E-Paper
6.5 to 7% growth forecast in cautious eco survey
Economic Survey projects India's GDP growth at 6.5-7% for 2024-25, flags concerns like China investments, inflation targeting, job creation, and AI impact.
The Economic Survey on Monday projected India gross domestic product (GDP) growth at 6.5-7% for 2024-25, lower than 7.2% estimated by the Reserve Bank of India last month and significantly down from 8.2% achieved in FY24, in a cautious outlook that flagged a raft of concerns and potential roadblocks, even as it recognised the significant progress made over the past decade.
The document called for a review of India’s stance on investments from China so as to boost India’s own competitiveness, a rethink of the Reserve Bank of India’s inflation-targetting framework to exclude volatile food prices, more effort by the private sector to create jobs, and a need to reform agriculture and strengthen small enterprises.
In his preface chief economic adviser (CEA) V Anantha Nageswaran also put forth a “tripartite compact” the country needs to become a developed nation, an articulated objective of the Narendra Modi government, with the deadline being 2047. The compact, he wrote, is for “... governments to trust and let go, ... private sector to reciprocate the trust with long-term thinking and fair conduct,... public to take responsibility for their finances and their physical and mental health.”
The conservative GDP estimate emanated mainly from challenges such as the polarised global order, growing medium-term challenges, and the uneven spread of the monsoon. Domestic growth drivers supported economic growth in FY24 despite global uncertainties, but private capital formation may turn “slightly more cautious” because of fears of cheaper imports, the survey said.
“Considering these factors, the Survey conservatively projects a real GDP growth of 6.5-7%, with risks evenly balanced, cognisant of the fact that the market expectations are on the higher side,” said the Survey, the first major economic policy document put out in the third term of the National Democratic Alliance (NDA) government.
Tabled by finance minister Nirmala Sitharaman in Parliament a day before she presented the Union Budget, the survey called for the creation of more jobs, agricultural and labour code reforms, and tackling the looming threat that artificial intelligence (AI) poses to workers across skill levels.
It sounded caution on soaring stock markets, saying ballooning retail investor participation was propelling the possibility of speculative trading due to overconfidence and expectations of greater returns. It called for tapping into foreign direct investment from China, a bold suggestion that came against the backdrop of a crackdown on Chinese products and firms in the aftermath of a deadly border clash in 2020. And it underlined potential concerns of childhood obesity, employability of young people and the population’s mental health.
“The Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges,” Nageswaran wrote in the preface to the annual report card on the economy.
The survey praised the government’s handling of the economy over the last decade, and the strides made by structural reforms. “The Economic Survey highlights the prevailing strengths of our economy and also showcases the outcomes of the various reforms our government has brought. It also identifies areas for further growth and progress as we move towards building a Viksit Bharat,” Prime Minister Narendra Modi said on X.
The Opposition criticised the document. “Today’s Economic Survey is like a shiny hollow envelope highlighting the failures of the Modi government,” Congress chief Mallikarjun Kharge said.
The National Statistical Office’s (NSO) on May 31 projected that India’s GDP grew at 8.2% in 2023-24, which was higher than the 7% growth in 2022-23. The Reserve Bank of India on June 7 revised upwards the GDP growth estimate for 2024-25 to 7.2% from 7%. The International Monetary Fund (IMF) on July 16 raised India’s growth forecast for FY25 to 7% from 6.8% on the back of improving private consumption. And most of the projections indicated that India would post the fourth consecutive year with growth at or above 7%.
The Economic Survey, however, appeared cautious. “We are not pessimistic. We are actually very optimistic about growth, but we are also mindful of the challenges which I listed to you,” Nageswaran said at a press conference.
The CEA said he was more confident about 7% growth for FY25 when he presented the interim Economic Survey in January this year. Since then “the global environment has become even more polarised. And financial market valuations are much more elevated. So, given that we feel 7% is doable, but yet we want to be, not necessarily cautious, but somewhat prudent in projecting [that] we would rather be very pleasantly surprised than being forced to face disappointments,” he said.
Pointing to the headwinds, the survey said any escalation of geopolitical conflicts in 2024 could lead to supply dislocations and higher commodity prices that may stoke inflation and stall monetary policy easing, which would in turn have repercussions for capital flows, which could also influence the Reserve Bank of India’s monetary policy stance.
Despite the core inflation rate being around 3%, RBI, with one eye on the withdrawal of accommodation and another on the US Federal Reserve, has kept interest rates unchanged for quite some time, and the anticipated easing has been delayed.
The Survey noted this, and called for a review of India’s inflation targeting framework. “It is worth exploring whether India’s inflation targeting framework should target the inflation rate excluding food. Hardships caused by higher food prices for poor and low-income consumers can be handled through direct benefit transfers or coupons for specified purchases valid for appropriate durations”, it said.
On China – a thorny topic politically with deep implications for national security – the document said India had two choices to benefit from the “China plus one strategy” -- integrating into China’s supply chain or promoting FDI from China. “Among these choices, focusing on FDI from China seems more promising for boosting India’s exports to the US, similar to how East Asian economies did in the past.”
When asked later, Nageswaran said he was urging the Centre to review its stance on FDI from China. “I am asking for re-examination...I’m saying that there is a balance that’s required between importing goods versus importing capital. I gave the example of what Brazil and Turkey did. They banned the import of vehicles but then they incentivised them to invest in their own country,” he said.
The document invested substantial efforts in sketching the contours of the employment scenario, saying the economy needed to generate an average of nearly 7.85 million jobs annually until 2030 in the non-farm sector to cater to the rising workforce. But it also flagged potential concerns around the impact of AI on skilled and non-skilled jobs, and called for more investment in healthy diets and sound mental health services.
“In the context of inflation management, the Survey calls for a review of the present inflation targeting regime, broadly arguing in favour of recasting the target focused on non-food CPI inflation. Since recent pressure on CPI inflation was largely driven by food inflation, this modification in inflation management might facilitate easing of interest rates and thereby make monetary policy more growth oriented,” DK Srivastava, chief policy advisor of EY India said.
Commenting on the overall Survey, he said the document highlighted six features: An emphasis on employment-oriented private sector investment; focus on greening of growth; supporting MSME growth especially through improved access to credit, enhanced physical and digital connectivity, and a better regulatory environment; continuing to rely on agricultural growth supported by better technology and climate friendly policies; continued emphasis on education and skill building; and increased productivity of the state sector.
