OVER THE PAST FEW YEARS, the Indian economy has grown sharply amid a global slowdown. Much of that has been due to prudent fiscal management. However, GDP growth in Q2 FY25 has fallen to 5.4% — the slowest in seven quarters — driven by an industrial slowdown and a moderation in investment demand.

Since Covid, India’s economic growth has been driven by rising public investment. Private investment is yet to pick up and urban consumption is slowing. Rural demand is expected to drive improvement in consumption based on a good kharif crop this year.

At such a juncture, what are the options before finance minister Nirmala Sitharaman as she prepares her record eighth straight Union Budget — including one interim budget — in a row? To understand this, Fortune India organised a Pre-Budget Roundtable with some of the brightest economic minds to present new ideas for Union Budget 2025. The panellists comprised Amitabh Dubey, research and monitoring wing, communication department, Indian National Congress; Cyril Shroff, managing partner, Cyril Amarchand Mangaldas; Gopal Krishna Agarwal, national spokesperson for economic affairs, Bharatiya Janata Party; Sunil Kumar Sinha, professor of economics, Institute for Development and Communication, Chandigarh; and Yezdi Nagporewalla, CEO, KPMG in India. The discussion was moderated by Fortune India editor-in-chief Sourav Majumdar, and deputy editor Ashutosh Kumar. Edited excerpts:

What should be the top priorities for the FM in the Union Budget?

Sunil Kumar Sinha: The Reserve Bank of India (RBI) governor scaled down GDP growth from 7.2% to 6.6%. The challenge would be what measures can the Union Budget announce, so that the growth slowdown we are witnessing can be corrected. The government has been emphasising on investment over the last couple of years, and much of the growth has been supported by this investment. The weak link has been private consumption demand, and also exports. Over the rest of this fiscal and the next, both will remain a challenge. The investment trajectory of the budgetary process will continue, and we will see the government again putting a lot of effort on investment demand in the forthcoming Budget.

There are not many options left to spur consumption demand. One is through income tax concession, which can increase disposable income, leading to a spur in consumption. The upper 50% income bracket households are consuming. The lower 50% who were dented by Covid are largely from rural areas, or the unorganised sector. They have been badly hit. Efforts have to be made through the budgetary process so that needs of the lower 50% get addressed. The third, the employment which the informal sector has been generating to absorb the labour force, also needs to be addressed. However, the government’s effort of formalising the economy should not be halted.

On exports, the global economy is passing through an uncertain phase. The statement from the incoming U.S. President has aggravated uncertainty. But, if the Trump Administration is going to target China by imposing tariffs, it will open up areas where India can look into. The emphasis on manufacturing will not only add to the growth process, but also generate employment.

Cyril Shroff: The Q2 GDP figures were a bit of a googly for the government. They did not see this coming, but India always does well in the second innings, so to speak, on the back foot. This is an opportunity for bold reforms. First, there is a feeling in financial markets and among financial intermediaries that regulators are unpredictable and too intrusive. Heavy regulation is not a problem per se. It’s about whether they are predictable or not. In the last year, there has been heavy handed action against several segments of the financial community. With such an approach, financial markets are not going to be supportive. There needs to be a balance, more predictability and transparency. Whether you look at banks, fintechs or payment entities, there are excessive heavy-handed actions. Financial markets require some thought, and there were some statements in the governor’s (recent) address for a refreshed approach to regulation.

The second relates to rule of law. One problem foreign investors face is regarding the enforcement of contracts. This is a very old problem. The lack of trust foreign investors have in the Indian regulatory and enforcement system results in two things — either they avoid the country altogether, or find a way of outsourcing the conflict resolution through arbitration and the like, none of which augurs well. It impacts FDI flow. We need FDI. Foreign capital sees the India opportunity, but is put off by the system. Legal infrastructure needs to be treated as a priority. The third is more clarity on FTAs and trade relations with major economies. When do we see a breakthrough on the U.K.-India FTA? With so much happening on geopolitics, there is an opportunity to boost investment and trade if we fix our FTA architecture. Our tax code is also complicated and unpredictable.

