New Delhi: India’s economic outlook for FY26, as highlighted in the Economic Survey 2024-25, presents a balanced picture. However, challenges such as heightened geopolitical tensions, trade uncertainties, and potential fluctuations in commodity prices could hinder growth. On the domestic front, translating the order books of the private capital goods sector into consistent investment, boosting consumer confidence, and increasing corporate wages will be crucial for fostering growth. Additionally, a resurgence in rural demand, driven by improved agricultural output, expected reductions in food inflation, and a stable macroeconomic climate, offers a positive boost for short-term growth. To enhance its medium-term growth potential, India must focus on elevating its global competitiveness through essential grassroots structural reforms and deregulation.
The Economic Survey 2024-25 was presented in the Economic Survey 2024-25 by Union Minister of Finance and Corporate Affairs Nirmala Sitharaman during a session in Parliament today.
India demonstrated consistent economic growth amidst global uncertainties, with a reported real GDP growth of 6.4 per cent for the Financial Year 2025 (FY25), which aligns closely with the decadal average.
The Survey anticipates that real GDP growth for FY26 will range between 6.3 and 6.8 per cent. It also highlights that the global economy experienced a growth rate of 3.3 per cent in 2023, with the International Monetary Fund (IMF) projecting an average global growth of approximately 3.2 per cent over the next five years, a figure considered modest by historical benchmarks.
India’s foreign exchange reserves rose from USD 616.7 billion at the end of January 2024 to USD 704.9 billion by September 2024 due to stable capital inflows, only to decrease to USD 634.6 billion as of January 3, 2025. “These reserves are adequate to cover 90 per cent of external debt and provide an import cover exceeding ten months, thereby enhancing resilience against external risks,” the Survey claims.
The industrial sector grew by 6 per cent in the first half of FY25 and is estimated to grow by 6.2 per cent in FY25. Q1 saw a strong growth of 8.3 per cent, but growth moderated in Q2 due to three key factors. First, manufacturing exports slowed significantly due to weak demand from destination countries, and aggressive trade and industrial policies in major trading nations. Second, the above-average monsoon had mixed effects – while it replenished reservoirs and supported agriculture, it also disrupted sectors like mining, construction, and, to some extent, manufacturing. Third, the variation in the timing of festivities between September and October in the previous and current years led to a modest growth slowdown in Q2 FY25.
Despite these challenges, India maintains the highest growth rate in the manufacturing purchasing managers index (PMI), as highlighted in the Survey. The Manufacturing PMI for December 2024 remained firmly in the expansionary territory, bolstered by new business acquisitions, strong demand, and effective marketing strategies.
The Survey highlighted that the Micro, Small, and Medium Enterprises (MSME) sector has become a dynamic force within the Indian economy. In a bid to support MSMEs with significant growth potential, the government has introduced the Self-Reliant India Fund, boasting a substantial corpus of ₹50,000 crore.
According to the Survey, alleviating excessive regulatory burdens can empower businesses to enhance efficiency, lower costs, and tap into new avenues for growth. It points out that regulations can inflate the costs associated with operational decisions within firms. To address this, the Economic Survey proposes a systematic three-step approach for states to evaluate regulations based on their cost-effectiveness. This involves pinpointing areas ripe for deregulation, making thoughtful comparisons with regulations in other states and countries, and assessing the financial impact of each regulation on individual enterprises. The Survey emphasizes that the Ease of Doing Business (EoDB) 2.0 initiative should be spearheaded by state governments, targeting the fundamental issues that hinder business operations. It advocates for states to pioneer efforts in liberalizing standards and controls, establishing legal protections for enforcement, reducing tariffs and fees, and implementing risk-based regulatory practices in the next phase of EoDB.
The global economy showed steady but uneven growth across various regions in 2024. A significant trend was the deceleration in global manufacturing, particularly in Europe and certain areas of Asia, attributed to supply chain disruptions and diminished external demand. Conversely, the services sector exhibited stronger performance, contributing positively to growth in numerous economies. While inflationary pressures have subsided in most regions, the Survey notes that inflation within the services sector has remained stubbornly high.
