Economic Survey 2024: India's GDP Growth Projected At 6.5-7% In FY25

India's real gross domestic product growth is estimated at 6.5-7% for the financial year ending March 31, 2025, according to the latest economic survey report. "The survey conservatively projects a real GDP growth of 6.5–7%, with risks evenly balanced, cognizant of the fact that the market expectations are on the higher side," the report said.

Domestic growth drivers have supported economic growth in FY24 despite uncertain global economic performance, the survey said, adding that improved balance sheets will help the private sector cater to strong investment demand.

However, private capital formation after good growth in the last three years may turn slightly more cautious because of fears of cheaper imports from countries that have excess capacity, the survey said.

Key Highlights

• On the downside, any escalation of geopolitical conflict in 2024 may lead to supply dislocations, higher commodity prices, reviving inflationary pressure and stalling monetary policy easing with potential repercussions for capital flows. This can also influence RBI's monetary policy stance.

• Any corrections in the elevated financial market valuations may have ramifications for household finances and corporate valuation, negatively impacting growth prospects.

• Hiring in the information technology sector had slowed down considerably in FY24, and even if hiring does not decline further, it is unlikely to pick up significantly.

• A normal rainfall forecast by the India Meteorological Department and the satisfactory spread of the southwest monsoon thus far are likely to improve agriculture sector performance and support the revival of rural demand. "However, the monsoon season still has some ways to go," the report said.

In the medium term, the Indian economy can grow at a rate of 7% plus on a sustained basis if we build on the structural reforms undertaken over the last decade. This requires a tripartite compact between the Union government, state governments and the private sector.

Rising Retail Investor Participation Warrants Caution

While the outlook for India's financial sector appears bright, some areas will require focused attention going forward, the survey said. The significant increase in retail investors in the stock market calls for careful consideration, it said. "This is crucial because the possibility of overconfidence leading to speculation and the expectation of even greater returns, which might not align with the real market conditions, is a serious concern," stated the survey.

For a developing economy such as India, the financial sector needs to support the banking sector and fill the gap in capital required for the economy's growth. Therefore, the financial sector should expand at a pace that is in lockstep with economic growth. "In particular, India can ill-afford the economy's over financialisation at its current development stage."

India's market capitalisation-to-GDP ratio has seen a significant rise over the last five years to 124% in FY24, as compared to 77% in FY19—far higher than that of other emerging market economies like China and Brazil, said the report. "It is essential to strike a note of caution."

The Indian stock market was among the best performing markets, with India's Nifty 50 index ascending by 26.8% during FY24, as against (-)8.2% during FY23.

Price And Inflation Control

The medium to long-term inflation outlook will be shaped by the strengthening of price monitoring mechanisms and market intelligence, as well as focused efforts to increase the domestic production of essential food items like pulses and edible oils—for which India has a great degree of import dependence, the survey said.

On the inflation front, it may be important to fine-tune and expedite the ongoing action in the following areas:

• The high-frequency price monitoring data for essential food items collected by different departments may be linked, in such a way that the build-up of prices at each stage from the farm gate to the final consumer is quantifiable and monitorable.

• The ongoing efforts to construct the producer price index for goods and services may be expedited to have a greater grasp of episodes of cost-push inflation. Further, considering that the results of the household consumer expenditure survey, 2022-23 of MoSPI, are available, it may be appropriate to expeditiously revise the consumer price index with fresh weights and item baskets.

Employment: Challenges Remain

• With artificial intelligence taking root in several spheres of economic activity, the job market must adapt while steering the technological choices towards collective welfare is key, stated the survey.

• To generate and sustain quality employment, agro-processing and care economy are two promising candidates—the latter also being a necessity for levelling the playing field for women in labour market, it said.

• The fillip to skilling has yielded progress while there remains scope for more, as only 4.4% of young workforce is formally skilled.

• Many regulatory clean-ups pose as low-hanging fruits of employment generation, including multiple state-level laws relating to use of land, sectors restricted for women workers, and apprenticeship promotion.