India’s economy set for 6.5-7% growth in FY 2024-25

New Delhi, July 22: India’s real GDP is projected to grow 6.5 to 7 percent in 2024-25, as outlined in the Economic Survey 2023-24 presented in Parliament by Union Minister of Finance and Corporate Affairs Nirmala Sitharaman.

This forecast comes after the Indian economy swiftly recovered from the pandemic, with real GDP in FY24 being 20 percent higher than pre-COVID levels in FY20.

The Survey highlights domestic growth drivers have bolstered economic growth in FY24, despite global economic uncertainties.

During the decade ending FY20, India grew at an average annual rate of 6.6 percent, reflecting the long-term growth prospects of the economy.

However, the survey cautions that any escalation of geopolitical conflicts in 2024 could disrupt supply chains, increase commodity prices, revive inflationary pressures, and stall monetary policy easing, potentially impacting capital flows and influencing the Reserve Bank of India’s (RBI) monetary policy stance.

The global trade outlook 2024 remains positive, with merchandise trade expected to rebound after contracting in 2023.

The survey emphasises the potential for expanding exports of business, consultancy, and IT-enabled services by leveraging government initiatives and tapping into emerging markets.

Despite a core inflation rate of around 3 percent, the RBI has kept interest rates unchanged, delaying the anticipated easing.

India's economy showed resilience to global and external challenges, with real GDP growing by 8.2 percent in FY24, driven by stable consumption demand and improving investment demand.

The shares of agriculture, industry, and services in overall Gross Value Added (GVA) at current prices were 17.7 percent, 27.6 percent, and 54.7 percent, respectively, in FY24.

The agriculture sector grew at a slower pace due to erratic weather patterns and uneven monsoon distribution in 2023.

In the industrial sector, manufacturing GVA grew by 9.9 percent in FY24, recovering from a disappointing FY23, as reduced input prices and stable domestic demand boosted manufacturing activities.

Construction activities also gained momentum, registering 9.9 percent growth due to infrastructure development and strong commercial and residential real estate demand.

High-frequency indicators reflect growth in the services sector, with Goods and Services Tax (GST) collections and e-way bill issuance demonstrating double-digit growth in FY24.

Financial and professional services have been major growth drivers post-pandemic.

Gross Fixed Capital Formation (GFCF) emerged as a key growth driver, with private non-financial corporations increasing GFCF by 19.8 percent in FY23.

Early signs indicate sustained momentum in private capital formation in FY24.

Residential real estate sales in India were the highest since 2013, with a 33 percent year-on-year growth.

The banking and financial sector, with cleaner balance sheets and adequate capital buffers, is well-positioned to meet growing investment demand.

Credit disbursal to industrial MSMEs and services continues to grow in double digits, and personal loans for housing have surged.

Despite global supply chain disruptions and adverse weather conditions, domestic inflationary pressures moderated in FY24.

Retail inflation declined to 5.4 percent in FY24 from an average of 6.7 percent in FY23, due to government measures and RBI’s policy rate increases.

India has remained on course for fiscal consolidation, reducing the fiscal deficit from 6.4 percent of GDP in FY23 to 5.6 percent in FY24.

Gross tax revenue grew by 13.4 percent in FY24, driven by a 15.8 percent increase in direct taxes and a 10.6 percent increase in indirect taxes.

Capital expenditure for FY24 increased by 28.2 percent year-on-year, reaching ₹9.5 lakh crore, 2.8 times the FY20 level. Government spending in sectors like road transport, railways, defense services, and telecommunications has driven economic growth.

State governments also improved their finances in FY24, with the gross fiscal deficit of 23 states coming in at 2.8 percent of GDP, lower than the budgeted 3.1 percent.

The Union Government’s transfers to states are highly progressive, supporting states with lower Gross State Domestic Product (GSDP) per capita.

On the external front, moderation in merchandise exports continued in FY24 due to weaker global demand and geopolitical tensions.

However, India’s service exports remained robust, reaching a new high of USD 341.1 billion in FY24. Net private transfers, mainly remittances, grew to USD 106.6 billion in FY24, and the Current Account Deficit (CAD) improved to 0.7 percent of GDP from 2.0 percent in FY23.

India's external sector is managed well, with comfortable foreign exchange reserves and a stable exchange rate.

Forex reserves at the end of March 2024 were sufficient to cover 11 months of projected imports.

The survey underscores a shift in India’s social welfare approach from input-based to outcome-based empowerment.

Initiatives like the PM Ujjwala Yojana, Swachh Bharat Mission, Jan Dhan Yojana, and PM-AWAS Yojana have improved capabilities and opportunities for underprivileged sections.

The Direct Benefit Transfer (DBT) scheme and Jan Dhan Yojana-Aadhaar-Mobile trinity have enhanced fiscal efficiency, with Rs 36.9 lakh crore transferred via DBT since its inception in 2013.

The all-India annual unemployment rate has been declining since the pandemic, accompanied by a rise in the labour force participation rate and worker-to-population ratio. The female labour force participation rate has increased from 23.3 percent in 2017-18 to 37 percent in 2022-23, driven mainly by rural women.

On the global economic scenario, the survey notes that despite uncertainties and volatilities, global economic growth was surprisingly robust in 2023, with the International Monetary Fund (IMF) projecting a 3.2 percent growth in the global economy for 2023.