From the perspective of aggregate demand, India’s private final consumption expenditure at constant prices is projected to increase by 7.3 per cent, largely fueled by a resurgence in rural demand.
On the supply side, the real gross value added (GVA) is projected to increase by 6.4 per cent. The agriculture sector is anticipated to recover with a growth rate of 3.8 per cent in FY25. The industrial sector is also expected to experience a growth of 6.2 per cent during the same fiscal year. Significant growth in construction activities, along with the electricity, gas, water supply, and other utility services, is likely to facilitate industrial expansion. The services sector is forecasted to maintain a strong growth rate of 7.2 per cent, propelled by vigorous activities in financial services, real estate, professional services, public administration, defence, and various other services.
The Survey emphasizes that reforms and economic policies should now focus on systematic deregulation under the Ease of Doing Business 2.0 initiative, which aims to foster the development of a viable Mittelstand, specifically referring to India’s SME sector.
Additionally, it is noted that agricultural growth remained stable in the first half of FY25, with the second quarter recording a growth rate of 3.5 per cent, reflecting an improvement over the previous four quarters. Favorable Kharif production, above-average monsoon conditions, and sufficient reservoir levels have bolstered agricultural growth. The total Kharif food grain production is projected to reach a record 1,647.05 lakh metric tonnes (LMT) in 2024-25, representing a 5.7 per cent increase compared to 2023-24 and an 8.2 per cent rise over the average food grain production of the past five years.
The services sector continues to thrive in FY25, as noted in the Survey. Significant growth in both Q1 and Q2 resulted in an overall increase of 7.1 per cent in the first half of FY25. All sub-sectors within the services category have shown positive performance. Furthermore, India’s services export growth surged to 12.8 per cent during the period of April to November FY25, a substantial rise from 5.7 per cent recorded in FY24.
The Economic Survey emphasized the necessity for a sustained increase in infrastructure investment over the next two decades to maintain robust economic growth. In terms of railway connectivity, a total of 2,031 kilometres of railway network was commissioned from April to November 2024, alongside the introduction of 17 new pairs of Vande Bharat trains during the same period. Additionally, there was a notable enhancement in port capacity in FY25, which resulted in improved operational efficiency and a decrease in the average container turnaround time at major ports, reducing from 48.1 hours in FY24 to 30.4 hours in FY25 (April-November).
Furthermore, it highlighted the Government of India’s initiatives to promote renewable energy and green investments through various schemes, policies, financial incentives, and regulatory frameworks, including PM – Surya Ghar: Muft Bijli Yojana, the National Bioenergy Programme, the National Green Hydrogen Mission, and PM-KUSUM. The expansion in solar and wind power capacity has contributed to a 15.8 per cent year-on-year growth in renewable energy capacity by December 2024.
The expenditure on social services by the Government has experienced a compounded annual growth rate of 15% (aggregated for both central and state levels) from the fiscal year 2021 to the fiscal year 2025. The Gini coefficient, which serves as an indicator of inequality in consumption expenditure, has shown a downward trend in recent years. Specifically, in rural areas, it decreased to 0.237 in 2023-24 from 0.266 in 2022-23, while in urban areas, it fell to 0.284 in 2023-24 from 0.314 in 2022-23. This trend indicates a favourable impact of the Government’s initiatives aimed at improving income distribution. In the realm of school education, the Government is actively pursuing the goals outlined in the National Education Policy 2020 through various programs and schemes. These include, among others, the Samagra Shiksha Abhiyan, DIKSHA, STARS, PARAKH, PM SHRI, ULLAS, and PM POSHAN, as detailed in the Survey.
The Economic Survey indicates that the growth trajectory has been effectively bolstered by stability in key areas such as inflation, fiscal health, and external sector balance. Regarding inflation, the Survey notes a decline in retail headline inflation from 5.4 per cent in FY24 to 4.9 per cent during the period of April to December 2024. Conversely, food inflation, as indicated by the Consumer Food Price Index (CFPI), has risen from 7.5 per cent in FY24 to 8.4 per cent in FY25 (April-December), largely influenced by specific food items, including vegetables and pulses. It is anticipated that India’s consumer price inflation will gradually converge with the target of approximately 4 per cent by FY26, as projected by the Reserve Bank of India and the International Monetary Fund.