Yezdi Nagporewalla: In the last five months we have seen geopolitical events and the outcome of the American elections. We’ve seen some positives in India where Maharashtra elections have brought in stability. Those are the positives. On the negatives, we are seeing a slowdown, which is linked to what’s happening geopolitically, externally. Internally, consumption demand is going down. Now, whatever you do (in the Budget), you need to have a consistent, predictable format. I don’t think we are going to shift things dramatically from one Budget to another. Second, exports and local demand balance each other. But today even exports and trade balance and the trade currency are being watched and doubted because of the Trump Administration.

Government revenue comes from tax, disinvestment and RBI dividends. RBI dividends are consistent. They helped the government in the past. Disinvestment has not been quite successful. On tax there is a huge learning in how the government reformed the GST machinery. Today, six years after it was launched, you are seeing year-on-year, GST collection going up seamlessly. With maturity, the cost of collection comes down. That’s what we want in direct taxes. The FM did touch upon simplifying tax laws, the potential Direct Tax Code. When that happens, you’re not going to see an effect in one year. If we can turn that into something as successful as GST, it becomes a non-event in some years.

How big is the consumption problem? How do you look at the Trump Administration coming to power and how does that play out going forward?

Yezdi Nagporewalla: We are not as big as China is, as far as the U.S. is concerned. Right now, they are focusing on Mexico, China and how to resolve the Russian war. These disruptions can be opportunities for India. If our growth has to be led by manufacturing, we need to manufacture with international standards. If China, Germany and Korea can do it, why cannot India? That’s where innovation and quality come in. It’s easily achievable. Indian manufacturing units have achieved it. That is the opportunity for us. If we had it today, we would have started displacing many countries.

How much ammunition does the government have after three-four years of pushing capex?

Gopal Krishna Agarwal: Private investment is not picking up. We have to not only depend on domestic consumption, but also look towards export-led demand. The government is looking (to drive domestic consumption demand) at direct benefit transfer (DBT), cash transfer and creating demand through investment in public infrastructure. It is also pushing PSUs to increase capex. Over the last two-three years, PSUs have matched government expenditure on infrastructure.

There are two-three priorities of the government. For multilateral trade agreements, the challenge is how to go about these FTAs. There are conflicting demands from MSMEs who have been pressurising the government to increase countervailing duties. When we do away with FTAs, at times it becomes counterproductive for the domestic industry. For export-led growth, we need to integrate our manufacturing into regional and global supply chains. When we put restrictions on imports from China, it impacts our exports. This balancing is very important other than simply looking at fiscal deficit, inflation or GDP growth. To sustain growth, manufacturing sector support and increasing investment of the private sector are very important.

We need to underline the importance of politics of economics and bring that into the narrative because major decisions at multilateral and bilateral forums or Trump’s tariff hike (are political). How we negotiate agreements at such forums and global discussions are based on economic considerations. Unless we become an economic power, we are not going to become global leaders. No country will recognise us as a global leader unless we become an economic power.

Amitabh Dubey: The latest GDP numbers have thrown cold water on the narrative that India is the fastest-growing major economy. Manufacturing growth at 2.2% is quite low. Our export growth is low. Our import growth was negative, which suggests domestic weakness. The share of manufacturing in GDP was 12.6%, as opposed to 16% a decade ago. The ‘Make in India’ campaign’s goal was to raise it to 25%. It’s almost half of what the goal was, even though it may have been aspirational.

In sector after sector that the government is focusing on, India is far behind. In some policies, the focus has been on sectors, (such as those under PLI) that are very capital intensive. The unorganised sector has been kept out of the policy focus of the government for years. It’s a bit frustrating. Manufacturing is the biggest source of employment in the country, and MSME, unorganised manufacturing is the biggest subset.

