India’s FY25 GDP growth seen at 6.5-7 per cent in real terms, says Economic Survey
'Heavy lifting on domestic front needed for recovery to be sustain, external shocks a looming risk factor': Economic Survey 2023-24
India’s Gross Domestic Product (GDP) is seen growing “conservatively” at 6.5-7 per cent in real terms in FY25, with prospects for continued strong growth on the back of improved balance sheets in the private sector, a likely pickup in rural demand amid predictions of a normal rainfall forecast and a likely increase in merchandise exports with improving growth prospects in advanced economies, the Economic Survey for 2023-24 tabled in Lok Sabha on Monday stated.
“We are not pessimistic, we are actually very optimistic about growth but we are also mindful of the challenges…about the way the monsoon has progressed since we wrote the interim economic survey in January where we were confident about 7 per cent (growth). Since then the global environment has become even more polarised and financial market valuations are much more elevated”
“So, given that we feel 7 per cent is doable but yet we want to be, not necessarily cautious but prudent, in projecting. We would rather be very pleasantly surprised than being forced to face disappointments and that is why we are projecting a growth rate of between 6.5 and 7 per cent,” Chief Economic Advisor V Anantha Nageswaran said.
While India’s current GDP level is seen close to the pre-pandemic trajectory in Q4 FY24, the Survey said any escalation of geopolitical conflicts in 2024 may lead to “supply dislocations, higher commodity prices, reviving inflationary pressures and stalling monetary policy easing with potential repercussions for capital flows”, which could also influence Reserve Bank of India’s (RBI’s) monetary policy stance.
The GDP growth rate projected by the Survey is lower than 8.2 per cent growth recorded in the financial year 2023-24 and over 7 per cent growth seen in the last three financial years.
Nageswaran in the preface of the Survey pointed out that though the Indian economy is on a strong wicket and stable footing, there has to be heavy lifting on the domestic front for recovery to be sustained.
“The Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges. The Indian economy has consolidated its post-Covid recovery with policymakers – fiscal and monetary – ensuring economic and financial stability. Nonetheless, change is the only constant for a country with high growth aspirations. For the recovery to be sustained, there has to be heavy lifting on the domestic front because the environment has become extraordinarily difficult to reach agreements on key global issues such as trade, investment and climate,” he said.
Sustaining overseas investor interest will require effort amid higher interest rates in the developed countries which imply a higher cost of funding and a higher opportunity cost to invest abroad, he said.
“Emerging economies have to compete with active industrial policies in developed economies involving considerable subsidies that encourage domestic investment…notwithstanding the impressive strides made in the last decade, uncertainties and interpretations related to transfer pricing, taxes, import duties and non-tax policies remain to be addressed. Lastly, geopolitical uncertainties, which are on the rise, will likely exert a bigger influence on capital flows, notwithstanding other reasons for preferring to invest in India,” he said.
On the crucial debate surrounding employment, the CEA said shocks — bad debts in the banking system, high corporate indebtedness, and Covid pandemic — and not structural forces have influenced employment. “…it is difficult to conclude that the Indian economy’s ability to create employment is structurally impaired. Nonetheless, going forward, the task is cut out,” he said.
The Survey said the Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce. To meet the demand for these jobs in the non-farm sector per year, there is scope to supplement the existing schemes of Production Linked Incentive (PLI) scheme, MITRA Textile scheme, MUDRA, etc., the Survey said.
Overall employment in the unincorporated non-agricultural enterprises (excluding construction) fell to 10.96 crore from 11.1 crore in 2015-16, with a reduction of 54 lakh workers in manufacturing. But the expansion of the workforce in trade and services gained in jobs limited the overall reduction in the number of workers in unincorporated enterprises to around 16.45 lakhs between these two periods, he said.
The Survey has urged the private sector to step up in its role for employment generation and capital expenditure.
“Employment generation is the real bottom line for the private sector. It is worth reiterating that job creation happens mainly in the private sector. Second, many (not all) of the issues that influence economic growth, job creation and productivity and the actions to be taken therein are in the domain of state governments. So, in other words, India needs a tripartite compact, more than ever before, to deliver on the higher and rising aspirations of Indians and complete the journey to Viksit Bharat by 2047,” the CEA said.
The CEA also said that the government’s thrust on capex has been a critical driver of economic growth amidst an uncertain and challenging global environment. He noted that while it remains the government’s responsibility to facilitate the development of infrastructure and address logistical challenges, it is “incumbent upon the private sector to take forward the momentum in capital formation on its own” and in partnership with the government.
“Between FY19 and FY23, the share of private non-financial corporations in overall GFCF (Gross Fixed Capital Formation) increased only by 0.8 percentage points from 34.1 per cent to 34.9 per cent. This was mostly driven by their fast-increasing share in the additional stock of dwellings, other buildings and structures. Their share in addition to the capital stock in terms of machinery and equipment, started growing robustly only since FY22, a trend that needs to be sustained on the strength of their improving bottom-line and balance sheets in order to generate high-quality jobs,” he said.
