As India approaches its next budget, the economists are faced with a fine balancing act: Ensuring sustained economic growth, while managing inflation, bolstering consumer demand, and sticking to the fiscal discipline. Even though the economic survey 2024-25 gives a rosy outlook for the country's growth, a close inspection shows the need for addressing concerns through level-headed policy interventions. Now let us take a look at the high points from the economic survey.
Highlights of the Economic Survey: Focus on Growth
- Real GDP growth for FY25: 6.4%
- Services sector growth supports momentum
- The big concern: growth is slowing
India's first advance estimates project a 6.4 per cent real GDP growth for FY25, driven by 7.2 per cent growth in services. However, this pace is slowing relative to the growth achieved in preceding years, mainly due to softening gross capital formation.
Unlocking private investment for sustainable growth will be the central challenge before the government in the upcoming budget. These could include measures directed at increasing the ease of doing business, access to credit, especially for MSMEs, and much-needed targeted tax incentives for private investment.
Highlights of the Economic Survey: Focus on inflation
- Retail inflation in FY24: 5.4%
- Retail inflation in FY25: 4.9%
- Food inflation is still persistent
Retail inflation dipped to 4.9 per cent in FY25 from 5.4 per cent in FY24 mostly due to lower core inflation. While food inflation is a concern, a further rise in food inflation is also seen as a very disconcerting phenomenon that's mainly driven by volatility in the prices of essential commodities such as pulses and vegetables. The government has launched buffer stock interventions and relaxed import duties on pulses to contain surges in prices, though food prices continue to feel pressure from disruptive weather patterns and supply chain causes.
To tackle inflationary pressures, the budget is likely to give the highest priority to building climate-resilient agricultural practices, cold storage infrastructure, and policies to stabilise food supply chains. It is suggested to diversify essential commodities and resist supply shocks through monitoring.
Highlights of the Economic Survey: Focus on consumer demand
- Revival in rural demand
- Urban demand shows mixed trends
- Urban passenger vehicle sales slow
- FMCG sales remain moderate
- Air passenger traffic grows
The report says consumer demand showed a notable uptick, largely driven by a revival in rural demand. This resurgence is attributed to record kharif production and higher minimum support prices. In contrast, urban demand displayed mixed trends—passenger vehicle sales growth slowed in the previous year, and FMCG sales remained moderate, although air passenger traffic saw steady growth.
A major concern is whether rural demand can sustain itself beyond the harvest season. The government could consider direct cash transfers, rural employment programs, and enhanced credit availability to sustain rural consumption. Additionally, policies aimed at boosting urban consumer sentiment—such as tax relief for middle-income households and incentives for discretionary spending—could support broader demand recovery.
Highlights of the Economic Survey: Focus on fiscal prudence
-CAPEX has improved
-Fiscal discipline improves
Despite increase in capital expenditure, the fiscal discipline in the country has continued to improve over the years. The constraints on general government dis-savings managed to keep macroeconomic instability at bay. Yet maintaining this discipline while accessing development and welfare spending remains a challenge.
The government needs to undertake spending targeted towards welfare for its next budget, beyond long-term broad-based subsidy. Moreover, boosting tax compliance and widening the tax base through digitalization and formalization of the informal economy can improve fiscal health without burdening taxpayers excessively.
While the economic survey indicates that the Indian economy is in good shape, several headwinds persist. Global uncertainties, inflationary risks, and domestic demand inconsistencies necessitate a pragmatic approach.
Experts say the union budget must prioritize policy measures that stimulate investment, control inflation, bolster consumer confidence, and maintain fiscal prudence to achieve developed nation status by 2047.