A lot of the employment is in outward-facing sectors, whether it’s footwear, textiles. These sectors have not received the focus they should have. Because of this lack of growth in manufacturing over the years, there’s been a structural change in the economy. For many years, starting FY05, the number of agricultural workers was declining and those in manufacturing and services was going up. In the last few years, this has reversed. Now we have an increase in agricultural labourers, partly due to Covid-driven distress, but it hasn’t subsided.

The organised sector seems to be in a better place compared to the unorganised sector. Wage growth, in real terms, in the lower 50% has been completely flat for the last five years. The growth in real wage of agricultural labourers under Manmohan Singh’s government was 6-7%. It’s been negative in the last 10 years. CII recently said that we need to increase MGNREGA wages. The Congress party manifesto said it should be ₹400/day.

There is a view that India will avoid the worst impact of the Trump phenomenon. But Trump named India in his election campaigns, as what he calls an ‘abuser of tariffs’. Since 18% of our exports go to the U.S., we are vulnerable to action. In Trump 1.0 there was a mini trade war with India. He removed GSP, put tariffs on steel and aluminium. There were other things which were resolved during the Biden administration. We cannot assume India will not be affected, even though Trump’s focus is on China. Higher tariffs lead to high global inflation. We already have an inflationary problem. If he puts tariffs on China, then China could dump some products in India which will cause us to raise tariffs.

The governor mentioned Q2 growth has bottomed out and expectation is the second half will be better. The markets also seem to expect that, despite corporate earnings being under strain. What are your thoughts on this?

Yezdi Nagporewalla: Reduced growth forecast by the RBI governor is an indication of what is coming in 2025. He also reduced the cash reserve ratio (CRR) from 4.5% to 4% to increase liquidity. These are measures he is implementing, because of what the machinery anticipates is going to come in 2025. When we come into February with the Budget announcements, expect things on a similar line but a larger scale. Expect simplification of the machinery, because if you simplify you catch more. Another aspect that the governor touched upon and will continue to watch is inflation. A lot of what we see panning out will impact inflation in India.

Cyril Shroff: We need our own version of DOGE (the US Department of Government Efficiency) in terms of improving government efficiency. From an entrepreneur’s point of view, the framework of getting business done is onerous. We talk ease of doing business but every entrepreneur knows it is terrible. Unless you fix that, it is not going to provide the impetus to growth that we see in developed countries.

Artificial intelligence (AI) is the flavour of the decade and a very important tool. We have the talent, mindset, basic infrastructure and population for trying it out. AI and technology are among the priority agendas which could provide an impetus to growth. We should have a clearly thought-out policy that should not end up cutting jobs but enhancing quality of jobs and pushing productivity. We need a national policy on AI.

Amitabh Dubey: It is impossible to say if it has bottomed out. We are trapped in a mid-level, 6%+/- growth path rather than the 8-9% we need to compete with China. We need 9-10% growth to be Viksit Bharat by 2047. We are considerably short. We need policies that boost demand and generate jobs at the lower end. At the top end, things are happening, the organised sector is moving at a decent clip, reflected in valuations. We need more efforts on manufacturing. Now we are assembling mobile phones, but they are based on kits imported from China with a little bit of value addition in India. We need to increase value addition.

Gopal Krishna Agarwal: The RBI governor said GDP growth has bottomed out. There are several positive factors which are pointing towards India’s growth prospects in the coming decade. If the government does away with some bottlenecks, we will see strong growth in the coming decade. Taxation is a big demand and will bring in more disposable income, if tax slabs are reworked for the middle-income category.

We need to balance import duties. But it has to be worked very delicately. We need to build more research capacity on designing this. Wherever we have done away with changing duties, outcomes have been counterproductive. In steel when customs duties were raised, MSMEs started complaining. Now they say cost of base materials has increased. This balancing requires a lot of capacity building.

The tax structure can be tweaked to create more disposable income. The government will have to continue spending. It is working on them and the economy is poised because there is confidence from the global investing community. We have to work on three aspects — increasing investment, consumption demand and exports. These factors will cumulatively decide the GDP growth rate. For consumption, disposable income and targeted DBT are important to the rural economy. The economy will do strongly in the coming years.

