
Why in News?
The Economic Survey has factored in multiple global and domestic challenges, including geopolitical tensions, climate change, and policy uncertainties, as India prepares for the Union Budget 2025-26. The Survey indicates a moderate growth projection for the next fiscal year, emphasizing the need for policy shifts in infrastructure, energy, and investment to sustain economic momentum. The article also discusses global economic risks, domestic investment trends, inflation concerns, and the impact of climate change on economic stability.
Introduction
The Indian economy is navigating a mix of opportunities and risks. While the country has demonstrated resilience through post-pandemic recovery, multiple challenges such as geopolitical tensions, climate-related disruptions, and global economic slowdown pose risks. The Economic Survey provides a roadmap for addressing these challenges, focusing on increasing private investment, improving infrastructure, and transitioning towards clean energy. The upcoming budget must address these structural concerns to ensure sustainable long-term growth.
Point-Wise Summary
- India’s GDP Growth Estimates and Projections
- The first advance estimate for India’s GDP growth in FY 2024-25 is 6.4%, slightly below the pre-pandemic average of 6.6%.
- The Economic Survey projects real GDP growth for the next fiscal year between 6.3% and 6.8%, aligning with Crisil’s projection of 6.7%.
- Nominal GDP growth, which accounts for inflation, stands at 9.7%, lower than the 10.5% assumed in the budget.
- International agencies have also revised their growth forecasts:
- IMF predicts 6.5% growth.
- World Bank forecasts 6.7% growth for India, making it the fastest-growing major economy.
- Global Economic Risks and Uncertainties
- The US economy is expected to slow to 2% growth in 2025 after a strong performance in 2024.
- China is witnessing an economic slowdown, while Europe struggles despite slight improvements.
- Rising geopolitical tensions include:
- Donald Trump’s potential re-election, raising concerns about new US trade tariffs on India.
- Russia-Ukraine conflict and Middle East instability affecting oil prices and global supply chains.
- Role of Investments in Sustaining Growth
- Government-led public and household investments have fueled post-pandemic recovery, but private sector investment remains sluggish.
- The Survey stresses the need for private investments to take over from the government in driving growth.
- Global competition for investment is fierce, as both emerging and developed economies seek to retain businesses.
- The Survey suggests deregulation and fiscal consolidation to attract private capital.
- Challenges in Infrastructure and Capital Spending
- The budget reduced capital expenditure (capex) growth to 17.1%, compared to 28.2% in 2023-24.
- Despite government efforts, low capital spending by central agencies has slowed growth.
- Project delays and cost overruns are major concerns:
- 40% of central projects above ₹150 crore exceeded deadlines and budgets.
- The Survey emphasizes “shovel-ready” projects and better coordination with states to improve execution.
- Inflation and External Economic Factors
- Retail inflation averaged 4.4%, with food inflation remaining high.
- Monetary policy tightening is keeping inflation in check, with the repo rate at 6.5%.
- High crude oil prices (above $80 per barrel) continue to exert inflationary pressure.
- The RBI remains cautious about easing interest rates, given the global uncertainties.
- Climate Change and Its Economic Impact
- Climate change is a major economic risk, affecting agriculture and industrial production.
- Unpredictable weather patterns (such as erratic monsoons) disrupt supply chains and food prices.
- The Survey suggests climate adaptation strategies for agriculture to stabilize food prices and farm productivity.
- Need for a Clear Trade and Industrial Policy
- A long-term tariff policy for inputs, intermediates, and final products is essential to:
- Ensure predictability in trade policies.
- Support private sector investment.
- Strengthen manufacturing competitiveness.
- The Survey highlights the need for a calibrated approach to clean energy transition, focusing on energy security and industrial decarbonization.
- Technological Advancements and Clean Energy Shift
- Breakthroughs in renewable energy (e.g., cost reductions in solar module manufacturing) are accelerating India’s clean energy goals.
- The Survey acknowledges that India is now a leading producer of solar components, reducing reliance on imports.
- Strategic industrial policy is necessary to support domestic manufacturing of key technologies and inputs.
- Ease of Doing Business and Regulatory Reforms
- Simplifying:
- Land acquisition
- Tax regulations
- Dispute resolution
- The government is working towards improving ease of doing business, led by the Finance Ministry and the Ministry of Jal Shakti.
- Budget Implications and Fiscal Policy Outlook
- Fiscal consolidation remains a priority, with the government balancing public spending with revenue generation.
- Nominal GDP growth must support fiscal consolidation, ensuring that spending remains aligned with economic expansion.
- Deficit reduction strategies include:
- Improving tax revenue collection.
- Controlling non-essential expenditures.
- Encouraging private investment to drive growth.
Key Terms and Their Explanation
- Capital Expenditure (Capex)
- Spending by the government on infrastructure, roads, railways, and capital projects.
- Fiscal Consolidation
- The process of reducing government deficits and debt accumulation over time.
- Inflation and Repo Rate
- Inflation: The rate at which prices of goods and services rise.
- Repo Rate: The interest rate at which the RBI lends money to commercial banks.
- Geopolitical Risks
- Economic and trade risks arising from international political tensions, such as US-China trade relations or Middle East conflicts.
- Clean Energy Transition
- The shift from fossil fuels to renewable energy sources like solar and wind power.
Conclusion
India’s economic trajectory remains strong, but global risks and structural inefficiencies pose challenges. The Economic Survey highlights the need for policy shifts in:
- Infrastructure spending and project execution to reduce delays.
- Private sector-led investment to drive long-term growth.
- Climate resilience and clean energy policies to ensure economic stability.
Trade and tariff policies to make manufacturing more competitive.