The growth path: Economic Survey 2025 presents a realistic assessment

The Economic Survey, prepared by economists in the Union Ministry of Finance, led by Chief Economic Advisor V Anantha Nageswaran, makes it clear that the Indian economy may not continue to grow at the high rates witnessed over the past few years. The Survey has projected the economy will grow between 6.3 per cent and 6.8 per cent in 2025-26. This financial year, according to the first advance estimates of the National Statistics Office, the economy is expected to grow by 6.4 per cent, compared to 8.2 per cent last financial year. Notably, the last Economic Survey projected the growth rate for this financial year to be 6.5-7 per cent. The growth outcome is estimated to be close to the lower end of the range. The overall assessment of the economic conditions in the Economic Survey appears realistic. The growth rate for next financial year may again be close to the lower end of the projected range, though the outcome will depend on, among other things, policy interventions, starting with the Union Budget, to be presented on Saturday.

 

The Economic Survey was not limited to the assessment of the ongoing year and the projection for next year. It discussed the medium- to long-term challenges in detail, which should guide policymaking. To achieve the goal of “Viksit Bharat@2047”, the centenary of India’s Independence, the country would require sustained growth of about 8 per cent per year at least for a decade. This means India needs to accelerate the growth rate by 1.5-2 percentage points. To achieve this, as the Economic Survey rightly notes, the investment rate in India will need to increase to about 35 per cent of gross domestic product (GDP) from about 31 per cent now.

 

Further, India needs to expand its manufacturing base and invest a lot in emerging technologies — the Survey has an interesting chapter on the implications of artificial intelligence. India will also need to create 7.85 million non-farm jobs per year in coming years, among other things. However, increasing the investment rate, which is an absolute necessity to achieve a higher growth rate in a sustainable manner, may not be easy, particularly in the present global environment. Given the recent trends in foreign direct investment (FDI) and foreign portfolio investment, filling the gap with foreign savings may not be possible. If capital flows become a problem for various reasons, as the Survey notes, the sustainable level of the current account deficit may not be 2.5-3 per cent of GDP, as widely accepted, but much lower. This effectively means domestic savings needs to be increased. This also means government dis-saving needs to be reduced significantly.

 

While India must make all efforts to increase FDI flows, it should focus on improving investment efficiency. The Survey, in this context, has done well to focus on ease of doing business and making deregulation the main theme. Although the governments at both Union and state levels are working on reducing regulation, a lot more needs to be done. As the Survey noted, “Ease of Doing Business (EoDB) 2.0 should be a state government-led initiative focused on fixing the root causes behind the unease of doing business.” States, for example, regulate areas like land, building, transport, labour, and logistics. A good starting point could be a comparison with other states and countries. An interesting idea is to estimate the cost of regulations to individual enterprises. Obviously, a reduction in regulatory burden will allow financial and managerial resources to focus on actual economic activity. The state must start this effort without any delay.

 

Besides domestic push, economic growth over the medium term will depend on global factors. Global growth in the medium term is likely to be lower than in the first two decades of this century. Besides, geopolitical tensions and fragmentation in global trade will affect growth outcomes for India. All this will have implications for exports, an area in which India is already lagging. In this regard, the Survey points out tariffs, if used in a calibrated way, can help the development of the desirable sectors. Given that India has increased tariffs in recent years, an assessment is desirable as to how it has improved industrialisation and competitiveness. Any such assessment should also gauge the impact of the real currency overvaluation.

 

Overall, while it is difficult for one document to address all policy challenges comprehensively, the Economic Survey touches upon important aspects and should help improve policy intervention.