New Delhi : The Government of India tabled the Economic Survey in Parliament on Monday. The survey, presented by the Finance Minister, reveals that the Indian economy has bounced back and expanded steadily following the pandemic. Real GDP in FY24 was 20% higher than its level in FY20, a feat achieved by only a handful of major economies.
It reports a reduction in unemployment and calls for stronger government-private sector partnerships and increased private sector investment to balance education and employment. Looking ahead to FY25 and beyond, prospects for robust growth depend on geopolitical, financial market, and climatic conditions, with considerations also given to mental health.
Boost to Economy
The survey highlights that the Government's focus on capital expenditure and sustained momentum in private investment has driven growth in capital formation. Gross Fixed Capital Formation increased by 9% in real terms in 2023-24. Looking ahead, stronger corporate and bank balance sheets are expected to further boost private investment.
Regarding inflation, the survey notes that inflationary pressures from global challenges, supply chain disruptions, and variable monsoons have been effectively managed through administrative and monetary policy measures. As a result, after averaging 6.7% in FY23, retail inflation decreased to 5.4% in FY24.
Despite expansive public investment, the fiscal balances of the general government have progressively improved. This improvement can be attributed to enhanced tax compliance stemming from procedural reforms, controlled expenditures, and increased digitisation efforts.
The survey outlines that the strategy for achieving financial inclusion has centered on target-based approaches, market development, infrastructure strengthening, innovation and technology, last-mile delivery, consumer protection, and enhancing financial literacy and awareness. It underscores that the country's financial inclusion strategy has prioritized boosting account usage, improving direct benefit transfer flows through these accounts, and promoting digital payments via RuPay cards, UPI, and other means.
Despite expansive public investment, fiscal balances of the general government improved due to enhanced tax compliance, controlled expenditures, and increased digitization efforts.
Inflationary Pressure
In FY24, the majority of States and Union Territories saw reduced inflation rates, with 29 out of 36 recording rates below 6 percent. This trend aligns with the overall decline in average retail inflation across India compared to FY23.
States where food prices are higher typically exhibit elevated rural inflation, reflecting the significant share of food items in the rural consumption basket. Moreover, differences in inflation rates between states are more noticeable in rural areas than in urban areas.
According to the survey, in FY24, effective policy interventions by the Central Government and price stability measures implemented by the Reserve Bank of India kept retail inflation at 5.4 percent — the lowest level since the pandemic. Throughout FY22 and FY23, global inflationary pressures increased due to the COVID-19 pandemic, geopolitical tensions, and supply disruptions. In India, consumer goods and services saw price hikes influenced by international conflicts and adverse weather conditions affecting food costs.
Survey also highlights that food inflation has been a global concern over the past two years. In India, the agriculture sector encountered challenges such as extreme weather events, depleted reservoirs, and crop damage, which affected farm output and food prices. Consequently, food inflation rose to 6.6 percent in FY23 and further to 7.5 percent in FY24.
Private sector should Invest more
According to the survey, Capex has enhanced the economy's productive capacity; it's now the private sector's turn to step up. Considering both domestic and international factors, the Survey projects a conservative real GDP growth of 6.5–7 percent, with risks evenly balanced, noting that market expectations are higher.
Unfavorable weather conditions in FY24 limited food production. Tomato prices increased due to region-specific crop diseases, early monsoon rains, and logistical disruptions. Meanwhile, onion prices surged because of rainfall during the last harvest season impacting rabi onion quality, delayed sowing of Kharif onion, extended dry spells affecting Kharif production, and trade-related measures by other nations.
Looking ahead, as per RBI projections, inflation is anticipated to decrease to 4.5 percent in FY25 and further to 4.1 percent in FY26, contingent on normal monsoon conditions and absence of external or policy shocks.
Focus on Jobs
The Economic Survey points out several key areas for focus in the coming years: creating more jobs and enhancing skills, fully leveraging the agriculture sector's potential, addressing issues hindering MSMEs, managing India’s shift towards sustainability, effectively navigating challenges related to China, strengthening the corporate bond market, reducing inequality, and improving the health of our younger population.
Looking ahead, the Indian economy has the potential to sustain a growth rate of over 7 percent in the medium term by building on structural reforms implemented over the past decade. This will require close collaboration among the Union Government, State Governments, and the private sector.
More Investment in R&D
The survey highlights two critical needs across industries: encouraging R&D and innovation, and enhancing the skill levels of the workforce. Industry leadership is essential in addressing both aspects. By fostering close collaboration between industry and academia and integrating vocational education into curricula, India can effectively address its skill shortages.
Improving industry statistics, such as updating the index of industrial production and developing state-level variations of these indices, will provide insights into emerging geographical production patterns.
Growth in the Services Sector:
- The services sector is estimated to have grown by 7.6 percent in FY24.
- As of March 2024, outstanding services sector credit stood at ₹45.9 lakh crore, marking a year-on-year growth of 22.9 percent.
- Passenger traffic originating from Indian Railways increased by approximately 5.2 percent in FY24 compared to the previous year.
- Revenue-earning freight (excluding Konkan Railway Corporation Limited) witnessed a 5.3 percent increase in FY24 over the previous year.
- The aviation sector in India saw substantial growth, with a 15 percent year-on-year increase in total air passengers handled at Indian airports in FY24.
- India's tourism sector is expanding significantly, with its share of foreign exchange earnings in world tourism receipts rising from 1.38 percent in 2021 to 1.58 percent in 2022.
- The residential real estate market showed promising growth in 2023, with double-digit increases in demand and new supply.
- The number of technology start-ups in India has risen from around 2,000 in 2014 to approximately 31,000 in 2023.
- The Indian e-commerce industry is projected to exceed USD 350 billion by 2030.
The Economic Survey, released each year by India's Ministry of Finance, comes out just before the Union Budget. It's like a comprehensive report card on how the country's economy has been doing over the past year. Beyond just giving us the numbers, it also gives us insights into what's working well and what needs attention. Plus, it suggests ideas for what the government could do next to keep things moving in the right direction.
