Finance Minister Nirmala Sitharaman presented the Economic Survey 2023-24 in Parliament on January 31, outlining India’s economic performance and future projections. The survey provides a detailed analysis of growth estimates, inflation trends, investment outlook, and global economic influences. It serves as a key document ahead of the Union Budget 2024-25, which will be presented on February 1.

GDP Growth Forecast for FY26

India’s economy is expected to grow within a range of 6.3-6.8% in FY 2025-26, according to the Economic Survey. This projection aligns closely with the International Monetary Fund’s (IMF) estimate of 6.5%, though it is slightly lower than the World Bank’s forecast of 6.7%.

For the financial year 2024-25, the economy is estimated to expand by 6.4%, as per the government’s first advance estimates released on January 7. This figure is slightly below last year’s Economic Survey projection of 6.5-7% growth and the Reserve Bank of India’s (RBI) revised estimate of 6.6%.

Inflation and Food Prices

The Economic Survey indicates that food inflation is expected to soften in the fourth quarter (Q4) of FY25, driven by the seasonal decline in vegetable prices and the arrival of Kharif harvests. Additionally, good Rabi crop production is expected to help contain food prices in the first half of FY26.

Retail price inflation is projected to gradually align with the RBI’s target, supported by global commodity price declines and a stable external account. However, the survey highlights risks from adverse weather events and rising international agricultural commodity prices, which could impact inflation in the coming months.

Investment and Economic Fundamentals

The survey remains optimistic about domestic investment, output growth, and disinflation prospects in FY26. It notes that the slowdown in investment activity is likely temporary, with higher public capital expenditure (capex) and improving business confidence expected to drive recovery.

The Indian economy’s fundamentals remain strong, with a stable private consumption base, calibrated fiscal consolidation, and a resilient external sector. The country’s services trade surplus has played a crucial role in balancing the overall trade account, making India the seventh-largest contributor to global services exports.

Global Economic Trends and Trade Outlook

The Economic Survey points out that while global economic growth is expected to remain steady in 2024, regional variations exist. Near-term global growth is projected to be slightly below trend levels, and uncertainties surrounding global trade policies could influence India’s external trade.

The Economic Survey highlights India’s progress in infrastructure development and economic reforms. The government’s capital expenditure (Capex) on key infrastructure sectors has grown significantly, rising by 38.8% from FY20 to FY24. Following the electoral process in FY25, Capex gained momentum between July and November 2024, boosting investment in critical sectors. In the railway sector, India expanded its network by 2,031 km between April and November 2024 and introduced 17 new pairs of Vande Bharat trains between April and October 2024, improving connectivity and transportation efficiency.

The survey also emphasizes the need for Ease of Doing Business 2.0, which focuses on reducing regulatory burdens and promoting economic freedom for individuals and businesses. Systematic deregulation is identified as a key agenda for future reforms. Additionally, the survey provides a positive outlook on inflation management, with the Reserve Bank of India and the International Monetary Fund projecting that consumer price inflation will gradually stabilize around 4% by FY26.

Economic Survey highlights that the decline in prices of commodities imported by India is a positive sign for controlling domestic inflation. However, to sustain long-term economic growth, India must enhance its global competitiveness. The survey also emphasizes the need for structural reforms and deregulation to strengthen the country’s medium-term growth potential, ensuring a more dynamic and resilient economy.

Economic Survey, stresses that India needs to do more to attract foreign investment. While the country has made progress in improving its business environment, there is still work to be done, particularly in making tax rules, like the Advance Pricing Agreement (APA), more predictable and stable.

India has already reached a significant milestone, receiving $1 trillion in foreign investments since 2000. In the first eight months of this year alone, foreign investments totaled $55.6 billion, up 17.9% compared to last year. Despite a 2% decline in foreign direct investment (FDI) to developing countries overall, India saw a positive trend, with FDI increasing in South Asia, ASEAN, Africa, and Central America.

Looking ahead, the Economic Survey also highlights that India must create 7.85 million new non-farm jobs every year until 2030. It calls for achieving 100% literacy, improving the quality of educational institutions, and rapidly building high-quality, future-ready infrastructure to support growth.

Economic Survey Warns of Impact from Market Correction

Economic Survey warned that a sharp correction in equity markets could hurt sentiment and spending among India’s retail investors. Retail participation in India’s equity markets has reached record levels, especially since COVID-19, with many new investors who haven’t experienced a significant market downturn.

The survey highlighted that if such a correction were to happen, its impact on consumer sentiment and spending could be significant. The number of people trading at least once a month on the National Stock Exchange has surged from 3.2 million in January 2020 to 14 million by November 2024.

Over the last five years, individual investors have put in 4.4 trillion rupees ($50.79 billion) in the cash market, with additional investments flowing into mutual funds. However, the survey noted that Indian equities have become increasingly correlated with U.S. markets, which could pose risks in 2025.

With elevated valuations and positive market sentiments in the U.S., there’s a higher likelihood of a market correction next year. This could have a cascading effect on India, particularly as more young and relatively inexperienced retail investors are now involved in the market.

