The Economic Survey 2025 is made up of intentionally simple, but essential elements.
With a soothing sincerity, the Survey at the very outset confirms that growth is in a grim state and that it may not get any easier. Rather, we need to get stronger.
Accordingly, FY26 real GDP growth was pegged at a heart-sinking 6.3%-6.8%, barely better than FY25's projected 6.4%. One could argue that there's no need to be all grumpy. For, nothing good ever happens at zero, and India's estimated 6% plus growth should provide enough cheer.
But what actually rips a hole in the heart is that both the estimates for FY25 and FY26 make the much-needed 7-8% growth rate appear like a star so distant from Earth. This is crucial given India's ambition to emerge as a developed nation by 2047, for which we need 8% sustained growth every year for at least one full decade.
In fact, the IMF's World Economic Outlook projects India to be a $5 trillion economy by FY28 and $6.03 trillion by FY30, which too translates into an annual nominal growth rate of 10.2% in dollar terms. Given that our compounded annual rate in the past thirty years was only 8.9%, the needed run-rate of 10.2% in the next five years is nothing less than an undersea historical treasure hunt that's risky and expensive, yielding limited outcomes.
While Chief Economic Advisor V Anantha Nageswaran didn't mention if we can zip off into the 8% band, he is well aware that robust growth doesn't come by chance, it's hard work and toil. So he advocated a blitz of proposals to create jobs, raise wages, boost consumption, which in turn will improve growth.
Foremost of all, Nageswaran batted for deregulation of MSMEs. This is an entrancingly offbeat turn from the previous Survey, which believed that the corporate sector is the beginning and end of everything. This time though, the Survey freshly (and rightly, so) re-discovered the role of MSMEs in both job creation and growth and urged both the Union and state governments to wield a sharp blade to cut through needless regulations companies from doing business.
Stating that the government should be 'getting out of the way,' allowing businesses to focus on their core mission, he noted that a small act of cleansing the archaic rules and regulations will go a long way in lowering business costs, which will help companies expand, create jobs and there by boost consumption that can lift growth.
Besides systemic deregulation, structural reforms, investments, private sector participation be it in agriculture, or R&D, and individuals' mental well-being (which curiously found a mention for the first time ever) are all needed to achieve a high growth of over 8%, which though seems next to impossible, like how you can't invent more time.
Tabled in the Parliament on Friday, the Survey also notes that our investment rate must rise to 35% of GDP, up from the current 31%. In percentage terms, the increase appears modest, but in reality, it's an Everest to climb. The good news is, the investment slowdown is likely temporary with green shoots in capital formation becoming visible.
As the Survey notes, central capex is up 8.2% between July and November, 2024, and the RBI's report on private investments shows investment intentions increased to Rs 2.45 lakh crore for FY25 as against Rs 1.6 lakh crore for FY24. While central capex for FY25 was budgeted over 3.3 times the FY20 capex, India needs a continued step-up of infrastructure over the next two decades to achieve the desirable 8% growth rate.
Above all, India needs to create 78.5 lakh new non-farm jobs every year till 2030, and though the Survey pats itself on the back for the improved employment situation, whether India can generate as many jobs remains mysterious, like the ambiguity of a Mona Lisa smile.
Continuing with its 2024 findings, where the Survey concluded that the economy grew briskly enough to avert any permanent loss of output, the latest Survey confirms an encouraging picture this year as well. Aggregate GVA surpassed its pre-pandemic trend in Q1, FY25 and it now hovers above the trend in H1, FY25.
The agriculture sector remains strong and the industrial sector found its footing above the pre-pandemic trajectory, though the overall growth was tempered by moderation in industrial growth, particularly in manufacturing, which faced challenges from slowing global demand and supply chain disruptions. Manufacturing exports too slowed significantly due to weak demand, aggressive trade and industrial policies.
Coming to private consumption, rural demand contributed to private consumption growth, while urban demand presented mixed trends. The moderation in real GDP growth can be traced to a softening of growth in investments from 10.1% in H1, FY24 to 6.4% in H1, FY25. Q1 saw a slowdown in capex and private investment growth remained subdued thus far in FY25 on account of domestic political timetable, global uncertainties and overcapacities.
Meanwhile, the Survey's growth estimates are precious and practical. That's because Nageswaran is perhaps the only economist who didn't fiddle with his forecasts revising estimates up or down throughout the year and instead stuck with the original reading. Last year around this time, consensus estimates projected a healthy 7% plus growth rate for FY25, only to be revised lower and lower each quarter. On the other hand, Nageswaran remained rather conservative pegging growth at 6.5%-7% and as per the National Statistics Office, FY25 growth is expected at 6.4%.
