Given the multiple challenges the Indian economy is facing now, Budget 2025 needs to make a fresh start keeping the harsh ground realities in mind—and not be swayed by the unsubstantiated claims of ‘all is well’ (detailed later). The Switzerland-based UBS Group calls the current economic slowdown “structural”, pointing at several long-term trends like moderation in credit growth, FDI inflows, export competitiveness etc. To these, one could add consumption demand, jobs, wages/salaries, private capex and the rupee’s value against the US dollar.

The first set of documents that Finance Minister Nirmala Sitharaman could look at is households’ assets and liabilities—to decipher why the main growth engine of demand (private final consumption expenditure or PFCE) is sputtering again, after a brief recovery.

Household assets and liabilities

The Reserve Bank of India’s December 24, 2024, statement shows, households’ net financial assets plunged to a 45-year low of 5.3% of the GDP in FY24 – marginally better than 47-year low of 5% in FY23. Their liabilities touched the second highest level of 6.4% of the GDP in FY24 (5.9% in FY23) since 1970-71, the highest being 6.6% in FY07 (RBI database).

The National Accounts Statistics for 2024 provides a better picture (except, it is available until FY23). It shows, households’ net savings—both physical and financial—plunged to 18.4% of the GDP in FY23 (from the highs of 23.6% in FY12 and 20.3% in FY19). Their net financial savings plunged by 39.2% in two fiscals (from ₹23.3 lakh crore in FY21 to ₹14.2 lakh crore in FY23) as their liabilities more than doubled (from ₹7.4 lakh crore in FY21 to ₹15.6 lakh crore in FY23).

Even though these data combine the assets and liabilities of both rich and poor households, they are a fair account of most households—as the World Inequality Report of 2024 and PRICE report of 2025 show, most Indians (the bottom 50% and the middle 40%) are rapidly losing their income and wealth shares, compared to a few (the top 10%) who are gaining.

Economists have long warned that high inequality makes growth unsustainable in the long run. For India, that long run is here and now as inequality has reached the “highest level” since the 1920s. One instance of it is a 4% growth in consumption or PFCE (main growth engine) in FY24, less than half of the GDP’s 8.2% (the gap between the two in the previous 11 fiscals is 1-2 percentage points). The other is, inversion in consumption—sales of high-end vehicles, houses, FMCG items and others overtaking that of low-end mass consumed versions in the post-pandemic phase.

It would be naïve to get carried away by the recovery in the rural FMCG market, while the urban FMCG market is falling because the latter is twice in size of the former. Big FMCG brands may shift focus to the rural market or plan to spend ₹3,600 crore on ads at the Mahakumbh but a slowdown in the urban FMCG market means middle-income groups living in urban areas are badly hit by falling income and rising inflation.

It would also be naïve to think that a 43.3% rise in gold loan in H1FY25 is a good sign of rising credit because it is distress mortgaging of gold by households and small businesses. Commercial banks have already reported a 62% rise in gold NPAs in June 2024.

The second set of documents to look at are the election manifestos for Delhi—which has the highest per capita income among large states in FY24, at 2.5 times of an average Indian (EAC-PM, 2024).

Election manifestos: The best barometer of people’s living conditions

The manifesto of the Finance Minister’s own party, the BJP, is the best to look at because it mimics all others in most areas. Besides, the Prime Minister has promised to continue the AAP government’s welfare schemes in Delhi, like free electricity, water and bus rides for women etc., if voted to power.  

The BJP’s manifesto offers several doles to Delhi voters as “Modi ki guarantee”: Cash handouts of ₹2,500 per month (“Mahila Samridhi”) and “free” bus rides to women; LPG cylinder at ₹500 with two “free” cylinders for Holi and Diwali; cash handouts of ₹2,500-3,000 per month to senior citizens and meals at ₹5 for slum dwellers. The Congress is offering ₹8,500 per month allowance to educated unemployed youth and the AAP is offering “free” bus rides to male students (already “free” for women) and 50% concession in metro fare to all students.

In short, the Finance Minister’s party is promising doles to virtually all in the richest state of India—which hints at the underlying mass impoverishment below the surface.

Besides, the BJP’s manifesto comes with the assurance that the party had implemented those in other states—Madhya Pradesh (“Ladli Behna”), Chhattisgarh (“Mahtari Vandana”), Maharashtra (“Ladki Bahin”) and Haryana (“Ladli”).

However, offering an LPG cylinder at ₹500 is a curious case. It is a central scheme (PM-UY or Ujjwala). The Centre announced ₹200 subsidy on LPG cylinders in August 2023 as a “rakhi gift” for women (on market rate of about ₹1,100)—ahead of the elections in five states in December 2023 and the Lok Sabha polls in April-June 2024. But during the state elections, a “Modi’s guarantee” of an LPG cylinder at ₹450-500 (under the PM-UY) was offered in November 2023 and further subsidy of ₹100 for the entire country was announced in March 2024 just before the Lok Sabha polls. Now, an LPG cylinder at ₹500 is being offered to Delhi voters. Note that the PM-UY already gives LPG cylinders at ₹200 for up to 12 refills a year to 103 million women.

Then, on January 16, 2025 (weeks ahead of the Delhi polls), the Centre set up the 8th Pay Commission; incidentally, most beneficiaries are Delhi voters as well.

Election-driven economic decisions are not new but have acquired a new intensity.

Just head of the 2019 Lok Sabha polls, Budget 2019 had announced a cash handout of ₹6,000 to farmers (PM-KISAN), after another cash handout for farmers (PM-AASHA) had been announced in September 2018. The latter has been found to be used at only election times, not otherwise. Again, ahead of the 2024 Lok Sabha elections, in November 2023, the Centre extended “free” ration (PDS) for 813.5 million Indians (meant for the pandemic lockdown phase) for another five years. 

