6.5-7% GDP Growth by FY25 and Controlled Inflation: Key Insights from the 2024 Economic Survey

Every year, two crucial documents shape India’s economic journey: the Economic Survey and the Union Budget. Finance Minister Nirmala Sitharaman presented the Economic Survey 2024 in Parliament on Monday. The survey forecasts real GDP growth for FY25 to be between 6.5% and 7%, with balanced risks. It highlights high market expectations and warns that increasing geopolitical uncertainties could affect capital flows.

Economic Survey: India’s Economic Checkup

An economic survey is like a detailed report card on the economy. Consider it an annual checkup by the Ministry of Finance’s financial experts. This year’s report came out on July 22nd, just before the national budget announcement.

The survey acts like a three-part analysis:

• Performance Review: It assesses the government’s economic achievements over the past year, highlighting major development programs and policy changes.
• Challenges and Trends: This section dives into the current state of the economy, outlining its strengths and weaknesses.
• Future Outlook: The survey also provides insights into what’s expected for the upcoming year, offering a glimpse into the economic road ahead.

This year, the report is like a two-volume book:

• Volume 1: The Big Picture: This part offers a broad overview of the economy, analyzing key developments and challenges.
• Volume 2: Deep Dives: This section explores specific topics in more detail, like social welfare programs, education, healthcare, and environmental issues.

The Union Budget

Following the Economic Survey, the Finance Minister presents the Union Budget. This is the government’s financial roadmap for the coming year. It outlines how much the government plans to spend and how it intends to raise those funds.

The Budget comprises two parts:

• Revenue Budget details the government’s expected income from taxes, disinvestment, and other sources.
• Expenditure Budget: This outlines how the government plans to spend its revenue on various sectors, such as infrastructure, social welfare, defense, and healthcare.

The budget analyzes income and expenditure plans to reveal the government’s priorities for the coming year. It indicates how much will be allocated to rural development, education, or infrastructure projects. This empowers citizens to understand how their tax contributions are being utilized.

Key Insights

Agriculture

The survey calls for a national dialogue on reorienting agricultural policies. Despite existing subsidies and support measures, new and revised policies are needed to serve farmers better and untangle issues in the agricultural sector. This could make farming more attractive and productive, particularly for urban youth.

Corporate Sector

The survey highlights the need for corporations to increase hiring and worker compensation to sustain demand and economic growth.

Private sector investment in machinery, equipment, and intellectual property products grew by only 35% over four years to FY23, while investment in dwellings, buildings, and structures increased by 105%. This imbalance hinders raising the manufacturing share of GDP and improving competitiveness. The survey emphasizes the need for corporations to increase hiring and worker compensation to sustain demand and economic growth. Despite significant corporate profit growth, hiring and compensation have not kept pace, highlighting a gap that needs to be addressed.

AI Impact

The survey emphasizes that artificial intelligence (AI) will dramatically reshape the future of work across all skill levels. AI is seen as a transformative technology that will have widespread effects on the global economy and workforce, similar to electricity and the internet.

Capital Markets

Capital markets are becoming more prominent in India’s growth story. The survey notes that Indian capital markets have shown resilience to global geopolitical and economic shocks, benefiting from technology, innovation, and digitization. This resilience has helped the Indian stock market perform well compared to international and emerging markets.

Infrastructure

The survey stresses the importance of private sector financing for developing quality infrastructure. It calls for increased policy and institutional support from all levels of government and better data capture and reporting mechanisms for infrastructure investments.

PLI Scheme

The Economic Survey 2024 reports that India’s Production Linked Incentive (PLI) scheme for the automobile and auto components sector has attracted a proposed investment of ₹ 67,690 crore. By the end of March 2024, ₹14,043 crore had already been invested. The scheme aims to generate 1.48 lakh jobs, with 28,884 created by March 31, 2024. To date, 85 applicants have received approval under the scheme.

Remittances

Remittances to India are expected to grow by 3.7% to $124 billion in 2024 and by 4% to 129 billion in 2025. This growth highlights the continued importance of remittances to the Indian economy.

Inflation

While headline inflation is largely under control, some specific food items have elevated inflation rates. The trade deficit has decreased, and the current account deficit is around 0.7% of GDP, indicating overall economic stability.

Retail inflation has decreased to 5.4% in FY24 from 6.7% in FY23. However, core inflation remains sticky due to services inflation and a strong labor market in Asian economies.

Economic Stability

The survey asserts that the Indian economy is stable and resilient despite global challenges. Policymakers have ensured economic and financial stability, helping the economy expand post-COVID.

Public Health

The survey emphasizes the importance of transitioning towards balanced, diverse diets to reduce the disease burden, noting that 54% of India’s disease burden is due to unhealthy diets.

Government Role

The survey suggests that the government should reduce control in certain areas to enhance efficiency and capacity. This could help streamline operations and improve overall governance.

Private Investment

The survey highlights that healthier corporate and bank balance sheets will support private investment, although private capital formation may become more cautious due to fears of cheaper imports.

Policy

Effective policy navigation has helped India maintain price stability despite global uncertainties. The survey highlights the importance of continued policy efforts to sustain economic recovery and growth.

Financial Sector

The survey indicates a bright outlook for India’s financial sector, which continues to expand and show resilience amidst global challenges.

These highlights provide a comprehensive overview of the key insights and themes from the Economic Survey 2024, underscoring the Indian economy’s strengths and areas for further policy focus.

Employment Needs

The Economic Survey 2024 states that India needs to create around 78.51 lakh non-farm jobs annually to meet growing demand and population growth. With a workforce of nearly 56.5 crore, over 45% are employed in agriculture, 11.4% in manufacturing, 28.9% in services, and 13% in construction. The survey notes that female labor force participation has increased over the past six years. The unemployment rate has also been declining, reaching 3.2% in FY23.

Why Are Economic Surveys and Budget Important?

The Economic Survey and the Union Budget work in tandem to guide India’s economic course. Here’s why both are crucial:

• Informed Decisions: The Survey provides the Budget with a data-driven foundation. The government can use the Survey’s insights to set realistic spending targets and prioritize crucial areas.
• Transparency and Accountability: Both documents promote transparency. The public can assess the government’s economic diagnosis and the proposed treatment plan (the Budget) to hold them accountable.
• Course Correction: If the Survey identifies challenges, the Budget can propose solutions, such as tax reforms or infrastructure spending.
• Spark Public Discourse: Both documents stimulate public debate on economic issues. This citizen engagement ensures the government considers a wider perspective when formulating economic policies.

The Economic Survey and the Union Budget are like two sides of the same coin. Together, they provide a comprehensive picture of India’s economic health and the government’s plan for the future. By understanding their importance and differences, we can actively participate in shaping India’s economic journey.

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