With the return of the NDA to power in the recently concluded Lok Sabha elections, all eyes are now on finance minister Nirmala Sitharaman’s full budget for the FY 2024-25. The interim budget presented in February was a typical vote-on-accounts, allowing the outgoing government to manage expenses in the period leading up to the general elections. The return of the old regime to power, albeit in a coalition, has raised expectations among general populace and businesses.

Based on the poll promises and initial priorities of this government, it will be reasonable to anticipate that this budget will focus on rural spending such as food, housing and employment for the poor; creating focussed programmes for the unorganised sector and gig workers; and increase spending on agriculture and allied farm activities. While these initiatives are crucial and are expected to significantly impact the overall economic development of India, there are a few critical areas that the government must urgently address. Here are some recommendations for the upcoming budget which are expected to boost consumption, build investor confidence, and accelerate growth engines of the Indian economy.

First, there is an immediate need for the government to focus on unemployment which has been one of the crucial issues that was repeatedly brought up during many a discourse during the election campaigns. A report by the International Labour Organisation (ILO) released in 2024 suggested that between 2012 and 2019, employment grew only at a negligible rate of 0.01%, which temporarily reversed in the post-COVID era but has again slid back to its earlier rate of growth. Moreover, unemployment among youth is still as high as 15.46%.

To address this, the government needs to look beyond the conventional approach of job creation. This Budget should focus on increasing women and youth participation in the Indian work-force and renew focus on skill development and apprenticeship programmes.The Make in India initiative of the government which was started to boost the manufacturing sector should focus on creating more assembly line jobs in MSMEs to absorb more unskilled and semi-skilled workers and help in upskilling such workers through on-job experience.

This exercise has even worked for Vietnam, establishing a vibrant manufacturing sector in the past. Expanding the manufacturing sector can also be an alternative for the workforce engaged in seasonal agriculture and construction works and an upgrade quality of living among them.

Moreover, the government needs to focus on increasing the scope of services sector beyond the traditional information technology-enable services (ITes). The Budget of 2022 envisaged developing a vibrant animation, visual effects, gaming, and comic (AVGC) sector in India that would develop India as an alternative creative hub. The AVGC sector does not necessarily need workers with technological background and hence can serve as an alternative avenue for youth coming from non-IT background. Further, with the development of artificial intelligence and web3 technologies these fields have immense potential to attract talented and creative youth to create a niche alternative services sector in India.

Second, the budget should focus on green initiatives and sustainable development to ensure India achieves its short term and long-term carbon emission targets. The past two governments have laid down strong foundation for creating a greener economy through various measures such as implementing electric vehicle (EV) friendly policies, substituting non-renewable with renewable energy and green sources, and enabling sustainable practices in different sectors among others.

In the next phase India needs to integrate sustainability with infrastructure development, specifically in government initiatives such as Housing for All, Smart Cities Mission, road connectivity, and upgrading railway, airways and waterway infrastructures among others. The interim budget earmarked more than Rs 11.11 lakh crore for infrastructure development in 2024-25. The Union Budget can allot part of this capital expenditure towards creating green infrastructure. Combining sustainability with infrastructure development will have a long-term positive impact on both the environment and the economy of India. The budget should further look to incentivise microscale solar and hydro projects that will generate clean energy and reduce dependency on state electricity boards and discoms. These entail the need for robust regulations, seamless integration of such projects into a resilient grid infrastructure, and competitive pricing structures.

Third, this Budget must emphasise on creating a robust green financing framework for infrastructure development. This means developing a common and uniform metric to categorise a project as green, setting standards, creating credibility for green investments, and impact reporting based on a scientifically approved methodology.

The Union Budget should consider announcing setting up a decarbonisation fund in India by linking it with the Compensatory Afforestation Fund Management and Planning Authority or CAMPA fund (a compensatory fund for promoting afforestation and regeneration of green land as a way of compensating for forest land diverted to non-forest use) and the District Mineral Foundation Trust or DMFT funds (funds which are royalties contributed by mining companies to uplift communities affected by mining activities). Further, green bonds should be allowed for micro projects of private sector, albeit after due diligence, with a clear definition and uniform guidelines demarcating investments that can be termed as “green” infrastructure.

Fourth, this Budget must ensure that the middle class, which contributed more than Rs 12.01 lakh crore as gross personal income tax in FY 2023-24 (accounting for 19% of the revenue earned by the centre), is rewarded according to its contribution. This Budget needs to bring reforms to the income tax structure for salaried class in India. The new tax regime unveiled in the Union Budget of 2020 failed to attract the expected number of income tax payers as tax payers still value traditional exemptions. To encourage broader adoption, the government must introduce additional exemptions under the new regime, raise the permissible limit of standard deductions and allow for inclusion of more investment products under section 80C. The budget should further focus on reducing taxes for lower income brackets to increase disposable income and stimulate consumption.

Arindam is a co-founder of Policy Consensus Centre, New Delhi. Views are personal.