Will Budget 2025 kickstart Indian manufacturing, drive GDP growth?

The Union Budget FY 2025-26, coming in the backdrop of slowing Gross Domestic Product (GDP) growth is expected to push the growth engines of the economy crucial such as manufacturing to ensure India achieves its development goals. 

 

Focus on the manufacturing sector was among the primary suggestions made to the Finance Minister Nirmala Sitharaman during the pre-Budget consultations by a group of economists. Several of them insisted that the government needs to bring a national manufacturing policy, separate from the industrial policy in the upcoming Budget especially keeping in mind the medium small and micro enterprises. 

 

There are also expectations that the Budget could increase allocation for the Production Linked Incentive Scheme in FY 2026 to labour-intensive sectors to boost domestic manufacturing.

 

The GDP growth projection of 6.4 per cent by National Statistics Office in FY25, assumes improved performance in agriculture and manufacturing during the second half of the financial year (October-March) compared to 6 per cent growth in the first half (H1) of FY25

 

Manufacturing grew 4.5 per cent during the first half of this financial year, while the NSO in its advance estimates it to grow 5.3 per cent for FY25, helped primarily by a likely recovery in domestic demand.

 

Speaking at the Business Standard’s BFSI summit recently, government’s Chief Economic Advisor V Anantha Nageswaran had said that in the second decade, the country's efforts to grow manufacturing were stymied by the fact that corporates and the banking system had balance sheet issues. 

 

“Now with the improvements in physical infrastructure and the ease of doing business, and corporates beginning to undertake capital formation, the manufacturing share of GDP should rise,” Nageswaran said. 

 

Besides, with the Donald Trump regime taking over in the United States, India is hoping to benefit from a shift in trade and investment flows from China. For India to become a part of the global value chain and self-reliant, the government would need to take steps to boost the manufacturing sector. 

 

Tax experts are hoping for relaxation on customs duty on various inputs and equipment to give a fillip to the manufacturing sector, which in turn would help increase jobs and consumer demand and thereby more private investment in the economy. 

 

Sitharaman in her address at the Confederation of Indian Industry’s (CII) Annual Business Summit last year had said, “I would like to highlight the fact that manufacturing must increase...We need to have greater sophistication in our product manufacturing.”