In recent times, the government has been front-loading capex in the hope that private investment will be crowded in. That has not happened. How does one break out from this vicious circle once and for all?

Gopal Krishna Agarwal: If you look at government spending on infrastructure, it is not just to create demand. Improving ease of doing business and reducing logistics costs are important. On private investment, the only way out is more disposable income. The tax structure should be tweaked to allow more disposable income for the middle class.

We have to depend on exports. If you look at world history, countries that have developed have focused on exports. We have a large domestic market. Depending only on domestic demand and import substitution is the old socialistic view. We have to integrate our manufacturing with more dependence on exports. So domestic consumption will increase through disposable income, but at the same time we have to work on customs duty and bilateral agreements.

We should not get into the kind of trade wars China and Russia are getting into. If you look into the BRICS declaration, it may look like we are leaning too much towards China and Russia. We have to see our interests are more aligned.

Amitabh Dubey: The government had been quite protectionist in the last few years. Since 2018, there have been 3,200 tariff increases. If you want an outward orientation then you need a coherent but not irrational import policy. You use anti-dumping laws if you see dumping going on. But if MSMEs want to export, they need to import. So there has to be rationalisation and getting rid of bilateral investment treaties and not getting into FTAs. One has to have a more positive approach while keeping national interest in mind.

The Congress party had said in its manifesto, and the BJP government have also done a version after calling it a revdi (freebie). This is DBT — a transfer done in a coherent and logical manner to help boost demand. In many states, women are getting payments. If the Centre was to come up with a direct payment policy after consultations, the Opposition would be happy to contribute.

The second part is about ease of doing business. The regulatory burden is still very high. There is huge amount of rent seeking that every entrepreneur has to go through. Weaker sections of society find it difficult to access banks, get permits, or avoid being exploited. There should be focus on deregulation.

Donald Trump has stated if BRICS countries trade in their own currency, there would be tariff implications. What measures do we need to take to shield ourselves from any impact on the currency and exports?

Cyril Shroff: It’s hard to tell when Trump says something like this, how much is real. It’s quite a bold statement. It shows the depth of the U.S.’ concern if BRICS countries find an alternative to the dollar. Whether they will impose 100% tariff, or do something less is debatable. But BRICS countries or rest of the world should find a hedge in dealing with this. The most powerful weapon the U.S. has is the dollar. The sanction regime is based on that. The geopolitical outreach and the long arm of what they can do is linked to the dollar. Whether that’s good or bad, time will tell, but it gives them disproportionate power. But, BRICS countries will not have the gumption to do it.

In the last Budget, there was the employment-linked incentive scheme and the internship scheme. How are those initiatives working, and what needs to be done further?

Cyril Shroff: I haven’t seen any data on this. It’s too early to say whether it’s having any effect, but it is certainly a confirmation that these are the right priorities. There is no point having growth without jobs.

Yezdi Nagporewalla: It’s a fix till we get manufacturing transformed for India. While you’ve got talented people, you don’t want it wasted and have a negative impact, so you are sustaining that in some way with these schemes. It’s too early to measure, but if you ask generally, it is positive. The consumer index is also positive, which signifies the confidence consumers have in the economy itself. As contrary to the business index, which is negative. But coming back to the employment schemes, it’s actually too early.

How do you see the government’s incentive play with PLI? Do you see any tangible benefits, because barring electronics we are yet to see major outcomes in any other sector?

Gopal Krishna Agarwal: The industry has appreciated PLI. The government has also said PLI schemes have brought positive results. Post-Covid, that was the need of the hour. We were following a policy of staggered support at different points of the industry. We started with the semiconductor industry, providing `90,000 crore in support, and then the pharma industry.

The second is creating liquidity in the system. We never thought we should just push through what is generally called helicopter money, but at two levels, creating more money via DBT to targeted people through MGNREGA or food support. Through DBT, cash was in the hands of people, and at the industry level it was through PLI. Now, 14 sectors are getting support through PLI schemes.

