Economic Survey 2024-25

While India's retail inflation moderated from 5.4% in FY24 to 4.9% in FY25 (April-December), food inflation remains a significant challenge, reaching 8.4% in FY25, due to supply-side disruptions, extreme weather events, and logistical inefficiencies. Looking ahead, the RBI projects headline inflation to moderate further to 4.2% in FY26, aided by a projected 5.1% decline in global commodity prices and policy measures such as buffer stocks and import duty rationalisations.

Deregulation key to unlocking economic growth

Viksit Bharat@2047 envisions India as a developed nation by 2047, the centenary of India’s independence. The Economic Survey 2024-25 points out that to achieve developed nation status, India must sustain 8% annual growth for the next couple of decades, raising the investment rate to 35% of GDP. This will require developing the manufacturing sector, investing in emerging technologies like AI and biotechnology, and creating 78.5 lakh new jobs annually till 2030. Structural reforms in the last decade, including GST, the Insolvency and Bankruptcy Code (IBC), and the Real Estate Regulation Act (RERA), have boosted ease of business, digitalisation, and revenue collection.

However, challenges remain, particularly in the MSME sector, which still faces significant regulatory burdens. The existing regulatory framework often discourages growth and innovation, as businesses are incentivised to remain small to avoid compliance complexities. This hampers their access to capital, skilled labour, and technology, creating a cycle of underperformance and missed opportunities for expansion.

Deregulation is positioned as the key lever for achieving the long-term growth aspirations outlined in the survey. This deregulation push, by both central and state governments, includes efforts to digitise systems, streamline processes, and reduce unnecessary barriers that hinder business growth. By enhancing economic freedom and promoting innovation through reduced regulatory constraints, India can empower SMEs, boost competitiveness, and create a thriving business ecosystem. 

Artificial Intelligence: balancing opportunities and risks 

The advancement of artificial intelligence (AI) is poised to significantly impact labour markets worldwide, with OpenAI expecting to have office-ready AI workers by the end of 2025. Between 2021 and 2023, global corporate investments in AI surged to USD 761 billion, as organisations look to harness the productivity and profitability gains offered. However, this rapid progress also poses risks, with up to 300 million full-time jobs globally exposed to AI-driven automation and 75 million jobs at risk of automation worldwide.

India’s demographic advantage and diverse economic landscape uniquely position it to benefit from AI's rapid growth. However, this presents both opportunities and risks, necessitating proactive policymaking to ensure equitable growth. Policy recommendations for India emphasise the importance of workforce skilling, prioritising foundational skills over tech-specific training, and fostering collaboration between government, industry, and academia. Regulatory frameworks should balance innovation with accountability and worker protection. 

Reviving FDI: enhancing efficiency amid global challenges

FDI inflows in India are showing signs of revival in FY25, although net FDI inflows have declined due to higher repatriations and disinvestments. Nevertheless, since April 2000, cumulative FDI inflows have surpassed USD 1 trillion, solidifying India as a major investment hub.

Global factors such as rising interest rates, geopolitical uncertainties, and economic slowdowns have impacted FDI trends worldwide. India must focus on investment efficiency, not just volume. If capital inflows slow, enhancing investment efficiency through deregulation and ease of doing business becomes essential. The Economic Survey highlights deregulation as a key strategy to boost India’s global competitiveness and FDI attractiveness.

India remains an attractive destination for private capital, but investors are likely to adopt a measured approach. Growth opportunities, valuation concerns, and external risks will influence investment decisions. The extent to which the Finance Budget facilitates domestic consumption, industrial growth, and fiscal consolidation will be crucial in sustaining private investment momentum.

Inclusive growth through advancements in social infrastructure

India has made significant strides in social infrastructure, particularly in education and healthcare, with the government steadily increasing social services expenditure (SSE). The Economic Survey shows that SSE has risen from 23.3% of total expenditure in FY21 to 26.2% in FY25, reflecting a strong focus on inclusive growth.

Education and healthcare spending have grown significantly, helping to improve rural consumption and reduce income inequality. The rural-urban consumption gap has narrowed, from 84% in 2011-12 to 70% in 2023-24, highlighting progress in rural areas.

Agriculture and allied activities contribute around 16% to India’s GDP and support 46.1% of the population. Despite progress, the sector faces challenges like weather variability and limited irrigation, with only 55% of the net sown area receiving irrigation. The Economic Survey highlights reduced volatility in agricultural growth but stresses that climate change and water scarcity remain significant obstacles. To address this, the country should focus on aligning practices with regional conditions, investing in climate-resistant crops and micro-irrigation, and promoting digital technologies for productivity.

The survey also advocates for market systems that allow farmers to receive price signals and mitigate risks. It suggests policies to combat soil degradation, conserve water, and reduce resource-intensive crop production. These changes aim to boost productivity, target a 5% growth rate in agriculture, and enhance land and labor productivity, contributing 1% growth to overall GVA.

Balancing climate change with economic growth

India's climate strategy is firmly rooted in its ambitious commitment to achieve net-zero emissions by 2070—a goal intricately linked to its broader vision of becoming a developed nation by 2047. To drive sustainable economic growth, the Indian government has introduced a range of initiatives, such as the Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyaan (PM KUSUM) and the Perform Achieve and Trade (PAT) scheme, aimed at fostering environmental responsibility and shaping economic behaviour. The India-led global movement, Lifestyle for Environment (LiFE), also aims to enhance the country’s sustainability efforts.

Despite these efforts, India remains the seventh most vulnerable country to climate change, even though its per capita carbon emissions are only one-third of the global average. Achieving net-zero emissions will require a comprehensive and forward-looking approach that balances climate action with economic imperatives. In order to achieve its net zero targets, India need a multifaceted approach including both renewable, transition fuels and nuclear power.

India’s shift toward clean energy is already underway. As of 30 November 2024, the country had an installed electricity generation capacity of 213,701 megawatts from non-fossil fuel sources, accounting for 46.8% of its total capacity, with a target of reaching 50% by 2030. Given its expanding energy needs, India must capitalise on its vast resources, technological advancements, and sectoral expertise to accelerate its transformation into a developed economy while maintaining low-carbon emissions.

Investment and infrastructure: keeping it going  

Building infrastructure—spanning physical, digital, and social—has been a key priority for the government over the past five years. This focus has driven increased public investment, the establishment of institutions to de-bottle approvals and execution, and the adoption of innovative financing mechanisms. 

Between FY20 and FY24, capital expenditure by the union government on major infrastructure sectors grew at a rate of 38.8%, gaining further momentum in FY25 following the elections. Infrastructure-related ministries utilised an average of 60% of their budgeted capital expenditure from April to November 2024. 

India’s logistics sector is undergoing a strategic transformation, positioning itself as a critical driver of economic growth. Reducing logistics costs remains a key priority, with the Economic Survey emphasising the need for further infrastructure investments, policy reforms, and private sector participation, especially from large industrial groups and PE players. Capital expenditure on key infrastructure sectors has grown at a rate of 38.8% from FY20 to FY24. India’s ranking in the World Bank’s Logistics Performance Index improved to 38th among 139 countries in 2023.

Ports and Shipping, Civil Aviation, and Railways have made the most progress in infrastructure capital expenditure. Corridor-based approach for national highway development has increased highway length and the use of sustainable construction practices has significantly improved logistic efficiency and safety of road transport. For Railways, network expansion remained steady compared to the previous year, but the addition of rolling stock increased significantly.