Pegging India’s economic growth estimate conservatively at 6.5-7 per cent for 2024-25 does not mean that Finance Ministry is pessimistic about the growth prospects, Anantha Nageswaran, Chief Economic Advisor asserted on Monday.
Rather, the Finance Ministry is “upbeat” about economy’s growth prospects and is confident of current growth momentum being maintained, Nageswaran added.
Conservative stance
The Economic Survey for 2023-24 has instead opted for a conservative stance in view of the new risks and challenges that have emerged since the end of January, when the previous projection was made just before the interim budget announcement, he said.
In end January, the Finance Ministry had in a report (Review of Indian Economy) presented ahead of interim budget pegged the GDP growth for 2024-25 at “close to 7 percent”.
Nageswaran said that Finance Ministry is actually “very optimistic” about growth, but needed to factor in newer aspects such as the way monsoons have progressed this fiscal and also the rise in valuations in global financial markets.
“Since January (interim budget) where we were more confident about a 7 percent, the global economy has become even more polarised. Financial market valuations are now elevated. Given that …we still feel 7 percent is doable, but yet we want to be not necessarily cautious but somewhat prudent in projecting. We would rather be pleasantly surprised than being disappointed. That is why we are projecting 6.5-7 per cent.”
The latest Economic Survey’s projection of 6.5-7 percent growth surprises many economy watchers as it was lower than Reserve Bank of India’s growth estimate of 7.2 percent. In June this year, RBI had upped its growth forecast from earlier 7 per cent to 7.2 per cent for 2024-25.
Infact, the latest Survey projection of 6.5-7 per cent is much lower than the 8.2 per cent GDP growth achieved in 2023-24. India has clocked over 7 percent GDP growth in last three fiscal years.
Nageswaran said that Indian economy has recovered and expanded in an orderly fashion post pandemic. The real GDP in FY24 was 20 per cent higher than its level in FY20, a feat that only a very few major economies achieved. Prospects for continued strong growth in FY25 beyond look good, subject to geopolitical, financial market and climatic risks, he noted.
The growth estimated by the Economic Survey, released a day before the first full comprehensive budget for Modi 3.0 government is presented, is almost in line with International Monetary Fund (IMF’s) recent 7 percent estimate for current fiscal.
The Economic Survey is a crucial document as it details the State of the Economy, prospects and policy challenges.
Meanwhile, the Survey noted that in the medium term, the Indian economy can grow at a rate of 7 per cent plus on a sustained basis if one were to 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, it added.
Growth strategy
The Survey also came up with a growth strategy for Amrit Kaal predicated on six key areas. Firstly, there must be a deliberate focus on boosting private investment. Secondly, the growth and expansion of India’s Mittelstand (MSMEs) is a strategic priority. Thirdly, the potential of agriculture as an engine of future growth must be recognised and policy impediments removed. Fourthly, there is a need to secure the financing of green transition in India. Fifthly, the education-employment gap must be bridged. And finally, focused building of state capacity and capability is required for sustaining and accelerating India’s progress, the Survey said.
The medium-term growth outlook will happen in the context of these global trends, namely, increased geo-economic fragmentation, a global push for self-reliance, looming climate change, rise of technology as the biggest strategic differentiator and limited policy space for countries across the world.
Going forward the government’s focus must turn to bottom-up reform and strengthening the plumbing of governance so that the structural reforms of the last decade yield strong, sustainable, balanced and inclusive growth, Survey added.