It has not resulted in tangible job creation as anticipated. The idea was of import substitution. The other priority was job creation. But we haven’t seen that. PLIs are for high-end stuff, which is not going to create jobs at the scale that India needs. The Mudra loan, self-employment, entrepreneurship, Vishwakarma Yojana, e-Shram card were areas where we were focusing for creation of jobs. If you go into the data of these schemes, they are doing very well. The E-Shram card will create a big impact. In 18 very small sectors and cottage industries they are providing training, giving finance.

Donald Trump’s reaction to BRICS is very early. It isn’t about a BRICS currency, it’s just an idea. It is quite difficult to practically implement it at the current level. Second, India will not get into direct confrontation on this. That is very premature. But we also have to tell the U.S., that a financial system like Swift or the dollar cannot be used as a weapon of dominance.

Amitabh Dubey: PLI is focused on capital-intensive areas. Apart from mobile phones, it hasn’t seen huge traction. Semiconductors remains on the slow path. As Raghuram Rajan said, does PLI last beyond the payment incentive scheme, because whoever’s benefiting from the scheme will have to recalculate once the scheme ends.

In theory, there’s a huge opportunity. Under China+1, many global firms are de-risking, and India has an opportunity. Vietnam, Bangladesh and the Philippines have benefited much more. The Chinese are de-risking by moving production out of China, so they continue to benefit. In name, it’s a Vietnamese or even an Indian product. Some of that has happened in India also. It’s been harder going for them in India. Foxconn scaled down its India plans, Wistron sold out to the Tatas. The Tata group might make a success of it. Taiwanese companies have not engaged with India as one would have hoped. China+1 is a work in progress. We need to figure out how to get more of that investment into India.

The PLI headline numbers are quite large — ₹2 lakh crore. We’ve had the government give huge bounties to the organised sector. The tax cut of 2019 was around ₹2 lakh crore. PLI is better than an outright tax cut, because that tax cut went into deleveraging and dividends, whereas PLI is hopefully going to result in some actual investment. There are many questions on putting so much ammunition into the top end of the market, and not enough into the middle- and lower-end. That needs to be rectified.

In the current macroeconomic backdrop, should the government go for fiscal consolidation? Or should it open the purse strings and try to bring back growth?

Yezdi Nagporewalla: Every Budget is a very fine balance and the machinery is already working on what to focus on. You have seen the government focusing on public spending. If private spending is not there, the government steps in and looks at aspects of infrastructure. It’s got to be growth-oriented. It will impact the fiscal deficit. We’ve seen fiscal deficit come down, but I don’t know how much (further) down they will push it. Ultimately, you want growth and consumption. So those are things that will get spurred.

Sunil Kumar Sinha: If you look at the overall tax collection, the government will probably overachieve. They will end up collecting more taxes than the target for FY25. That should please the government. The way things have panned out in the last couple of years, tax collection has been better than budgeted. If that continues, achieving the fiscal deficit target this year will not be a challenge.

Since tax collection has been creating room for the government, it has continuously brought down the fiscal deficit. Fiscal consolidation will be a priority. The government has targeted to reduce fiscal deficit to 4.5% of GDP. On the tax front, not much tweaking will happen, but there will be measures to improve efficiency of tax collection.

Gopal Krishna Agarwal: Fiscal consolidation will not be a big challenge this year. However, the overemphasis on macroeconomic parameters is done by economists. Macroeconomic parameters have to be a by-product of the overall economic growth and trajectory the economy takes.

Amitabh Dubey: The government has had a supply side approach. This is presumably the PM’s preferred approach for the last many years, and in the critical parameter that we are talking about, it has not worked. Employment has not been generated and consumption is down. GDP growth is not what it should be and private investment hasn’t picked up. You need a different policy mix, which is more demand-focused.

Where does money come from? If the Centre were to bring in a scheme, the combined impact on state and Central fiscal deficit will be less than the entire amount of the scheme, because there will be some substitution that releases more funds for states to spend on capex. If you’re willing to do this kind of expenditure, then you can figure out how to do them on a scheme aimed at boosting demand.