Revival of Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) saw a significant revival in FY25, with inflows rising from $47.2 billion in the first eight months of FY24 to $55.6 billion in the same period of FY25, reflecting a 17.9% growth year-on-year. FDI equity inflows stood at $29.8 billion during April-September 2024, while the services sector attracted $5.7 billion. Despite global challenges, India’s exports—both merchandise and services—grew steadily in FY25, with overall exports rising 6%. The services sector particularly stood out, with a robust growth of 11.6% during the first nine months of FY25. India’s forex reserves are also healthy, with $623.98 billion as on 24th January 2025, sufficient to cover 90% of external debt and provide more than ten months of import cover.

Capital Expenditure (Capex) Growth

In terms of capital expenditure (Capex), the government has prioritized infrastructure development, with capital spending on key sectors growing by 38.8% from FY20 to FY24. This trend continued in FY25, particularly after the electoral process, with increased momentum in capex spending from July to November 2024. Significant strides were made in infrastructure, especially in sectors like railways, roads, airports, and ports. Between April and November 2024, 2031 km of railway tracks were commissioned, and 17 new pairs of Vande Bharat trains were introduced. In addition, 5853 km of National Highways were constructed between April and December 2024.

Growth in the Tech Sector

The tech sector continued its strong performance, with exports reaching nearly $200 billion, growing 3.3% year-on-year. The domestic market also saw a 5.9% expansion, crossing $54 billion in FY24. Employment in the sector grew by adding 60,000 new jobs, bringing the workforce to 5.43 million. The number of Global Capability Centers (GCCs) in India increased from 1430 in FY19 to over 1700 in FY24, employing nearly 1.9 million professionals.

Energy and Power Sector Reliance on Thermal Power

India’s power sector still relies heavily on thermal power to meet its energy demands, despite advancements in renewable energy technology. Coal remains an affordable and reliable source of energy, and there is an emphasis on improving coal efficiency using advanced technologies such as super-critical (SC) and ultra-super-critical (USC) methods to reduce emissions.

Telecom Sector Expansion

The telecom sector also made significant progress, with 5G services launched across all states and union territories by October 31, 2024. By then, over 4.6 lakh 5G Base Transceiver Stations (BTSs) were installed, covering 779 out of 783 districts.

Job Creation and Workforce Challenges

Job creation remains a critical issue, with India needing to create an average of 78.5 lakh non-farm sector jobs annually by 2030 to absorb the growing workforce. However, a large portion of India’s workforce is employed in low-value services, particularly in the IT sector, which is highly susceptible to automation. The displacement of workers due to automation could lead to reduced consumption, potentially derailing India’s economic growth trajectory.

Climate Change Adaptation Needs

Climate change continues to be a pressing concern for India, which bears a disproportionate burden due to historical emissions. Adaptation measures are critical for the country, as they directly impact lives, livelihoods, and economic stability.

Financial Services and FDI Opportunities

Lastly, India’s financial services sector, particularly fintech, digital services, and insurance, presents untapped potential. The government has been encouraging private sector involvement through various public-private partnership (PPP) models to enhance infrastructure development and attract more FDI, especially in the financial services space.

Sovereign Green Bonds and Government Funding Plans

In FY25, the Government of India has raised Rs 11,697.40 crore through 10-year Sovereign Green Bonds (SGrBs), with plans to raise an additional Rs 10,000 crore in the second half of the fiscal year. This would include Rs 5,000 crore each in 10-year and 30-year securities. The emphasis on green bonds reflects India’s commitment to sustainable financing, aligning with global environmental goals.

Role of Public-Private Partnerships in Infrastructure Growth

The Economic Survey for FY25 underscores the importance of public-private partnerships (PPPs) in driving infrastructure development. The government is encouraging the private sector to take a more active role in planning, financing, constructing, and maintaining key infrastructure projects. With new PPP models introduced, the government is focused on fostering wider acceptance and participation in these partnerships, crucial for ensuring continuous infrastructure growth across the country.

Growth in Tech Exports and Domestic Market Expansion

India’s tech exports have surged to nearly USD 200 billion, marking a growth rate of 3.3%. The domestic tech market, on the other hand, is expected to expand by 5.9%, reaching over USD 54 billion in FY24. The sector also continues to be a major employment generator, with an addition of 60,000 employees, bringing the total workforce to 5.43 million in FY24. The number of Global Capability Centers (GCCs) in India has seen a significant rise, from around 1,430 in FY19 to over 1,700 in FY24, employing nearly 1.9 million professionals.

Improvement in Power Sector Performance

The power sector has shown notable improvements in supply reliability. Daily average power supply in urban areas has increased from 22.1 hours in FY14 to 23.4 hours in FY24, while in rural areas, it has risen from 12.5 hours in FY14 to 21.9 hours in FY24. The gap between energy demand and supply has narrowed dramatically, from 4.2% in FY14 to just 0.1% by December 2024, reflecting the ongoing efforts to enhance energy infrastructure and distribution.

Improving Financial Sector Regulations in India

India’s Economic Survey has highlighted the need for a more formal process to evaluate the impact of regulations in the financial sector. Currently, regulators like the Reserve Bank of India, Securities and Exchange Board of India, and Insolvency and Bankruptcy Board operate with limited external oversight. Although they conduct public consultations before introducing new rules, there is significant room for improving how they respond to feedback.

The Survey suggests that each regulator should establish an independent Regulatory Impact Assessment (RIA) agency. This agency would report directly to the regulator’s board, which includes both government representatives and independent directors. The RIA’s role would be to provide an unbiased evaluation of the regulatory processes and their economic and social consequences. This would help ensure that regulations are more effective and beneficial for the country.

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