New government plans to address critical policy challenges

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GOI

The urge to speed up reforms due to global economic uncertainties could face challenges with a coalition government in power, as problems like privatization and reviewing GST require agreement among different parties.

The urgent review of the five-slab GST rate structure might not happen soon because merging the 12% and 18% slabs could lead to higher taxes on items shifting to the higher bracket. This could be a challenging issue to gain political agreement on.

Privatization might slow down for a while. Despite the RBI’s significant dividend and strong GST revenues supporting the government’s finances, further subsidy reforms could slow down. However, the use of technology to reduce leaks will continue.

Foreign direct investments have decreased for two years in a row, dropping to $71 billion in 2023-24 from a peak of $85 billion in 2021-22. The government plans to increase investment in different sectors, such as electric vehicles and artificial intelligence.

While overall inflation has decreased, food prices remain high and volatile. The government may take action to stabilize prices and protect against climate-related shocks like heat waves and floods.

The farm sector shows minor growth in the latest GDP data. Reforms targeting irrigation and AI for increased productivity are anticipated. Election outcomes highlight the immediate need to enhance farmers’ income.

The PLI scheme has boomed smartphone and other exports, prompting calls for its expansion to sectors like toys and footwear. The scheme will likely be adjusted to prioritise companies and sectors willing to move production for exports away from China.

Before the election dates were announced, new economic laws were being developed. Improved regulations for cryptocurrencies, AI, and data protection are being considered.

While economists don’t foresee a repeat of the 8.2% GDP growth in 2023-24 for 2024-25, achieving a 7% growth rate in the current global economic climate will be challenging. Plans include a roadmap for energy transition, increased infrastructure investments, and specific targets set by economic ministries for 2030 and 2047. Ministry-specific action plans may be revealed if the new government reaches a consensus.