Realistic Assessment of Economic Survey 2024-25

Syllabus: GS3/Indian Economy

Context

• The Economic Survey 2024-25 projects a GDP growth rate for the fiscal year 2025-26, offering a comprehensive and realistic assessment of India’s economic trajectory.
• This forecast is grounded in the current economic conditions and global uncertainties, providing a balanced outlook for the future.

State of the Economy (Economic Survey 2024-25)

• India’s real GDP and Real Gross Value Added (GVA) growth are estimated at 6.4% in FY25 (as per first advance estimates of national income), which equates nearly to its decadal average.
• The real GDP growth in FY26 is expected to grow between 6.3 and 6.8%, keeping in mind the upsides and downsides to growth.
• The current financial year’s growth, as per the first advance estimates of the National Statistics Office (NSO), is expected to be around 6.4%, which aligns with the lower end of Economic Survey (2023-24) projection of 6.5-7%.
  • The global economy on an average grew by 3.3% in 2023 against the IMF projection of 3.2% growth in the next five years.
• Despite global economic challenges, India’s economy is expected to maintain a steady growth rate and aligns with forecasts from global institutions like the International Monetary Fund and the Asian Development Bank, both anticipating a 7% growth rate.
  • The survey highlights the importance of leveraging India’s demographic dividend and implementing deregulation measures to sustain long-term growth.

Assessment & Strategic Recommendations For India (Economic Survey 2024-25)

• For Viksit Bharat@2047: India needs to maintain a growth rate of 8% for the next two decades. It means India needs to accelerate the growth rate by 1.5-2 percentage points.
  • To achieve the above, as the Economic Survey rightly notes, the investment rate in India will need to increase to about 35% of GDP from about 31% now.
  • It requires significant investment in infrastructure and continued reforms to improve the business environment.
• Regulatory Reforms and Ease of Doing Business: The survey makes a strong case for enhancing the ease of doing business (EoDB) and positioning deregulation as a primary economic theme.
  • While both the Union and state governments have taken steps to reduce regulatory bottlenecks, much work remains to be done.
  • A key recommendation is that EoDB 2.0 should be a state-led initiative targeting fundamental issues in the business environment. States regulate critical sectors such as land acquisition, labor laws, logistics, and infrastructure.
• On FDI & FPI: Recent trends in Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) suggest that relying on foreign savings to bridge the investment gap may not be viable.
  • The survey warns that if capital flows remain constrained, the sustainable level of the current account deficit may be lower than the widely accepted range of 2.5-3% of GDP. 
  • Consequently, boosting domestic savings and reducing government dis-saving become imperative.
• Global Headwinds and Trade Policy: The medium-term global growth outlook appears weaker compared to the first two decades of the 21st century.
  • Geopolitical tensions and fragmentation and China’s manufacturing prowess could dampen India’s growth trajectory, particularly in exports—a sector where India has traditionally lagged.
  • The Economic Survey suggests that tariffs, if applied strategically, can foster industrial development in priority sectors.
• Inflation and Inequality: Retail inflation decreased to 5.4% in FY24 from 6.7% in FY23, attributed to effective administrative and monetary policies.
  • The Survey addresses income inequality, noting that the top 1% of Indians earn 6-7% of total incomes, while the top 10% account for one-third.
  • The government aims to tackle this by creating jobs, formalizing the informal sector, and increasing female labor force participation.
• Employment: The Survey underscores the necessity for India to generate approximately 7.85 million non-farm jobs annually until 2030 to accommodate the growing workforce.
  • It points out that about half of Indian graduates are not immediately employable, emphasizing the need for skill development.

Conclusion and Way Forward

• Balancing Optimism with Caution: The Economic Survey 2024-25 recognizes the potential for growth while acknowledging the challenges that lie ahead.
  • The survey’s recommendations focus on sustainable development, inclusive growth, and resilience to global economic shocks.
• The Economic Survey 2025 presents a realistic assessment of India’s growth path, balancing optimism with caution. It provides a roadmap for sustainable economic development by addressing both the challenges and opportunities.
• As India navigates the complexities of the global economy, the insights and recommendations from the survey will be crucial in shaping the country’s future.

Source: BS