WHAT THE ECONOMIC SURVEY SAYS: KEY TAKEAWAYS FROM THE GOVT’S REPORT ON INDIA’S ECONOMY

THE CONTEXT: The Economic Survey 2024-25 projects India’s GDP growth at 6.4% for FY25 and 6.3-6.8% for FY26, with services GVA leading at 7.5% while highlighting concerns over global trade protectionism and China’s manufacturing dominance (accounting for one-third of global production). The Survey emphasizes India’s economic resilience, with private consumption expenditure reaching 61.8% of GDP in FY25 (highest since FY03) but cautions about food inflation at 8.4% and advocates comprehensive deregulation to boost growth amid challenging global economic conditions.

GLOBAL ECONOMIC FRAMEWORK:

• • Current Global Dynamics: The global economy is undergoing geopolitical tensions, rising protectionism, and economic fragmentation. Global GDP growth is projected to remain modest at 3.2% in 2025, reflecting a slowdown in advanced economies while emerging markets face challenges like trade disruptions and capital flight. Trade has nearly flatlined, with goods trade growing at just 2% in 2024, while services trade shows resilience with 7% growth. The shift from globalization to localized supply chains is reshaping global trade flows.
  • Shift from Globalization to Trade Protectionism: The retreat from globalization is evident in the surge of trade restrictions. Between 2020 and 2024, over 24,000 new trade and investment restrictions were imposed globally, covering $887.7 billion in trade in 2024 alone, compared to $337.1 billion the previous year. This trend is driven by national security concerns, resource nationalism, and geopolitical rivalries like the US-China tensions. Policies such as “friend-shoring” and “near-shoring” are being adopted to reduce dependency on adversarial nations but risk increasing inefficiencies and costs.
  • Signs of Secular Stagnation in Global Trade: Global trade growth has slowed significantly, reflecting “secular stagnation,” where structural factors like aging populations, weak investment, and low productivity growth suppress long-term economic dynamism. The IMF warns that economic fragmentation could reduce global GDP by up to 7%, disproportionately impacting low-income economies reliant on exports and foreign direct investment (FDI). The decline in knowledge diffusion due to restricted cross-border exchanges further exacerbates stagnation risks.
  • Manufacturing Concentration in China: China remains the world’s manufacturing superpower, accounting for over 31% of global manufacturing output in 2024—more than the next nine largest manufacturers combined. Its dominance extends across critical sectors like electric vehicles (EVs), renewable energy components, and rare earth processing. This strategic leverage poses challenges for global supply chains as nations seek to diversify production bases to mitigate dependency risks.
  • Potential Reset in Global Manufacturing: Economic fragmentation has triggered a global strategy reset. Companies are increasingly relocating supply chains to regions like India, Vietnam, and Mexico to reduce reliance on China. For instance, Apple has moved parts of its production to India as part of its diversification strategy. However, China’s advanced infrastructure and control over critical minerals anchor its position as a key player in global supply chains.

INDIAN ECONOMIC PERFORMANCE:

GDP AND GROWTH METRICS:

• • Real GDP Growth: India’s real GDP growth for FY25 is projected at 6.4%, reflecting resilience amidst global uncertainties. For FY26, GDP growth is forecasted to range between 6.3% and 6.8%, supported by robust domestic demand and private consumption.
  • Private Final Consumption Expenditure (PFCE): PFCE, a critical driver of economic growth, is estimated to rise to 61.8% of GDP in FY25, marking the highest share since FY03. The increase reflects strong consumer demand, driven by a rebound in rural consumption and festive season spending.
  • Capital Formation: Gross Fixed Capital Formation (GFCF) has shown steady growth, supported by increased public infrastructure investment and private sector participation.

SECTORAL PERFORMANCE:

• • Agriculture GVA: Growth in agriculture GVA is estimated at 3.5% for FY25, recovering from suboptimal growth in previous years. Factors contributing to this recovery include above-normal monsoons, record Kharif production, and diversification into allied activities like horticulture, livestock, and fisheries.
  • Industry GVA: The industry’s GVA is projected to grow at approximately 6% in FY25, driven by robust construction activity and utilities. However, manufacturing growth remains subdued due to weak global demand and supply chain disruptions.
  • Services GVA: The services sector’s GVA led with an impressive growth rate of 7.5% in FY25, cementing its role as the economy’s backbone. Sub-sectors like IT, financial, real estate, and professional services have been key contributors. Services exports surged by 12.8% YoY during April-November FY25, reflecting India’s growing global competitiveness.
  • Aggregate GVA: The overall GVA growth for FY25 is pegged at 6.4%, surpassing pre-pandemic trends and showcasing a balanced recovery across sectors.

INFLATION DYNAMICS:

• • Moderating Core Inflation: Core inflation, which excludes volatile components like food and fuel, eased to 4.1% in FY25, marking its lowest level in a decade. This decline reflects the impact of the Reserve Bank of India’s (RBI) monetary tightening and stable global commodity prices.
    • Service-related inflation in housing, healthcare, and education sectors remains elevated due to strong urban demand and wage growth. For instance, housing rents increased by 12%, and healthcare costs rose by 6.5% in FY25.
  • Food Inflation: Adverse weather events such as unseasonal rains and heatwaves affected agricultural output. Due to erratic weather patterns, crop area damage has increased by 15% over the past three years. Specific commodities like tomatoes saw price increases of up to 37%, while onions remained 20% above their five-year average. Vegetables and pulses account for only 8.42% of the CPI basket but contributed a disproportionate 32.3% to overall inflation.