Economic Survey 2023-24 by Express Web on Scribd
India’s Gross Domestic Product (GDP) is seen growing “conservatively” at 6.5-7 per cent in real terms in FY25, with prospects for continued strong growth on the back of improved balance sheets in the private sector, a likely pickup in rural demand amid predictions of a normal rainfall forecast and a likely increase in merchandise exports with improving growth prospects in advanced economies, the Economic Survey for 2023-24 tabled in Lok Sabha on Monday stated.
“We are not pessimistic, we are actually very optimistic about growth but we are also mindful of the challenges…about the way the monsoon has progressed since we wrote the interim economic survey in January where we were confident about 7 per cent (growth). Since then the global environment has become even more polarised and financial market valuations are much more elevated”
“So, given that we feel 7 per cent is doable but yet we want to be, not necessarily cautious but prudent, in projecting. We would rather be very pleasantly surprised than being forced to face disappointments and that is why we are projecting a growth rate of between 6.5 and 7 per cent,” Chief Economic Advisor V Anantha Nageswaran said.
While India’s current GDP level is seen close to the pre-pandemic trajectory in Q4 FY24, the Survey said any escalation of geopolitical conflicts in 2024 may lead to “supply dislocations, higher commodity prices, reviving inflationary pressures and stalling monetary policy easing with potential repercussions for capital flows”, which could also influence Reserve Bank of India’s (RBI’s) monetary policy stance.
The GDP growth rate projected by the Survey is lower than 8.2 per cent growth recorded in the financial year 2023-24 and over 7 per cent growth seen in the last three financial years.
Nageswaran in the preface of the Survey pointed out that though the Indian economy is on a strong wicket and stable footing, there has to be heavy lifting on the domestic front for recovery to be sustained.
“The Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges. The Indian economy has consolidated its post-Covid recovery with policymakers – fiscal and monetary – ensuring economic and financial stability. Nonetheless, change is the only constant for a country with high growth aspirations. For the recovery to be sustained, there has to be heavy lifting on the domestic front because the environment has become extraordinarily difficult to reach agreements on key global issues such as trade, investment and climate,” he said.
Sustaining overseas investor interest will require effort amid higher interest rates in the developed countries which imply a higher cost of funding and a higher opportunity cost to invest abroad, he said.
“Emerging economies have to compete with active industrial policies in developed economies involving considerable subsidies that encourage domestic investment…notwithstanding the impressive strides made in the last decade, uncertainties and interpretations related to transfer pricing, taxes, import duties and non-tax policies remain to be addressed. Lastly, geopolitical uncertainties, which are on the rise, will likely exert a bigger influence on capital flows, notwithstanding other reasons for preferring to invest in India,” he said.
On the crucial debate surrounding employment, the CEA said shocks — bad debts in the banking system, high corporate indebtedness, and Covid pandemic — and not structural forces have influenced employment. “…it is difficult to conclude that the Indian economy’s ability to create employment is structurally impaired. Nonetheless, going forward, the task is cut out,” he said.
The Survey said the Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce. To meet the demand for these jobs in the non-farm sector per year, there is scope to supplement the existing schemes of Production Linked Incentive (PLI) scheme, MITRA Textile scheme, MUDRA, etc., the Survey said.
Overall employment in the unincorporated non-agricultural enterprises (excluding construction) fell to 10.96 crore from 11.1 crore in 2015-16, with a reduction of 54 lakh workers in manufacturing. But the expansion of the workforce in trade and services gained in jobs limited the overall reduction in the number of workers in unincorporated enterprises to around 16.45 lakhs between these two periods, he said.
The Survey has urged the private sector to step up in its role for employment generation and capital expenditure.
“Employment generation is the real bottom line for the private sector. It is worth reiterating that job creation happens mainly in the private sector. Second, many (not all) of the issues that influence economic growth, job creation and productivity and the actions to be taken therein are in the domain of state governments. So, in other words, India needs a tripartite compact, more than ever before, to deliver on the higher and rising aspirations of Indians and complete the journey to Viksit Bharat by 2047,” the CEA said.
The CEA also said that the government’s thrust on capex has been a critical driver of economic growth amidst an uncertain and challenging global environment. He noted that while it remains the government’s responsibility to facilitate the development of infrastructure and address logistical challenges, it is “incumbent upon the private sector to take forward the momentum in capital formation on its own” and in partnership with the government.
“Between FY19 and FY23, the share of private non-financial corporations in overall GFCF (Gross Fixed Capital Formation) increased only by 0.8 percentage points from 34.1 per cent to 34.9 per cent. This was mostly driven by their fast-increasing share in the additional stock of dwellings, other buildings and structures. Their share in addition to the capital stock in terms of machinery and equipment, started growing robustly only since FY22, a trend that needs to be sustained on the strength of their improving bottom-line and balance sheets in order to generate high-quality jobs,” he said.
Economic Survey 2023-24 by Express Web on Scribd
