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Budget 2025 needs economic statecraft – Firstpost

Budget 2025 needs economic statecraft – Firstpost



The time for opportunity is over. Today, the Indian economy—alongside all international counterparts—faces a new looming threat. At a time of serial uncertainties, this threat compounds economic complexities. This threat is not physical, not resources, not even technology. It is more long-term than managing interest rates, more short-term than oil price fluctuations, and more disruptive than technological innovations. And it is more real than governments would like to imagine.

In that context, Finance Minister Nirmala Sitharaman’s third budget (one interim) in 12 months and eighth in six years needs a new direction. Of course, the fiscal steering must continue. As must addressing the frustrations of the middle-class direct tax-paying citizens. It must also go beyond giving more doles to the over-dole. But above all these, New Delhi must look closely at what’s happening 12,000 km away in Washington, DC, and turn Budget 2025 into an economic strategy document.

Wasting no time, Trump has already begun to deliver on his several electoral promises, from two genders to designating cartels as terrorists. But for the global economy, there are two aspects that other finance ministers, and perhaps even prime ministers and presidents, need to take note of. First, an America-first trade policy, that is tariffs. And two, a regulatory freeze, as he rejigs, makes doing business in America simpler.

Tariffs

On the former, India’s stated position is that it is ready to negotiate, provided there are no intended or unintended adverse consequences for domestic manufacturing. That may not be good enough for Trump, so we need more creative channels to not merely manage the current $118 billion trade with the US but to take it to $1 trillion by 2035, by when India should be a $10 trillion economy (organically, it will grow to $300 billion; going exponential will take some doing).

Managing tariffs can be a crucial point in bilateral negotiations. But the negotiations need not be merely economic. The India-US relationship is deepening and converging across several domains such as security, technology, defence, and energy. The approach cannot be in silos. It has to be integral.

In other words, President Trump and Prime Minister Modi need to work together within the framework of grand strategy. If, for instance, the Indian Ocean Region is going to be the geography where trade and tiffs will happen over the next decade, the US will need India as a stable, reliable, and powerful partner-anchor. India has already walked the talk on that front with the largest naval presence in the Red Sea to manage piracy, the others being the US, France, and China.

Overall, the threat of tariffs is the easier one to manage.

Regulatory framework

Despite beginning compliance reforms three years ago, India’s efforts remain frozen. Based on a February 2022 Observer Research Foundation monograph titled ‘Jailed for Doing Business,’ the government took note, a committee formed under NITI Aayog CEO, and a law enacted by Parliament, the Jan Vishwas (Amendment of Provisions) Act, 2023. However, the law decriminalised merely 113 provisions that impact business and entrepreneurs. In an aggregate compliance burden of 69,233 (25,537 at the Union government level) that holds 26,134 imprisonment clauses (5,239 at the Union government level), this is statistically insignificant.

Further, no progress has been made to deal with over 20,895 imprisonment clauses at the state level, even in the 16 BJP- or NDA-governed states. On 23 July 2024, Sitharaman’s seventh Budget 2024 talked about another law, Jan Vishwas 2.0, to further make doing business easier, the details of which are awaited.

Halfway across the world, if the US moves forward on DOGE (Department of Government Efficiency) over the next 18 months as planned, a simple logic defines the way forward. If doing business in the world’s largest market (GDP: $27 trillion) in one of the wealthiest nations (per capita income: $82,000) is going to be easier than in other jurisdictions, why would anyone in his/her right mind invest in a $4 trillion economy with a per capita income of $3,000, given that red tape strangulates businesses and corruption by officials continues unabated? Reason suggests that new global capital—as well as entrepreneurial talent, a core input for a knowledge economy—will head towards the US, not India. To that extent, American efficiency, while being a catalyst for US businesses, becomes a geo-economic threat to India.

What can Budget 2025 do?

Sitharaman’s budgetary actions are restricted to fiscal management—taxes and expenditures, borrowings, revenues, and allocations. But since all her budgets have also been recorded through a list of economic announcements, here are five that she must push for in 2025.