Such piecemeal decisions and quick fixes don’t make for sound economic policy.

Then there are other critical documents the FM must be mindful of.

Plugging data holes and credibility gaps

Four data sets are particularly critical to sift the chaff from the wheat. First is the Census—the mother of all economic and social data—but there is no sign of Census 2021 even in 2025. As a result, speculative and creative assessments have a field day. For example, on June 26, 2024, the RBI Governor said that “a major structural shift” had taken place in the economy which would take India “towards 8% GDP growth in a sustained manner”. But the very fiscal (FY25) is expected to see the growth plunging to 6.4% (AE), from 8.2% in the previous fiscal.

Second is on poverty. On January 4, 2025, the FM endorsed the SBI Research’s claim that India’s poverty had fallen to “under 5% in 2023-24”. SBI Research set its own poverty line—at per capita per day expenditure of ₹64.8 for urban and ₹54.4 for rural India. This poverty line is so low that ₹64.8 can fetch only three pav bhajis at ₹20 apiece on Mumbai’s streets but only one plate of chole bhature in Delhi. The last official poverty line was fixed in 2004-05 (Tendulkar’s); the Centre has not honoured its decade-old assurance to Parliament to fix a new one.

SBI Research had made a similar claim in 2024 as well, saying poverty had fallen to “4.5-5%”. Many disputed it then, with economist Ashoka Mody estimating “30-40% of all Indians are poor” and another study setting the number at 26.4%.

In January 2024, the NITI Aayog had claimed (ahead of the 2024 Lok Sabha polls) that India had lifted “24.82 crore” Indians from MPI poverty—which is not a poverty estimate as it measures deprivations/access—between 2013-14 and 2022-23. The Prime Minister endorsed this and SBI’s claim on multiple occasions since then, the latest one was on January 12, 2025, when he promised to make India “poverty-free soon”. The (Interim) Budget 2024 too used the NITI Aayog’s claim to declare “25 crore” Indians had escaped MPI poverty.  

NITI Aayog’s statement was a statistical construct, in absence of actual data to which it also admitted in order to justify multiple extensive interpolations and extrapolations of a single data—health surveys (NFHS-4 and NFHS-5). It used these health data for two other MPI parameters with equal weightage—education and living standards. The NHFS-5 of 2019-21 is deeply flawed—it spans both pre-pandemic 2019 (70% data) and the partly pandemic 2021 (30% data) but misses the pandemic 2020 and then averages 2019-2021 data.

Had poverty been reduced to less than 5%, why does the Centre give “free” ration to 813.5 million, cash to 103 million farmers under the PM-KISAN and LPG cylinders at ₹200 for up to 12 refills a year to another 103 million women?

Third is on jobs.

On January 2, 2025, Labour Minister Mansukh Mandaviya said that India created 46 million new jobs in 2023-24 and added a total of 171.8 million in 10 years. He was citing the RBI-KLEMS report—a theoretical construct without actual data—which was contradicted by the Economic Survey of 2023-24 a few days later, flagging the job crisis and the need for 7.85 million new jobs a year till 2030. But the Prime Minister endorsed the RBI-KLEMS data. On December 23, 2024, the PM said that almost 1 million government jobs had been given in one-and-half years—which are not new jobs but existing vacancies being filled.

Why would the Centre sign a government-to-government (G2G) pact to send labour to the war-hit Israel unless there is a serious crisis? Thousands of youths have landed there. The Centre has “signed agreements” (G2G) with 20 other countries too, to supply labour too (PMO, October 29, 2024). Hundreds of Indians were duped into fighting the Russian war; 12 got killed and 16 injured so far.  Last month, CEA Anantha V. Nageswaran warned against “creeping informalisation” and corporate world’s “self-destructive” low wage and contractualisation amidst 15-year high profit-to-GDP ratio. Earlier, in August 2024, Nageswaran had suspected the Indian workforce of getting “more informal rather than becoming more formal”.

Besides, the PLFS of 2023-24 shows that quality jobs are falling, workers continue to flee to low-paying agriculture, and wages are negative. Low-paying menial job scheme MGNREGS continues to provide work to average of 97.2 million Indians in the past five fiscals and the last Budget’s big bang job scheme, PMIS, is yet to take off.

Fourth is the 2011-12 GDP data. Then CEA Arvind Subramanian and many others have panned it for “overestimation” of growth by about 3 percentage points for years.  On July 19, 2024, Subramanian and fellow economist Josh Felman busted the myths of a “gangbuster” GDP growth to assert that “growth is actually modest”.

Now, it is not difficult to understand why private capex refuses to take off; as the RBI’s Systemic Risk Survey says, 56% respondents think a revival is ‘unlikely’ and ‘very unlikely’. This is despite the corporate tax cut, PLI-DLI and VGF subsidies and numerous other tax incentives. Now, the FDI inflows are negative for the fourth consecutive fiscal (they dropped to $0.5 billion in Apr-Nov 2024, RBI bulletin of January 2025) and FPIs are fleeing. The Centre’s gross tax is stuck at 10-12% of the GDP for 10 fiscals of FY16-FY25 (BE)—limiting resources for government capex.

In short, the economy’s fundamentals are broken. To fix it, the income levels of the bottom 50% and the middle 40% must rise—inclusive growth. Enough solutions are already in the FM’s inbox to warrant repetition.

Sure, there are external economic challenges too but those are for another day.