Indian economy would grow at 6.5-7 per cent in FY25: Economic Survey

The government further said that the survey has unveiled the government’s key areas of policy focus in the short to medium term, both at the macro level and sectoral level, were on more job creation for youths, an agricultural reforms push for farmers, benefits for MSMEs, among others, for the financial year 2024-25. The report, which is authored by the government’s chief economic adviser, V. Anantha Nageswaran, favoured considering inflation that excludes food, prices of which are influenced more by supply than by demand.

The survey document came just a day before Sitharaman presents the Union Budget for 2024-25, which is expected to lay out the economic roadmap of the Modi 3.0 government and the vision for a developed nation by 2047. It also identified boosting private investment, strengthening small businesses and agriculture, raising financial resources for climate change adaptation, easing red tap for small businesses, and tackling income inequality as focus areas.

Briefing the media after the tabling of the Economic Survey 2023-24 in Parliament, Nageswaran sounded confident, saying that an economic growth rate of seven per cent was doable but will depend on how the monsoon rains progress. “We want to be prudent in projecting growth rate, that is why we have projected the country’s economic growth at 6.5 to 7 per cent in FY24,” Nageswaran said.

However, the survey said the priorities should also include bridging the gap between education and employment, calling for expediting implementation of labour reforms to create a more conducive environment for job creation. “The Indian economy needs to generate an average of nearly 7.85 million jobs annually until 2030 in the non-farm sector to cater to the rising workforce,” the survey report said.

In the survey, Nageswaran also wrote that the Indian economy was on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges. He, however, hastened to add that fears of cheaper imports from countries with excess capacity could limit the formation of private capital. Acknowledging that this year’s forecast was on the conservative side, and lower than market expectations, the survey cited slower investment growth by the private sector as well as uncertain weather patterns as some of the reasons for caution. “For the medium-term, it saw a potential of 7 per cent-plus growth rate on a sustained basis if structural reforms are implemented,” it said.

The survey also called for boosting direct investment from China, while reducing imports from that country. Amid strained ties since 2020 after border skirmishes, the report further said to boost exports and India can either integrate into China's supply chain or promote foreign direct investment from China.

”Among these choices, focusing on foreign direct investment (FDI) from China seems more promising for boosting India's exports to the US, similar to how East Asian economies did in the past,” it said, adding that choosing the FDI strategy “appears more advantageous than relying on trade” as it can arrest the growing trade deficit which India has with China.

On inflation, the survey pointed out the short-term inflation outlook was benign. It favoured the Reserve Bank of India’s monetary policy framework, considering it to tame inflation excluding food and using it to set interest rates. Currently, the central bank is mandated to keep consumer price index-based inflation at four per cent, with a tolerance band of two percentage points on either side.

The CPI inflation in June stood at 5.08 per cent but demand-driven core inflation, which leaves out food and fuel prices, was around three per cent. The bid to keep CPI inflation down below four per cent has led to the RBI holding interest rates for eight straight bi-monthly meetings. “The hardships caused by higher food prices for poor and low-income consumers can be handled through coupons or direct benefit transfer (DBT). It also flagged a rise in mental health issues among Indians, saying it drags down productivity and needs to be paid attention to,” the survey said.
On artificial intelligence, or AI, the survey said the advent of AI casts a “huge pall of uncertainty” with regard to impact on workers across all skill levels. The CEA, in the preface to the survey, also called for the need for policy a reorientation of farm policies despite the existing subsidies and support measures.