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Ahead of Budget, PM Modi calls for deeper and bolder reforms for higher growth

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India’s GDP rose by 5.4% in July-September, the lowest rate in seven quarters, as weaker expansions in manufacturing and consumption hurt the economy.

With just over a month left for Union Budget 2025-26, Prime Minister Narendra Modi told economists Tuesday that deeper reforms were required for the economy to grow faster.

In a meeting organised by the Niti Aayog, the Prime Minister stressed the need to undertake bold new reforms and invited economists’ suggestions. The meeting comes amid the slowing of economic growth, tepid urban consumption, persisting external volatility, and the threat of high tariffs, which are further impeding world trade and stoking global inflation.

India’s GDP rose by 5.4% in July-September, the lowest rate in seven quarters, as weaker expansions in manufacturing and consumption hurt the economy.

Sources said the economists’ ideas ranged from land and labour reforms to states taking the lead in easing regulations that constrain businesses. They also discussed the pace of fiscal consolidation, the need to lower personal income tax rates, and tax incentives for companies employing women.

If one fiscal policy tool dominated the discussion and engaged the most, it was taxation. As many as 19 economists and senior government officials spoke about how India is a heavily taxed country and how it needs to lower both direct and indirect taxes. For this, suggestions made by a few economists included lowering personal income-tax rates, and one economist even provided calculations about how a specific percent cut in income-tax rates could boost consumption by a definite percent.

“It was discussed that India is a heavily taxed country and how some tax rationalisation needs to be done for both direct and indirect taxes. It was suggested that GST rates could also be reduced apart from a tweak in personal income tax rates to boost consumption. Some corporate tax incentives were also suggested for entities, especially small and medium enterprises, employing women. For example, a 1 per cent corporate tax incentive could be given to SMEs employing a certain percentage of women in their total share of workers,” a person who attended the meeting said.

Another suggestion was about a jobs-linked incentive scheme where companies get a payback in the form of a corporate tax concession if they hire more people, the person said.

Modi said ‘Viksit Bharat’ can be achieved through a fundamental change in mindset focused on making India develop by 2047. The Prime Minister’s Office stated that the meeting was held on “Maintaining India’s growth momentum at a time of global uncertainty.” “He emphasised that Viksit Bharat can be achieved through a fundamental change in mindset that is focused on making India developed by 2047,” the statement said.

“Participants shared their views on several significant issues, including navigating challenges posed by global economic uncertainties and geopolitical tensions, strategies to enhance employment, particularly among youth and create sustainable job opportunities across sectors, strategies to align education and training programs with the evolving needs of the job market, enhancing agricultural productivity and creating sustainable rural employment opportunities, attracting private investment and mobilizing public funds for infrastructure projects to boost economic growth and create jobs, and promoting financial inclusion and boosting exports and attracting foreign investment,” it said.

On the fiscal front, while some economists underlined the need to stick to the fiscal consolidation roadmap, others suggested a minimal fiscal expansion. “Some suggested a fiscal deficit of 4.5 per cent (of the GDP), while the other view was to go in for a fiscal deficit of 4.6 per cent,” another person in the know said. The government has budgeted a fiscal deficit target of 4.9 per cent of the GDP for the ongoing financial year 2024-25 and aims to bring it lower than 4.5 per cent of GDP by 2025-26.

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