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Dear Readers,

Before I begin, there are two important updates this week. The first is that Hindenburg Research, a short seller famous for its findings on Adani, has shut its shop in India. Second, Axio, a Bengaluru-based FinTech, holding a NBFC license will be acquired by Amazon.

We are just 14 days away from the first full-fledged Budget of the Narendra Modi government after coming into power for the third time. The Union Budget may not grant everything that you, me and the businesses desire, but a finance minister can do a lot. Because without Budget allocation none of the initiatives can be taken forward. So, before the halwa is made and Budget documents go for printing, here is what I think Indians need in the digital age while marching towards Viksit Bharat.


The Budget is coming at a time when things are in flux. From Donald Trump to Trudeau, from Ukraine to Russia and Israel to Gaza, Middle East, there are changes everywhere. Adding to that is Bangladesh’s political crisis and China’s deflation. The whole world seems to be on a rollercoaster ride. While India is politically and economically much stronger, we have issues to address such as rupee depreciation, higher inflation, lower growth, lower investments and slowdown. The last Budget which was presented in July 2024 had a theme of Employment, Skilling, MSMEs and Middle Class. But I think, this time along with many themes there should be a greater focus on the middle class.

Inflation, consumption, slowdown

One of my friends working in a leading financial institution at Gurugram told me about reducing the number of restaurant visits. The reason she gave is that it's too expensive. I am sure many working professionals would concur. As I have overheard, in the local trains and metros and family talks and in soft conversations with friends, or during the coffee breaks at offices, there is one common statement that people are making: things are very expensive.


The impact of higher inflation over 5%has been pinching hard. The worry is it will either increase or remain at the same level, according to various reports. Sad to mention this, but a notable number of people may have to stay away from the basic food items prescribed in Thalinomics of the Economic Survey. We need to analyse whether we are heading towardsan economic slowdown.

Banks are struggling with deposits, but there has been an uptake in personal loans and credit cards and gold loans, which shows that a lot of the consumption is fuelled by borrowed funds. In fact, in my observations, there are loan rollovers, which means that youth are borrowing more even to pay their dues.


I think this Budget should take into consideration the impact of inflation and current state of consumption. There are enough data points which prove that consumption is high and spending is more because the spending patterns have changed. Don't forget the most obvious location for year-end celebrations, Goa, has seen the least number of tourists this year. Leading FMCG and retail companies have reported lower consumption.

What should the budget focus on?

1. Focus on the middle class

I think the government should not look at subsidies seriously and scrutinise whether a scheme really needs to be continued. It's time to consider whether we have to continue providing free ration to more than 70% people, and also offer money every month under various schemes. This has inflated the debt to GDP ratio of the country already. I strongly believe the government should and must keep a focus on the middle class, which is lifting a heavy burden on the government by paying taxes.


2.The fall of FDI and clarity on Chinese FDI

The other factor the finance ministry must focus on is Foreign Direct Investment (FDI). The billion-dollar question is, how can we revive FDI inflows. Currently, FDI in India is at a 10-year low. Also, Foreign Portfolio Investors (FPI) are selling their investments. Both are important metrics for the growth of the country. What is a more surprising factor here is the net inflow into India has decreased but the outflow, which is funds going out for investments, has risen. FDI doesn't just bring funds to the country but also technology and creates more jobs. Funding for startups and FinTech has also been down this year.

Importantly, there should be clarity on the government's stand on Chinese FDI, which the Economic Survey last year has recommended the government to look at seriously.

3. Rationalisation of taxation

Ever wondered why people were crying when the GST was imposed on popcorn. Earlier they expressed their anger on tax on packaged parotta, etc.

While direct tax was always there for taxpayers, specifically the middle class, the indirect tax was still bearable, which has become significantly high after GST came into existence. The average middle class is paying around 35-40% tax cumulatively. The Budget cannot do much on GST, but tax rationalisation should be the need of the hour.


The current level of tax brackets is such that people are paying direct and indirect taxes at the same time. The burden of tax is huge. In fact, a significant chunk of their income is going on taxation.

4. Jobs and skills

The government has launched an internship program in July but a lot needs to be done in this segment. There are two problems, the companies are complaining of a lack of skilled people and there are youths looking for jobs. There are also reports which have predicted a lot of jobs will be automated and many job profiles will become redundant. AI is already growing bigger and we need a long-term strategy in building a talent pool.


5. Quality of life for the middle class

Apart from this, retirement planning, social security, and climate change are also critical issues. India also has a large number of senior citizens and there are not enough policies which could support them. And the other issue that is strongly visible now is quality of life. As we head towards Viksit Bharat and a $5 trillion economy, we have to define a basic standard of living and quality of life. Let’s hope the finance minister pays attention to the issues that you and I face on a daily b asis.

As usual, I am adding here the top 5 stories of the week, trust you will find them meaningful.

1.We cannot afford to wait decades for sustainability standards, the time to act is now,"says ACCA Chief
2.NFRA asks auditors to closely scrutinise ECL estimates, calls for stronger communication with audit committees
3.Adani CFO posts 'Kitne Ghazi Aaye, Kitne Ghazi Gaye' message as Hindenburg Research shuts down
4. Falling rupee puts pressure on India Inc: CFOs urged to hedge, diversify funding, and seize NRI investment opportunities
5.Union Budget 2025 should focus on job creation, consumption push and PLI for MSMEs

Happy Reading

Amol Dethe,
Editor,
ETCFO

(Editor's note is a column written by Amol Dethe, Editor, ETCFO. Click here to read more of his articles exploring several buzzing topics)

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