1. Think through regulations. Not only Indian entrepreneurs are overburdened, they have to face the wrath of aggressive changes by itchy fingers. Over the past 12 months, there have been 9,420 compliance updates. In the past quarter, the number was 2,317; in the past month, 839; and in the past week, 214. The rate of change in compliances, at 36 per day, shows that India’s economic bureaucracy is either too incompetent to assess or think through the impact of every change it drafts and hence needs to change it so often. Or these are systemically built pipelines for corruption.

Perhaps the truth lies in both. Sitharaman needs to nudge regulators and ministries to end these misadventures. A start has been made with a January 3, 2025, Food Safety and Standards Authority of India order on labelling—changes to label regulations will now be announced only once a year. She should push for a regulatory redesign to be executed by other line ministries at warp speed.

2. Focus on labour laws. Almost seven out of 10 imprisonment clauses (68 per cent) in India’s employer compliance have their roots in labour laws. These are on the concurrent list of the Constitution. A lot of deep legislative as well as executive plumbing has been put in place with four labour codes replacing 29 colonial labour laws. But until these are notified, they will not be the “biggest labour reforms in independent India”. A subject in the concurrent list of the Constitution, their notification needs the support of state governments. The Union government should use Sitharaman’s budget to place these recommendations in the speech such that they nudge BJP/NDA-governed states to move forward and take it forward.

3. Zero tolerance for corruption. In themselves, compliances are bad enough—no different from those in the European Union. But in India they get compounded by corruption. Several compliances give huge subjectivity to related inspectors and officials to threaten imprisonment or shut down factories with no accountability. Anecdotes point out how even when all compliances are in place, cash is needed to grease the regulatory stamp. According to the India Business Corruption Survey 2024, two-thirds of businesses surveyed had to pay a bribe, predominantly to overpaid officials that oversee labour, provident funds, property registration, drugs, and healthcare. This has implications: An EY-FICCI survey shows that four out of five respondents feel that corruption will negatively impact FDI inflows. Budget 2025 must announce a new deal between businesses and regulators.

4. One nation, one business identity. India’s Digital Public Infrastructure has propelled the nation into a transformative phase, establishing the foundational framework for its digital ecosystem, at the core of which lies Aadhaar, a 12-digit unique identification number. Budget 2025 should create a similar infrastructure for businesses. Since independence, entrepreneurs in India have grappled with at least 23 distinct identities issued by various Union and state governments. These include, but are not restricted to, Employees’ Provident Fund Organisation, Employees’ State Insurance Corporation, Permanent Account Number, Goods and Services Tax Number, Corporate Identification Number, Tax Deduction Account Number, Labour Identification Number, Professional Tax numbers, Factory License numbers, and Shops and establishment registrations, among others. Each identifier has its own lifecycle and often requires periodic actions such as payments and renewals. This complex and fragmented system poses a significant challenge to doing business in India. A small budgetary allocation towards such an identity could help bring diverse government agencies towards a singular number.

5. Ease of getting permissions. Further, applications for factory permissions currently require thousands of self-attested and notarised documents spanning more than 40 different government departments. Envision a scenario where entrepreneurs can apply to establish a new factory digitally by referencing their business identifier and granting access to their Entity DigiLocker for document verification. A tamper-proof, authenticated, and credible document repository could reduce approval times from several months to mere days. Citizens have already experienced the benefits of DigiLocker through streamlined processes like DigiYatra, which facilitates seamless security clearances using government-issued digital identities. Budget 2025 could be the vehicle that bridges this infrastructure with the plethora of regulatory agencies on the one side and millions of businesses on the other.

Opportunity to threat

The luxury of time and inertia is over. The opportunity of yesterday has become a threat of today and will harm our tomorrow. India needs a new dynamism that invites global businesses into India, as much as Indian businesses to freely express themselves without fear or favour and to build enterprises and to create jobs and wealth. If India could not see an opportunity, it must stop being in denial of this looming threat, eradicate it, and put India on the path of high growth. Sitharaman needs to embed strategic statecraft into her eighth budget, and other ministries must take it forward.

Gautam Chikermane is Vice President, Observer Research Foundation. Rishi Agrawal is CEO, TeamLease Regtech. Views expressed in the above piece are personal and solely those of the authors. They do not necessarily reflect Firstpost’s views.



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