Economic Survey: India Eyes Strong Growth; Promising Investment Signs

India's real GDP is forecasted to grow between 6.5% and 7% in 2024-25, according to the Economic Survey tabled in Parliament by Finance Minister Nirmala Sitharaman. This projection aligns with the International Monetary Fund's estimate of 7%.

The survey, released just a day before the Union Budget, highlighted India's robust economic performance, noting an 8.2% growth in FY24, driven by a 9.5% industrial growth rate. Despite pandemic challenges, the manufacturing sector sustained an average annual growth rate of 5.2% over the last decade, with major drivers including chemicals, pharmaceuticals, and transport equipment.

As the monsoon session of Parliament commenced, Finance Minister Nirmala Sitharaman presented the Economic Survey for 2023-2024 on July 22. The survey, a crucial precursor to the Union Budget, outlines India's economic health and forecasts. The primary takeaway? India's real GDP is expected to grow between 6.5% and 7% in the fiscal year 2024-25, a projection that aligns with the International Monetary Fund's estimate of 7%.

Steady Growth Amidst Global Challenges

"The survey conservatively projects a real GDP growth of 6.5–7 percent, with risks evenly balanced, cognizant of the fact that market expectations are on the higher side," the document noted. The robust growth forecast hinges on the anticipation of a normal monsoon, which will bolster the agriculture sector, and the positive outcomes of structural reforms like the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC).

Chief Economic Adviser V Anantha Nageswaran, who supervised the survey, highlighted that India's economy has shown remarkable resilience despite global geopolitical tensions and the aftermath of the COVID-19 pandemic.

"Real GDP growth in FY24 is seen 20 percent higher than its level in FY20," Nageswaran remarked, signaling a strong recovery trajectory.

Agricultural Sector and Reforms Drive Growth

The Economic Survey emphasizes the pivotal role of agriculture and reforms in sustaining India's growth. With a favorable monsoon expected, agricultural output is projected to increase, ensuring food security and price stability. Additionally, the GST and IBC reforms are anticipated to enhance business efficiency and reduce insolvency risks, fostering a more stable economic environment.

In the lead-up to the interim Budget for 2024-25, the finance ministry released a report estimating GDP growth close to 7% for FY25, reinforcing the survey's projections.

Sectoral Insights: Services, Inflation, and Investments

Services Sector: A Pillar of Strength

India's services sector continues to thrive, growing by an estimated 7.6% in FY24. The sector's resilience is evident as it constitutes 4.4% of the world's commercial services exports in 2022. With services exports maintaining a steady momentum, they accounted for 44% of India’s total exports in FY24.

Inflation Trends: A Mixed Bag

Inflation has been a mixed bag for the Indian economy. The survey indicates that most States and Union Territories experienced decreased inflation rates, with 29 out of 36 recording rates below 6%. However, food inflation remains a concern due to adverse weather conditions affecting farm output. Food inflation rose from 6.6% in FY23 to 7.5% in FY24.

The survey also highlights specific challenges such as rising onion and tomato prices caused by unfavorable weather, region-specific crop diseases, and logistical disruptions.

Investment Climate: A Positive Outlook

India's investment climate shows promising signs with a notable increase in Foreign Direct Investment (FDI) from China. The survey suggests that this inflow can boost India’s participation in the global supply chain and enhance exports. Additionally, the primary capital markets facilitated capital formation of Rs 10.9 lakh crore during FY24, indicating strong investment activity.

Policy Recommendations and Future Outlook

The Economic Survey provides a detailed account of policy recommendations to sustain and bolster economic growth. Emphasizing the need for continued public capital expenditure (capex) and policy changes to attract FDI, the survey underscores the importance of holistic growth. N Venu, MD & CEO – India and South Asia, Hitachi Energy, stressed, "The budget should sustain the momentum and continue the trend of significant public capex. This growth must be democratic, benefiting the social sector, creating jobs, and opening new investment avenues."

Fiscal and Monetary Management

On the fiscal front, the survey notes that the global general government fiscal deficit rose by 1.6 percentage points in 2023. Despite this, India's external balance has improved, with the Current Account Deficit (CAD) standing at 0.7% of GDP in FY24, down from 2.0% in FY23.

Retail inflation, which averaged 6.7% in FY23, declined to 5.4% in FY24, thanks to effective administrative and monetary policy responses. The survey also highlights the government's efforts to reduce fuel prices, leading to lower retail fuel inflation.

Optimism for FY25 and Beyond

India's economic trajectory appears positive as it navigates global uncertainties and domestic challenges. The Economic Survey paints an optimistic picture for FY25, with a focus on inclusive and sustainable growth. As Finance Minister Nirmala Sitharaman prepares to present the Union Budget, all eyes will be on the policy measures that will shape India's economic future.

Join Our Thriving Entrepreneurial Community

Follow TICE News on Social Media and create a strong community of Talent, Ideas, Capital, and Entrepreneurship. YouTube  | Linkedin | X (Twitter) | Facebook | News Letters