Today’s countries are increasingly inclined to protect the slim domestic industries. However, history shows that isolation hinders long-term growth. Therefore, the journey of India Viksit Bharat A strategy to adapt to these transition states is needed.
As the state prepares its 2025 budget, the focus must be on creating a resilient economy by addressing the fundamental challenges in resource optimization, micro, small and medium-sized enterprises (MSME) empowerment and procurement.
Although the world seems introverted, India must focus on creating an ecosystem that promotes productivity and competitiveness at home without gradually disappearing.
Optimize domestic resource potential
Despite the growing economy, India’s direct tax base remains narrow, which limits the government’s ability to fund key development priorities. In fiscal year 2023-24, direct taxes account for 51.5% of total taxes, while indirect taxes account for the rest. Tax contributions for high-income earners are not high, with about 2,20,000 people reporting incomes above Rs 1 crore. The solution is to expand the direct tax base through a simplified system that has a clear advantage over the older system: lower tax rates in exchange for fewer exemptions, predictable long-term tax plans and simplified compliance requirements. These benefits can drive voluntary adoption of the new framework. To further strengthen direct tax collection, the government should consider presumptive income tax based on consumption and impose a minimum tax on individuals, similar to the corporate concept of MAT.
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The country must also better utilize its savings at 30.2% of GDP. These savings remain in low-yield assets such as gold and real estate, rather than productive investments. By strengthening market infrastructure, introducing targeted financial instruments with competitive returns and creating tax-friendly investment tools, decision makers can redirect these funds to the long-term growth sector.
Although foreign direct investment (FDI) remains an important source of capital, inflows in fiscal 2023-24 fell to $44.4 billion from $46 billion in the previous year. This highlights the fluctuations in external funds. It is necessary to establish a self-sustaining investment ecosystem powered by domestic taxation and effective capital allocation.
It is also important to ensure that government spending benefits is optimized for maximum impact. The government should allocate funds to strengthen the Parivar Pehchan Patra (PPP) to achieve this. By tracking social and economic mobility at the home level, PPPs can enable data-driven policy decisions, reduce fiscal leaks and ensure that welfare programs effectively meet the expected beneficiaries. With India spending more than Rs 2 billion per year on social sector planning, even marginal improvements to targets can lead to substantial savings and better use of public resources.
Strengthen India’s GDP growth engine
MSME is crucial to India’s economy, contributing 30% to GDP and employing more than 110 million people. However, the full potential of MSME remains untapped. In countries such as Germany and Japan, small and medium-sized enterprises represent an important part of the economy. For example, Mittelstand in Germany accounts for more than 55% of GDP and generates half of the country’s economic output, with 82% of apprentices training in these businesses. Similarly, small and medium-sized enterprises in Japan contribute 55% to total value-added (GVA), accounting for 99% of all enterprises, providing 70% of private sector work..
In contrast, India has a much smaller number of MSMEs and faces many challenges. Rising input costs and limited structural financial opportunities have hindered its growth. Technology adoption remains a huge obstacle, with 36% of MSME owners struggling with the resistance of new technologies while struggling with high implementation costs 18%. As a result, many MSMEs lack basic digital infrastructure, putting them at a disadvantage in the global economy.
To address these differences, a two-regulatory approach must be adopted. First, the government must simplify the registration process and introduce clear incentives such as preferential credit access and technology upgrade subsidies to bring informal businesses into the formal sector. Secondly, establish a digital conversion center in the MSME cluster. Initiatives like “zero defects, zero effects” must be restored and the pathways for informal businesses to obtain such gains.
Procurement reforms to improve efficiency
Public procurement in India accounts for about 20-22% of GDP. Effective public procurement can improve the effectiveness of government spending, increase economic activity and support local businesses.
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The key to this transformation is the integration of systems such as IFM, Eoffice and Dak and automation processes. One proven example is the centralized machining center (CPC) implemented by the income tax department, which greatly improves governance and reduces complaints. This model can be adjusted by introducing better transparency, reducing payment delays and ensuring timely execution of contracts.
in conclusion
Budgets are an opportunity to implement these changes. These specific steps can help India build a stronger, more self-reliant economic foundation. Focusing on long-term resilience, efficiency and competitiveness can create the necessary conditions for sustained growth.
The author is the co-founder of Primus Partners.
