Arvind Chari: This is a budget to optimize growth within constraints

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Subscribe to enjoy similar stories. The first full-year budget of India’s new National Democratic Alliance government, sworn in after the 2024 general election, was presented against the backdrop of a noticeable slowdown in economic growth over the last four quarters. I discussed the issue of whether this slowdown is cyclical or structural in a recent column for Mint, summarizing it as being an issue of expectations.

The economic commentary at that time was about slowing consumption dragging down overall economic activity and growth. However, the consumption problem, as we know, is fundamentally one of incomes. To understand this, we must go back to the post-demonetization period (after November 2016, i.e.) and subsequent shocks or changes like the rollout of India’s Goods and Services Tax, implementation of the Real Estate Regulatory Authority law, a crisis of credit, and then the 2020 outbreak of the covid pandemic.

Income growth for many segments of the workforce, especially in the informal sector (which accounts for about four-fifths of the country’s total), has remained anaemic since then. The government has also been receiving criticism, particularly on social media, from the ‘middle class’ and ‘honest’ salaried taxpayers for being overburdened with taxation at a time of weak income growth, a complaint that is often made in the context of government amenities claimed to be less than satisfactory. Politicians, being closest to their ‘vote banks,’ are often the first to react.