India’s Economic Growth Forecast and Policy Recommendations

Syllabus:

GS-2:

Government Policies & Interventions

GS-3:

Growth & Development

Focus:

The Economic Survey 2024-25 forecasts India’s growth between 6.3% and 6.8% for 2025-26, citing strong economic fundamentals but acknowledging uncertainties in urban demand and investment. It emphasizes the need for deregulation, fostering trust, and indigenising key sectors to meet growth aspirations for 2047.

India’s Economic Growth Forecast:

  • Projected Growth Rates (2025-26)
  • India’s economy is projected to grow between 3% to 6.8% in 2025-26.
  • This follows an estimated growth of 4% for the current fiscal year, as per the Economic Survey 2024-25 tabled in Parliament.
  • Economic Fundamentals Remain Strong
  • The Survey highlights that the fundamentals of the domestic economy are still robust.
  • Key positive factors include:
    • Upside potential in investment and output growth.
    • Disinflationary trends anticipated in the coming year.
  • Key Risks to Growth
  • Despite optimistic projections, there are significant risks that could impact growth.
    • These include global uncertainties and domestic political factors.
    • The Survey points out that urban demand remains uncertain, with mixed trends observed during the third quarter of the current year.
    • Government capital expenditure (capex) has slowed down, affecting overall investment growth.

Investment and Capital Formation:

  • Slowdown in Private Sector Investment
  • Private sector investment has remained subdued so far this year.
  • The reasons attributed to this slowdown include:
    • Domestic political timetable.
    • Global uncertainties.
    • Overcapacities in some sectors.
  • Likely Temporary Slowdown
  • Despite current challenges, the Survey asserts that the investment slowdown is likely temporary.
  • Signs of green shoots in capital formation are visible, suggesting that investment growth could pick up in the near future.
  • Need for Higher Investment for Growth
  • To meet the aspirations for Viksit Bharat (Developed India) by 2047, the Survey notes that India needs to achieve about 8% growth annually for at least the next decade.
  • The current investment rate, at 31% of GDP, must rise to 35% of GDP to sustain this level of growth.

Global and Domestic Economic Context:

  • Impact of Globalization and Geopolitical Uncertainties
  • The Survey highlights that globalization is retreating, with geopolitical tensions resembling the Cold War
  • This shift requires India to focus more on domestic economic drivers, as external trade tides that have previously supported emerging economies are now ebbing.
  • Domestic Economic Resilience Amid Global Uncertainty
  • Despite global challenges, the Survey expects India’s growth to remain close to its decadal average.
  • India’s economic resilience is reflected in the strong rural demand and rising private consumption, expected to peak at 8% of GDP in FY25, the highest since FY03.
  • Indigenisation of Key Sectors
  • The Survey calls for an urgent task of indigenising raw materials and technologies, especially in the electric vehicle (EV) sector, as India works to transition to electric mobility.
  • This is essential to reduce dependence on imports, particularly from China, in the automobile industry.

Policy Recommendations and Action Agenda:

  • Need for Economic Deregulation
  • To achieve higher economic growth, the Survey stresses the need for deregulation and reducing government intervention in business activities.
  • The Survey emphasizes the importance of allowing businesses to focus on their core missions without unnecessary bureaucratic hurdles.
  • Focus on Trust and Reducing Red Tape
  • The Survey advocates for bridging the trust deficit between the government and the people.
  • Key strategies include:
    • Rolling back regulations significantly to give entrepreneurs and households more freedom to operate.
    • Reducing micromanagement of economic activities, allowing businesses more flexibility to thrive.
  • Shift from ‘Guilty Until Proven Innocent’ to ‘Innocent Until Proven Guilty’
  • The Survey suggests a change in the regulatory approach, advocating for risk-based regulations where businesses are presumed innocent until proven otherwise, reducing the burden of unnecessary compliance and reporting requirements.
  • This shift would help build trust and foster economic growth by reducing barriers to entrepreneurship.

Social and Mental Health Challenges:

  • Work Culture and Its Impact on Mental Health
  • The Survey also addresses the issue of work culture and its negative impact on mental health.
  • Factors contributing to deteriorating mental health include:
    • Overwork, hostile work environments, and lifestyle factors like excessive social media usage and lack of physical exercise.
  • Impact on Productivity and Economic Growth
  • Poor mental health is directly linked to decreased productivity, which can ultimately hinder overall economic growth.
  • The Survey emphasizes that improving work culture and addressing mental health issues is critical for long-term economic success.

Conclusion:

The Economic Survey 2024-25 presents a mixed picture of India’s economic trajectory. While the fundamentals remain strong, with healthy growth projections and visible signs of improvement in capital formation, significant challenges remain. These include uncertainties in urban demand, slowdowns in private investment, and a pressing need for policy changes, particularly deregulation and fostering trust. Achieving the aspiration of a ‘Viksit Bharat’ by 2047 will require sustained high growth, necessitating substantial increases in investment and substantial shifts in regulatory practices. The focus must also include tackling mental health issues and fostering better work cultures to ensure that India’s economic growth is both steady and sustainable.

Source: TH

Mains Practice Question:


Discuss the policy recommendations outlined in the Economic Survey 2024-25 to foster economic growth in India. How can deregulation and the bridging of the trust deficit contribute to achieving India’s aspiration of becoming a developed nation by 2047?