Gati Shakti is another meta policy that plays a crucial goal in ensuring India quickly attains its goal of crossing the 5 trillion dollar GDP mark. So, what is PM Gati Shakti?

PM Gati Shakti is a national master plan for multi-modal connectivity. The goal is improving India's infrastructure. According to the government "PM GatiShakti is the result of Prime Minister’s constant endeavour to build Next Generation Infrastructure which improves Ease of Living as well as Ease of Doing Business. The multi-modal connectivity will provide integrated and seamless connectivity for movement of people, goods and services from one mode of transport to another. It will facilitate the last mile connectivity of infrastructure and also reduce travel time for people". 

It is expected that allocation in PM Gati Shakti may rise from Rs 5,000 crore to Rs 10,000 crore. The budget may include measures to improve the execution of projects under the plan. Focus may be on Dedicated Freight Corridors and Logisitc Parks. 

Why PLI and PM Gati Shakti are key to $5 trillion goal

These two schemes are important because of their focus on manufacturing and infrastructure. Manufacturing and infrastructure constitute the backbone of economic growth. In the 1970s and 80s, India missed out on adequately growing these sectors. China and other east Asian nations paid attention to these two factors and their economy grew rapidly.

According to Arvind Panagariya, in the 1950s, India and South Korea had by and large, similar per capita incomes. But the difference in policies chosen by India and those chosen by South Korea led them on distinct paths. South Korea focussed on labour intensive exports, and as a result, its per capita income today is way higher than India.

With a focus on infrastucture and manufacturing, the Centre is seeking to transform India into a manufacturing powerhouse. An India where goods are manufactured not only for domestic consumption but for international markets as well.