India’s economy is slowing, with falling stock markets and a weakening rupee. Private investment remains low despite increased government spending. Global trade uncertainty adds risks. The Economic Survey predicts GDP growth of 6.3%-6.8% in 2025-26 but stresses the need for 8% growth annually to become a developed nation by 2047. It calls for simpler regulations and warns against outdated policies. The Budget will show if the government addresses these concerns.

What does the Economic Survey 2024-25 say about India’s slowing economy and key concerns?

Slowing Economy and Key Concerns

India’s economy is slowing down after four years of good growth. Stock markets are falling, the rupee is losing value and both domestic demand and public sector spending are weakening. Private investments remain low. From 2019-20 to 2023-24, government spending on infrastructure grew by 16% per year, household investments by 12%, while company investments increased only 6%, even after-tax cuts. This slowdown is worrying.

Global Trade Uncertainty

The new U.S. government’s decisions on global trade and taxes add more uncertainty. The Economic Survey 2024-25 warns that India must focus on improving its own economy to attract investors and continue growing.

GDP Growth Predictions and Risks

The Survey expects GDP growth between 6.3% and 6.8% in 2025-26, slightly higher than the 6.4% expected for this year. It says India needs at least 8% growth every year for 10 years to become a developed country by 2047. Without strong action, growth could slow further.

Need to Reduce Government Control

The Survey says that just making new policies is not enough. The government should reduce unnecessary rules, build trust and make it easier for businesses to grow. It suggests a ‘simple and fair’ rule-making system and asks for more responsibility from regulators.

Concerns About Government Policies

The Survey warns against import restrictions, special industry benefits and unclear tax policies, calling them outdated. The Budget will show whether the government listens or continues with these policies.

SUMMARY OF ECONOMIC SURVEY 2024-25

Highlights of Key Projections in Economic Survey 2024-2025

GDP Growth

India’s GDP is expected to grow between 6.3% and 6.8% in FY26.
The real GDP for FY25 is estimated at 6.4%, close to its long-term average.

Key Economic Indicators

• Real GVA is expected to grow by 6.4% in FY25.
• Capex grew by 8.2% between July-November 2024 and is expected to increase further.
• Retail inflation softened to 4.9% in April-December 2024.
• Consumer Price Inflation is expected to align with the 4% target in FY26.

Exports and Investments

• Overall exports grew by 6% (YoY) in April-December 2024.
• Services exports surged to 12.8% in FY25 (up from 5.7% in FY24).
• FDI inflows increased from USD 47.2 billion in FY24 to USD 55.6 billion in FY25, a 17.9% growth.
• Foreign exchange reserves stand at USD 640.3 billion, covering 10.9 months of imports.

Energy and Market Performance

• Solar and wind power capacity grew by 15.8% YoY in December 2024.
• BSE stock market capitalization to GDP ratio is 136% as of December 2024, far above China (65%) and Brazil (37%).

Government’s Policy Focus

• The Economic Survey advocates for deregulation to sustain high growth.
• It calls for continued infrastructure investment over the next two decades.
• A ₹50,000 crore Self-Reliant India Fund has been launched to support MSMEs.

Sectoral Growth

• Agriculture is expected to grow by 3.8% in FY25.
• Kharif foodgrain production for 2024 is expected to reach 1647.05 LMT, an increase of 89.37 LMT over the previous year.
• Key drivers of agricultural growth are horticulture, livestock and fisheries.
• The industrial sector is estimated to grow by 6.2% in FY25.

Social Development

• Social services expenditure has grown by 15% annually from FY21 to FY25.
• Government health expenditure increased from 29% to 48% of total health spending.
• The share of out-of-pocket health expenditure has declined from 62.6% to 39.4% between FY15 and FY22.

Labor Market and Technology

• Unemployment decreased to 3.2% in 2023-24, down from 6.0% in 2017-18.
• A collaborative effort between the government, private sector and academia is crucial to minimize the adverse societal effects of AI.

Analysis of India’s Economic Growth Outlook

• India’s economic growth in FY25 is projected at 6.4%, close to the decadal average.
• This growth is driven by strong private consumption, agriculture and services sectors.
• Agriculture growth is expected at 3.8%, contributing to rural income and demand.
• Industrial growth is anticipated at 6.2%, supported by manufacturing, which faces challenges due to global uncertainties and weak exports.
• Services sector remains the growth engine with 7.2% growth, supported by technology, trade and finance.

Sectoral Performance and Growth Drivers

• Private consumption is a key growth driver, projected to grow by 7.3%. It reflects growing income and rising demand in urban and rural sectors.
• The industrial sector faces challenges from global demand slowdown but will continue to contribute significantly to GDP growth.
• Agriculture sees robust growth despite the challenges of climate variability, benefiting from improved irrigation systems and higher food grain production.
• Services continue to show resilience, with 7.2% growth. The digital economy, finance and IT sectors are major contributors.

Risks and Challenges to Growth

• Inflation risks remain, particularly in food prices. This impacts real income and consumption.
• Global headwinds like supply chain disruptions, geopolitical tensions and recessionary pressures in advanced economies can limit India’s export growth.
• Manufacturing slowdown and weak external demand remain persistent concerns for the industrial sector.
• Agricultural vulnerabilities due to dependency on weather conditions and the monsoon cycle pose a risk.