Capital expenditure (capex) as a percentage of total union expenditure has shown consistent improvement from FY21 to FY24. Following the general elections, the union government’s capex has experienced an 8.2 per cent year-on-year growth during the period from July to November 2024, according to the Survey.
Despite a 10.7 per cent year-on-year increase in gross tax revenue (GTR) from April to November 2024, the tax revenue retained by the Union, after accounting for devolution to the states, has seen minimal growth, as reported by the Survey. As of November 2024, the union’s deficit indicators remain in a favourable position, providing sufficient capacity for developmental and capital expenditures for the remainder of the year.
The Survey further reveals that the GTR of the union and the own tax revenue (OTR) of the states have increased at a similar rate during the April to November 2024 period. Additionally, state revenue expenditure has risen by 12 per cent year-on-year during this timeframe, with subsidies and committed liabilities experiencing growth rates of 25.7 per cent and 10.4 per cent, respectively.
The Survey observes that stability in the banking sector is underscored by a reduction in asset impairments, strong capital reserves, and solid operational performance. The gross non-performing assets (NPAs) within the banking system have reached a 12-year low of 2.6 per cent of total loans and advances. As of September 2024, the capital-to-risk-weighted assets ratio (CRAR) for Scheduled Commercial Banks is reported at 16.7 per cent, significantly exceeding the regulatory requirement, according to the Survey.
Emphasizing that the stability of the external sector is supported by trade in services and record levels of remittances, the eSurvey notes that India’s merchandise exports experienced a year-on-year increase of 1.6 per cent from April to December 2024, while merchandise imports rose by 5.2 per cent. The country’s strong services exports have enabled India to achieve the seventh-largest share in global services exports, reflecting its competitive edge.
In addition to the surplus in services trade, remittances from abroad have contributed to a healthy net inflow of private transfers. India has emerged as the leading recipient of remittances globally, driven by an increase in job opportunities within OECD countries. These factors have collectively ensured that India’s current account deficit (CAD) remains relatively modest at 1.2 per cent of GDP in the second quarter of FY25, as reported by the Survey.
Furthermore, gross Foreign Direct Investment (FDI) inflows have shown a resurgence in FY25, rising from USD 47.2 billion during the first eight months of FY24 to USD 55.6 billion in the same period of FY25, marking a year-on-year growth of 17.9 per cent, according to the Survey. However, Foreign Portfolio Investment (FPI) flows have exhibited volatility in the latter half of 2024, primarily due to global geopolitical tensions and shifts in monetary policy.
The Economic Survey underscores a positive trend in employment. It notes that the growth of India’s labour market in recent years has been bolstered by recovery from the pandemic and a rise in formal employment. The unemployment rate for individuals aged 15 and older has consistently decreased from 6 per cent in 2017-18 to 3.2 per cent in 2023-24. Additionally, both the labour force participation rate (LFPR) and the worker-to-population ratio (WPR) have shown improvement.
The Survey also points out that for India, a services-oriented economy with a young and adaptable workforce, the integration of artificial intelligence (AI) presents opportunities for economic advancement and enhanced labour market conditions. Emphasizing education and skill development will be essential to prepare workers for success in an AI-enhanced environment. The Survey highlights existing obstacles to widespread AI adoption, creating an opportunity for policymakers to intervene. It calls for a collaborative approach among government, private sector, and academic institutions to mitigate the negative societal impacts of AI-driven changes in the labour market.
In the total health expenditure of the country between FY15 and FY22, the Survey quotes that the share of government health expenditure has increased from 29.0 per cent to 48.0 per cent. During the same period, the share of out-of-pocket expenditure in total health expenditure declined from 62.6 per cent to 39.4 per cent.
– global bihari bureau