STRATEGIC CONSIDERATIONS:

• • Sustainable Development Goals (SDGs) Alignment: India’s SDG Index score improved from 66 in 2020-21 to 71 in 2023-24, with notable progress in poverty reduction and clean energy adoption. Renewable energy capacity reached over 175 GW, with a target of 500 GW by 2030. Climate change could reduce GDP by up to 4.5% by 2030, highlighting the need for resilient infrastructure.
  • Social Sector Implications of Economic Policies: Social sector expenditure grew at a CAGR of 15% from FY21 to FY25, reaching ₹25.7 lakh crore. Education spending increased by 12% CAGR, while health expenditure rose by an impressive 18% CAGR during the same period. Increase healthcare spending to at least 2.5% of GDP, as per National Health Policy targets.
  • Regional Economic Disparities: Southern states contribute over 30% of GDP, while eastern states like Bihar lag significantly behind. Maritime states outperform landlocked ones due to better infrastructure and trade access.
  • Innovation and Competitiveness: India ranked 39th in the Global Innovation Index (2024), reflecting advancements in R&D and entrepreneurship. The startup ecosystem, with over 140,800 startups and 110 unicorns, contributes significantly to GDP and job creation.
  • Self-Reliance in Critical Sectors: The Semicon India Program (₹76,000 crore outlay) aims to establish a robust semiconductor ecosystem, with projects like Micron’s memory chip facility and Tata’s semiconductor unit in Gujarat.

CRITICAL CHALLENGES:

• • Limited Capacity in Critical Goods Production: India faces significant limitations in producing critical goods such as semiconductors, solar components (e.g., polysilicon, ingots, wafers), and advanced machinery. India’s solar energy sector remains heavily reliant on imports from China, with domestic production of monocrystalline silicon ingots expected to quintuple by 2025 but still insufficient to meet demand.
  • Need for Scale and Quality Improvement: Indian manufacturing contributes only 15% to GDP, far below the target of 25% by 2025 under the National Manufacturing Policy. Lack of global competitiveness regarding quality and scale hampers integration into global value chains. The Production-Linked Incentive (PLI) scheme has shown promise by attracting investments in electronics and pharmaceuticals but needs broader adoption for sectors like green energy and advanced manufacturing.
  • Regulatory Complexities Affecting Business Growth: Businesses face hurdles like land acquisition delays, cumbersome labor laws, and inconsistent environmental clearances. The World Bank’s Logistics Performance Index ranks India at 38th globally in 2023, highlighting inefficiencies in supply chain infrastructure.

REFORM AGENDA:

• • Emphasis on Business-Friendly Reforms: The Economic Survey 2024-25 advocates for a “second wave” of Ease of Doing Business reforms, termed Ease of Doing Business 2.0, to address structural bottlenecks and enhance India’s investment climate. Key reforms include:
  • Jan Vishwas Act, 2023: Decriminalized 183 provisions across 42 central laws, reducing business legal hurdles.
  • PAN 2.0 Project: Established the Permanent Account Number (PAN) as a universal digital identifier for seamless regulatory compliance.
  • National Single Window System (NSWS): A digital platform integrating central and state-level approvals into a unified interface, reducing procedural delays.
  • Implementation of Business Reform Action Plan (BRAP): Spearheaded by the Department for Promotion of Industry and Internal Trade (DPIIT), introduces next-generation reforms to streamline regulatory processes and foster competitive federalism. Key features of BRAP 2024:
  • Integration with global frameworks like the World Bank’s B-READY Program to benchmark reforms.
  • Focus on reducing approval timelines through digital solutions like PM Gati Shakti and process reengineering.
  • Expanded scope to include critical sectors such as labor, environment, taxation, land administration, and utility permits.
  • Evidence-based assessments that rank states based on reform implementation, encouraging competitive federalism.
  • Enterprise-Friendly Policies in Emerging States: The Survey emphasizes the necessity of state-specific strategies to unlock regional potential. States categorized as “aspirers” or “emerging ecosystems” are encouraged to adopt targeted reforms to attract high-value investments. Introduce risk-based compliance mechanisms and flexible work-hour policies for export-driven industries. Reduce industrial electricity tariffs (currently marked up by 10–25%) to encourage formal operations and large-scale manufacturing.
  • Focus on Small Business Empowerment: Expand financial support through MUDRA Loans and Self-Reliant India Fund to provide collateral-free credit to MSMEs. Promote digital platforms like the Udyam Registration Portal to formalize and integrate informal enterprises into the formal economy. Strengthen market linkages through initiatives like the National SC-ST Hub and facilitate exports for small businesses.
  • Enhanced Employment Generation Strategies: Modernize labor laws to encourage flexibility in work hours and reduce compliance costs for export-driven industries. Promote women’s workforce participation through initiatives like PM Vishwakarma Scheme and targeted skilling programs.

THE CONCLUSION:

India demonstrates remarkable resilience amidst global headwinds. However, to fully capitalize on this momentum, India must accelerate deregulation efforts and business reforms while leveraging the current global shift away from China-centric manufacturing. This could transform challenges into strategic opportunities for becoming a global manufacturing hub.

UPSC PAST YEAR QUESTION:

Q. Industrial growth rate has lagged behind in the overall growth of Gross Domestic Product (GDP) in the post-reform period. Give reasons. How far are the recent changes in industrial policy capable of increasing the industrial growth rate? (2017)

MAINS PRACTICE QUESTION:

Q. The divergence between GDP and GVA growth rates reflects the changing dynamics of India’s economic structure. Critically analyze

SOURCE:

https://indianexpress.com/article/explained/explained-economics/takeaways-economic-survey-9810433/