The government has rolled out the new tax scheme, while the older one continues, for personal income tax. What traction have you seen and what needs to be done on taxation, both personal and otherwise?

Yezdi Nagporewalla: Work is going on, and sometime next year, it will be rolled out. That should respond to the complexities of the old regime, the new regime and stuff like that. Every year corporates are assessing what is optimal for that year and how long it is going to stay optimal. The tax code has been announced. It gives us an opportunity to simplify things which, in a mature state, will generate larger collection for the government. The question is now on implementation and design.

Sunil Kumar Sinha: If the tax structure is investor-friendly, household-friendly, it would reduce the compliance burden and give a fillip to tax collection with reduced government intervention. This has been in the pipeline for quite some time. That will certainly be a big plus for the economy.

This Budget should focus on government capex, because private capex has not revived. The overall growth process needs government capex support to move forward. If you look at the overall investment of the Union Government, they set aside a certain amount of money which will be given to state governments as a 50-year tax-free loan for their capex. It is well-known that the employment multiplier of state government capex is much higher than that of the Central capex.

Gopal Krishna Agarwal: On taxation, GST and virtual e-assessment are moving in the right direction. The government is consulting and taking the view of professionals on how to improve. At times, an over-zealous administration creates harassment. People are not averse to paying taxes, if the fear of harassment or an over-zealous bureaucracy is taken away.

Amitabh Dubey: GST affects the lower end more than income tax. Given that it’s a more regressive tax, some easing of marginal GST rates will be important. The government must try and reduce marginal rates on indirect taxes. The challenge is to increase the net without burdening individuals. That’s a delicate balancing act, because you have to keep lifting exemption levels.

Many people are registered to pay income tax, but don’t actually pay. There is a perception among the middle-class that they don’t get value for the tax they pay. This is linked to services the government provides to the middle-class. If we had a scenario where public health and education were provided to lower-middle classes, then maybe they would not be so averse to taxation. They get very little direct benefits. A broader focus on delivering good outcomes to the middle-class would ameliorate anger at increased taxation.

What are the three top things the FM must work on this time?

Yezdi Nagporewalla: Continue the focus on growth. Also, have a strong focus on unemployment and consumer demand. Those are connected in some ways. Also, keep a keen eye on trade implications and geopolitics, inflation and currency.

Sunil Kumar Sinha: Well, certainly, growth. Even while focusing on growth, think about its sustainability, because the growth we are witnessing is not supported by all four demand-side drivers. We need consumption of the bottom 50% of income households. That will sustain growth in the medium- to long term. Second is fiscal consolidation. It doesn’t mean you reduce expenditure. You can increase, but it is linked to your income, which has been growing. This is the best time to follow a counter-cyclical policy that if growth is good, taxes are good. The third is, the industry faces many bottlenecks. Whether it relates to the factor market, those are difficult reforms to undertake, but nevertheless critical.

Amitabh Dubey: One would be a combination of higher MGNREGA wages and DBT. This would be a large programme, but a targeted fiscal intervention. The second would be to rationalise customs duties and promote export-oriented manufacturing, particularly by MSMEs. The third would be, after consultation with the industry, an inheritance tax with a very high threshold. This is a global conversation, and we should have the conversation here, too.

Gopal Krishna Agarwal: First is how to improve manufacturing. The second point is how to create policies and a conducive ecosystem where Indian MSMEs are integrated into the regional and global supply chains. The third is about factor market reforms.

Cyril Shroff: We made many commitments in COP26 and six-seven years are remaining. There is a massive opportunity for investment. Corporate India is very conscious about this. The Budget should fuel the energy transition ambition as well. India is one of the greatest polluters and also has the greatest needs in the world. There is a big, big opportunity.

(The Budget roundtable was hosted by Fortune India before Shaktikanta Das stepped down as governor, Reserve Bank of India, and Sanjay Malhotra was appointed in his place.)