India budget makes fresh bet on manufacturing as it seeks to sustain growth

The budget has been designed to focus on structural reforms in manufacturing and finance

FILE PHOTO: India's Finance Minister Nirmala Sitharaman holds up a folder with the Government of India's logo as she leaves her office to present the annual budget in the parliament, in New Delhi, India, Feb 1, 2025. REUTERS

India's annual budget made a fresh bet on the country's manufacturing sector as it sought to accelerate and sustain strong economic growth, amid a volatile global environment, Finance Minister Nirmala Sitharaman said as she laid out priorities for Asia's third-biggest economy.

The budget for the next fiscal year will focus on structural reforms particularly in the manufacturing sector, building a robust financial sector and stepping up investments in cutting-edge technologies, including artificial intelligence, she said.

The Modi government has been struggling to raise manufacturing from the current level of under 20% of GDP to 25 percent to generate jobs for the millions entering the nation's workforce each year.

The Indian economy is seen growing at 7.4 percent in the current financial year, with inflation expected at near 2 percent. The government's fiscal deficit for the year is expected at 4.4 percent of GDP.

To spur private investment and demand, New Delhi has rolled out a series of reforms in recent months, including consumption and income tax cuts, overhaul of labour laws and steps to open up the tightly controlled nuclear-power sector. More policy changes are expected in the budget.

The budget will prioritise scaling up manufacturing across seven sectors, Sitharaman said. They include pharmaceuticals, semiconductors, rare earth magnets, chemicals, capital goods, textiles and sports goods.

The government will also revive 200 legacy industrial clusters.

"The nation is moving away from long-term problems to tread the path of long-term solutions. Long term solutions provide predictability that fosters trust in the world," Prime Minister Narendra Modi said on Thursday before the government's economic survey forecast growth of between 6.8 percent and 7.2 percent for the fiscal year starting in April.

India will continue with "next-generation reforms", as the next 25 years will be key to meeting the goal of making the South Asian nation a developed economy, he said.

India is also striking deals such as a landmark trade agreement with the European Union to offset the hit from the 50 percent tariffs President Donald Trump has imposed on some Indian goods shipped to the US.

To keep economic growth strong, the government will also spend 12.2 trillion Indian rupees ($133.08 billion) on infrastructure in the new year, compared to 11.2 trillion rupees last year.