Inflation Inflation refers to the overall rise in prices, reducing the purchasing power of money and impacting consumers and economic policies. It is measured by the Consumer Price Index (CPI) or Producer Price Index (PPI). Inflation can result from demand-pull inflation (when demand exceeds supply), cost-push inflation (due to rising production costs) and built-in inflation (based on future price expectations). It affects interest rates, wages, investments and can trigger a wage-price spiral. Central banks manage inflation through monetary policy, adjusting interest rates and conducting open market operations. The formula for calculating inflation is: Inflation = (WPI in current month - WPI in same month previous year). Global headwinds "Global headwinds" refers to external factors hindering global economic growth. Examples include rising inflation, geopolitical tensions, trade wars, currency fluctuations, recessions in major economies, or sudden regulatory changes.

Fiscal and External Sector Outlook

• Fiscal health remains strong, with capital expenditure rising significantly. This will continue supporting infrastructure growth.
• External sector stability is positive with growing FDI inflows, steady remittances and resilient services exports. However, challenges in merchandise exports and global supply chain disruptions persist.
• Forex reserves remain healthy, covering a significant portion of India’s external debt.

Fiscal Deficit Fiscal deficit occurs when a government’s expenditure exceeds its revenue from taxes and other sources. It reflects the total borrowings needed by the government. The gross fiscal deficit (GFD) is the difference between total expenditure and revenue receipts, while the net fiscal deficit excludes net lending. A fiscal deficit may arise due to a revenue deficit or increased capital expenditure for long-term assets. The deficit is typically financed through borrowing from the central bank or capital markets. The fiscal deficit is calculated as a percentage of GDP and the calculation involves the income (tax and non-tax revenues) and expenditure components (including salaries, infrastructure and development costs). Forex Reserves Foreign-exchange reserves (or forex reserves) are assets held by a central bank to manage liabilities and support economic stability. These reserves are mostly held in US dollars, euros, pounds and yen and include gold, Special Drawing Rights (SDRs) and IMF reserve positions. They provide a buffer to manage external obligations, strengthen the rupee and ensure coverage for imports and emergencies. The RBI manages these reserves, using them to stabilize the rupee, allocate funds and sterilize excess liquidity through bonds and securities. Capital expenditure Capital expenditure (Capex) refers to the funds used by governments and corporations to acquire, improve, or maintain tangible assets such as buildings, infrastructure and technology. For governments, Capex is crucial for long-term development, funding projects like roads, bridges and healthcare facilities that enhance public services and contribute to economic growth.

Labour Market and Employment

• The labour market shows improvement, with lower unemployment rates and higher worker-to-population ratios. However, the sector continues to face challenges in terms of skill mismatches and the need for greater labour force participation.
• AI adoption in manufacturing and services is expected to enhance labour productivity and create more job opportunities.

Infrastructure and Green Economy

• Infrastructure development has been strong, with record commissioning of railway lines and ports. Focus on green energy and renewable capacity expansion through schemes like PM Surya Ghar will drive growth in the coming years.
• India’s commitment to achieving green energy targets and expanding renewable capacity plays a crucial role in sustainability.

Conclusion: India’s Economic Future

• India’s medium-term growth outlook remains positive, with 6.3% to 6.8% growth projected for FY26.
• While geopolitical tensions and commodity price fluctuations remain risks, India’s focus on infrastructure investment, manufacturing and sustainability will continue to support robust growth.
• The key to sustained growth lies in boosting private investment, improving consumer confidence and fostering a conducive environment for manufacturing growth.

MAINS PRACTICE QUESTION Q.What are the key challenges to India’s economic growth as identified in the Economic Survey 2024-25 and how can the government address them to meet the 8% growth target by 2047? 150 Words.

FAQs

What is the GDP growth projection for India in FY26 according to the Economic Survey 2024-25?

India's GDP is expected to grow between 6.3% and 6.8% in FY26.

What are the key challenges highlighted in the Economic Survey for India's economy?

The key challenges include slowing economic growth, weakening stock markets, declining rupee value and low private investment, despite increased government spending.

What does the Economic Survey recommend for India to become a developed nation by 2047?

The Survey stresses the need for at least 8% growth annually over the next decade to achieve the goal of becoming a developed nation by 2047.

What is the expected growth rate for India’s agriculture and industrial sectors in FY25?

India’s agriculture sector is expected to grow by 3.8%, while the industrial sector is projected to grow by 6.2% in FY25.

How is India’s foreign exchange reserves performing?

India's foreign exchange reserves stood at USD 640.3 billion as of December 2024, covering 10.9 months of imports.

What are the key drivers of India’s economic growth in FY25?

Key drivers include private consumption, agriculture and the services sector, with agriculture expected to grow at 3.8% and the services sector at 7.2%.

What is the role of infrastructure investment in India's economic outlook?

The Economic Survey advocates for continued infrastructure investment, particularly in green energy and renewable capacity, to drive growth in the coming years.

What are the risks to India’s economic growth identified in the Survey?

Risks include global uncertainties, geopolitical tensions, inflationary pressures, weak exports and vulnerabilities in agriculture due to weather conditions and the monsoon cycle.

How is India’s labor market performing?

India's unemployment rate decreased to 3.2% in 2023-24, but the labor market still faces challenges, including skill mismatches and a need for greater labour force participation.

What is the importance of Foreign Direct Investment (FDI) in India’s economy?

FDI inflows increased by 17.9%, from USD 47.2 billion in FY24 to USD 55.6 billion in FY25, highlighting growing investor confidence in India’s economy.