NEW DELHI: India’s economic growth might not recover from the four-year low of 6.4% seen for FY25 (first advance estimates), in the next financial year, according to the Economic Survey 2024-25 tabled in Parliament on Friday. It stressed the need to employ the domestic levers with greater vigour to get back into the fast lane, while predicting that the rate of expansion of the real GDP in FY26 would be between 6.3% and 6.8%, modest compared to the country’s aspirations.
The previous survey unveiled in July last year had seen FY25 growth in the 6.5-7% range, with the risks evenly balanced. Though a medium-term growth of 7%-plus was envisaged then, this hasn’t been reiterated in the latest survey.
The authors of the instant document led by chief economic adviser V Anantha Nageswaran haven’t explicitly called the current slowdown structural; instead they attributed it to a large extent to an unhelpful external world. However, the survey proposed “grassroots level” structural reforms, and a freeing up of the larger constituency of economic actors with “systematic deregulation” to improve Indian economy’s global competitiveness. “Deregulation is more critical for MSME growth than larger enterprises, who usually find a way around compliance,” it said.
This amounted to a tacit recognition that the capital and resources, including policy incentives, require to be more dispersed for productivity gains. “Navigating the global headwinds will require strategic and prudent policy management and reinforcing domestic fundamentals,” it said.
Despite the widespread concerns about an exhaustion of consumption demand, and a particular weakness in the urban sector, the survey saw consumption to be “stable,” and rural demand “improving.” It, however, acknowledged a “temporary” slowdown in investment activity.
“From a demand perspective, Private Final Consumption Expenditure (PFCE) firmed up in H1 FY25, growing by 6.7% YoY,” the survey said, and highlighted that, at 61.8%, the share of PFCE in GDP in H1FY25 was the highest across all years.
It noted the “striking disparity” between robust corporate profits (up 22.3% in FY24), and abysmally low employment growth in the sector (1.5%). It denounced the sharp focus on cost-cutting by large firms, rather than workforce expansion, and stressed this must change to boost not only income levels, but also productivity.
The survey was unveiled in the backdrop of several commentators expressing concern over the country getting into a “middle income trap,” and its demographic gains fizzling out. According to the survey, taking steps with a greater sense of urgency on deregulation and an “acceleration” in private investments in infrastructure are imperatives for the country to raise the investment rate to 35% of the GDP, from 31% at present, and achieve an annual growth rate of 8% for at least a decade.
The survey lauded the pace of public investments, despite the tepid H1FY25, and said the investments by the centre and state governments were poised to pick up. But it cautioned that public-sector efforts cannot fully meet the country’s infrastructure investment requirements, given the binding budget constraints. “Private participation should accelerate in many critical infrastructure sectors in many ways—programme and project planning,” it said, adding, “India’s goal of Viksit Bharat necessitates the progressive filling of this (persisting infrastructure investment gap) with innovative modes of financing and greater private participation.”
Another important prescription in the survey, which Union Budget FY26 to be unveiled today might take a few cues from, pertained to greater Centre-state coordination. “Faster economic growth that India needs is only possible if the union and state governments continue to implement reforms that allow small and medium enterprises to operate efficiently and compete cost-effectively,” it said. Ease of Doing Business 2.0 should be a state government-led initiative focused on fixing the root causes behind the unease of doing business, it stressed. States must undertake regulatory-linked reforms in areas of administration, land, building & construction, labour, utilities, transport, logistics, environment among others.
Analysing what it called India’s “resilient recovery” after the pandemic, the survey said: “The overall picture is encouraging. Aggregate Gross value Added surpassed its pre-pandemic trend in Q1 FY25, and it now hovers above the trend in the H1 FY25. The agriculture sector remains strong, consistently operating well above trend levels. The industrial sector has also found its footing above the pre-pandemic trajectory. The robust rate of growth in the recent years has taken the services sector close to its trend levels.”
While analysts see the Reserve Bank of India readying for rate cuts in April, if not in February itself, the survey said India’s food inflation is likely to soften in Q4FY25, thanks to seasonal easing of vegetable prices and Kharif harvest arrivals. Robust rabi output might keep prices under check in H1FY26. “There are many upsides to domestic investment, output growth and disinflation in FY26. There are equally strong, prominently extraneous downsides too.”
On the external front, the survey appeared cautious. It noted that while inflationary pressures eased in most economies, and commodity prices have stabilised, “the risk of synchronised price increases persists.” With growth varying across economies and last-mile disinflation proving sticky, central banks may chart varying paths of monetary easing, which would lead to uncertainty over future policy rates and inflation trajectories. Added to these are geopolitical tensions, ongoing conflicts, and trade policy risks that threaten to dent global economic stability.
Source: The Financial Express
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