Economic Survey: India predicts 6.5 to 7% GDP growth in FY25
Virendra Pandit
New Delhi: Asserting that inflation is under control and the Indian economy is on a strong footing, the Economic Survey 2023-24 on Monday highlighted the Narendra Modi government’s thrust on capital expenditure (capex), and said the sustained momentum in private investment has boosted capital formation growth.
The survey, which Finance Minister Nirmala Sitharaman tabled in the Lok Sabha a day before presenting her full budget for FY25, conservatively noted that, despite a robust 8.2 percent GDP growth in the previous fiscal year (FY24) and the market expecting a much higher growth number, the GDP growth in the current fiscal year would be 6.5-7 percent.
“The Survey conservatively projects a real GDP growth of 6.5-7 percent, with risks evenly balanced, cognisant of the fact that the market expectations are on the higher side”, said the 522-page document, supervised by Anantha Nageswaran, Chief Economic Advisor to the Finance Ministry.
However, private capital formation after good growth in the last three years may turn slightly more cautious, it warned.
The new NDA government’s latest GDP growth projection is lower than that of the Reserve Bank of India (RBI), which, in June, raised its forecast for FY25 from an earlier 7 percent to 7.2 percent.
In the interim budget presented early this year, the government had pegged the growth estimate for 2024-25 at close to 7 percent.
The GDP growth estimated by the Economic Survey, which was released a day before the first full comprehensive budget of this government, is almost in line with the International Monetary Fund (IMF)’s recent 7 percent estimate for FY25.
The Economic Survey is a very significant document as it unveils the state of the country’s economy, its prospects, and the policy challenges, if any.
It underlined that the Indian economy has recovered and expanded in an orderly fashion post-pandemic, and highlighted that real GDP in 2023-24 was 20 percent higher than its level in 2019-20, a rare feat only a very few major economies achieved.
On fiscal consolidation, the Survey saw the fiscal deficit coming down to 4.5 percent of GDP or lower by FY26.
The document said the short-term inflation outlook for India is benign. However, for long-term price stability, several options should be explored, including expediting the revision of the consumer price index (CPI) with fresh weights and item baskets.
Despite the core inflation rate staying around 3 percent, the RBI, keeping in view the withdrawal of accommodation and the US Fed, has retained interest rates unchanged for “quite some time, and the anticipated easing has been delayed.”
To control food inflation, the RBI has kept policy rates unchanged at 6.5 percent for eight successive review meetings.
The Survey outlined a growth strategy for the ongoing “Amrit Kaal” (starting in 2022, the 75th year of India’s Independence), and focused on the six critical areas of boosting private investment—expanding MSMEs, agriculture as a growth engine, green transition financing, bridging the education-employment gap, and building the capacity and capability.
The Survey highlighted that inflationary pressures moderated in most economies with declining global commodity prices and easing of supply chain pressures. However, core inflation remains sticky and driven by high service inflation.
The European Central Bank (ECB) has already cut the policy rate, while the US Fed has hinted at reducing it this year. If the services inflation across economies moderates faster, that may allow central banks to bring forward the monetary policy easing cycle earlier than currently anticipated. A likely reduction in policy rates by central banks, especially the US Fed, will open up the space for other central banks to follow the lead, bringing down the cost of capital, it added.
