Context: The Economic Survey for 2024-25 was tabled by Finance Minister Nirmala Sitharaman in Parliament on 31 January 2025.
Relevance of the Topic:Prelims: Key takeaways from Economic Survey.
About Economic Survey
- The Economic Survey is prepared by the Economic Division of the Department of Economic Affairs in the Ministry of Finance under the supervision of the Chief Economic Adviser.
- The Survey is a report of the state of the Indian economy in the financial year that is coming to a close.
- It serves as a crucial resource for policymakers, economists, and stakeholders, outlining the trends, challenges, and opportunities that shape the economic landscape.
State of Indian Economy:
The Economic Survey contends that the domestic economy remains steady amidst global uncertainties.
1. Real GDP
- Real Gross Domestic Product maps economic activity from the demand side of the economy.
- In the current financial year (FY25) Real GDP is pegged at 6.4%.
- In the coming year (FY26), the Survey expects it to lie between 6.3% and 6.8%.
- The share of private final consumption expenditure — the money Indians spend in their individual capacity (the consumer demand) — in India’s GDP (at current prices) is estimated to increase from 60.3% in FY24 to 61.8% in FY25. This share is the highest since FY03.
2. Gross Value Added
- On the supply side, which is mapped by Gross Value Added (GVA), India’s growth remains close to the decadal average.
- Aggregate GVA surpassed its pre-pandemic trend in the first quarter of FY25, and it presently is above the trend.
3. Inflation
- Headline inflation is moderating because of moderating core inflation.
- Core inflation refers to inflation in goods and services except food and fuel.
- However, food inflation increased from 7.5% in FY24 to 8.4% in the current financial year, driven by factors such as supply chain disruptions and vagaries in weather conditions.
4. Employment
- India’s labour market growth in recent years has been supported by post-pandemic recovery and increased formalisation.
- The 2023-24 annual Periodic Labour Force Survey (PLFS) report shows that all key employment related metrics, such as unemployment rate, labour force participation rate and the worker-to-population ratio (WPR), have improved.
5. FDI Inflow
- FDI indicates the amount of money invested in Indian companies by foreign investors. These inflows also regulate balance of payments and the rupee’s strength.
- Net FDI inflows have fallen during the first eight months of FY25 due to a rise in repatriation/disinvestment. For the overall financial year, FY24 saw a drop in FDI compared to previous years.
6. Foreign Exchange Reserves
- The country’s foreign exchange reserves act as a means to service external debt and imports, maintain liquidity and play an important role in monetary policy.
- As of December 2024, the reserve stood at 640.3 billion U.S. dollars. This amount will cover 90% of India’s external debt of 711.8 billion dollars as of September 2024.
7. Industrial sector
- The industrial sector is estimated to grow by 6.2% in FY25.
- Growth in the services sector is expected to remain robust at 7.2%, driven by healthy activity in financial, real estate, professional services, public administration, defence, and other services.
- The manufacturing sector, while steadily recovering, remains slightly below its pre-pandemic trajectory as it recovers from slowing global demand and supply chain disruptions.
8. Trade
- The value of exports and imports fell by 0.1% and 2.3% in FY24 when compared to FY23. But they have seen a rise in FY25 (April to December) by 6.6% and 3%.
9. UPI payments
- UPI payments have seen an exponential growth since it was launched in FY 2016. The total value of UPI payments almost touched ₹2 lakh billion in FY24, and it has already surpassed ₹1.9 lakh billion from April to December in FY25.
Survey’s recommendations
- The Union government and state governments should strive to boost employment, income generation, and therefore consumption.
- Need to deregulate the economy to unleash economic growth. There is a positive correspondence between business reforms and level of industrial activity.
- Presently, India faces limitations in producing critical goods at the scale and quality required, to serve the infrastructure and investment needs of an aspiring economy.
- By simplifying regulations that affect businesses can lower the cost of doing business, boost employment, income growth and therefore higher consumption.
- E.g., Adoption of Business Reform Action Plan (BRAP) formulated by the Department for Promotion of Industry and Internal Trade (DPIIT).
Concerns
In the context of the global economy, the Survey has flagged two main concerns:
1. Unfavorable global economic environment
- The broader global economic environment has become unfavourable and challenging, and global trade and investment have slowed down.
- Global trade dynamics have changed significantly in recent years, shifting from globalisation to rising trade protectionism, accompanied by increased uncertainty.
- The impact of this shift in global structural forces is reflected in global trade growth, and signs of stagnation in the global economy are beginning to emerge.
2. Dominance of China
- The dominance of China as the world’s manufacturing superpower is concerning for India.
- A third of all global production happens in China, and it alone manufactures more global output than the next 10 countries put together.
- However, post COVID-19 and due to global economic fragmentation, the world’s modus operandi of outsourcing manufacturing to China (pursued vigorously in the globalisation era) is coming to rest.