Economic Survey 2024-25 outlines reforms agenda for 'Viksit Bharat'

Butterfly and Dragon becomes the talking points in the Economic Survey 2024-25. For many readers, the curiosity would be more on what the Survey says about growth and inflation outlook for FY26. It predicts 6.3 to 6.8 per cent growth for FY26, a tad lower than FY25 estimates.

 

But the Survey, while underplaying the short-term outlook, takes a wider and long-term perspective on growth and presents a reform agenda in order to achieve the 2047 goal. Most of the first part of the Survey focuses on the trends in the global economy, its fragmentation, what it calls as ‘geo-economic fragmentation’, emergence of two blocs and phrases like ‘friend-shoring’, and its adverse growth implications. There is much discussion of the emergence of China as a manufacturing major and, more specifically, its dominance on the raw materials required and its processing for climate transition globally.  The Survey says, “as the world navigates the challenges of climate change, the road to energy transition runs through China”. This seems to be a major cause for concern not just for India, but for the global economy.  In this context, the Survey brings out the way-forward for the Indian economy in an excellent way. In sum, it argues that governments (both Union and states) as well as the private sector should focus more on addressing some of the micro aspects of macro growth, which is normally less discussed. 

 

The Survey argues, with the fragmented global environment, India needs to focus more on domestic levers of growth through structural reforms. It talks about micro reforms, such as deregulation that leads to lowering of cost of business that also provide economic freedom for individuals and organisations to pursue legitimate economic activity. In this context, the Survey discusses extensively the need for deregulating the MSME sector more than the large enterprises. In chapter-5, the Survey highlights a number of areas for deregulation, most of them seems feasible and argues the high business cost of not deregulating. One sentence that should make policy makers to be more serious with regard to growth is “The need to find growth avenues in an export-challenged, environment-challenged, energy-challenged, and emissions-challenged world means we need to act on deregulation with a greater sense of urgency. The focus on domestic growth levers is not an option but a compulsion”. The Survey focuses on addressing these multiple challenges with some small acts under industry, employment, and education sectors that may set off ‘butterfly effect’ on entrepreneurship, investment, and innovation ultimately leading to domestically driven growth.

 

Other two areas that the Survey focuses on are the role of the private sector that needs to be socially responsible and establish a nexus between government, private sector and academia. Here, as in the previous Survey, it argues for fairer distribution of incomes between capital and labour. It argues that there is a divergence between profits and wages with corporate profits hitting a 15-year high while wages growth tempering. The CEA, during the presentation, even refers to Henry Ford's decision to raise workers’ salary to revive demand. Although well argued, it may need a nudge from the government to address this issue. The Survey also argues that with the emergence of artificial intelligence (AI), this imbalance between profits and wages could only worsen and hope the Union Budget highlights this issue.  Like the last Survey, the present one also focuses on soft issues such as skilling and mental health and discusses at length how to reform the working environment. 

 

The Survey talks about agriculture being the main engine of growth and argues for increasing its share in GDP by a percentage point through innovations in land leasing, empowering farmers as well as encouraging diversification through institutional support.  The Survey highlights some of the best practices in all the three aspects and suggests adoption for improving the rural economy. All these suggestions that the Survey makes are expected to improve the overall productivity and efficiency of the factors of production and also make it less dependent on the global economy. But it is a huge challenge to implement these ideas. One good thing is the Survey presents these ideas with some best practices in well-researched boxes and only hope some of these ideas are brought into public policy.  

The author is director, Madras School of Economics, Chennai. Views expressed are personal