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The Economic Survey (ES) is not merely a mirror of the Indian economy; it also presents a perspective of the probable future of the economy sans the shocks and uncertainties. The last ES, published in July 2024, painted an optimistic picture of the Indian economy in the middle of a global gloom, backed by hard data, while also offering some sensible, futuristic recommendations for the medium term.
The Economic Survey 2024-25 (tabled today, January 31, 2025) does not find a much different global economic backdrop compared to last July. It is now amply clear that global growth, which has been hovering around 3-3.3 percent over the last 15 months, will continue, and will be propelled by the Emerging Market and Developing Economies (EMDEs) in the near future. While advanced economies have been witnessing growth rates of 1.7-1.9 percent over the past three years, the EMDEs have grown by more than 4 percent, and the growth trend of 4 percent+ is slated to continue next year. India is, definitely, the leader in the pack when it comes to the growth numbers among all the major economies of the world, with its real GDP estimated to grow at 6.4 percent this fiscal (Figure 1). However, this is lower than what was expected.

Source: MOSPI
Rather, lately, there have been criticisms that India’s actual growth rate has always been divergent from the various previous ES projections, and largely been lower than what the various ES documents predicted. And there is no denying this hard fact, given the hard data-based evidence that exists. Therefore, when the Economic Survey 2024-25 states that the Indian economy is poised for steady growth in FY26 in the range of 6.3-6.8 percent, many will take this with a pinch of salt.
A few positive developments
India has primarily encountered consumption-driven growth over the last three decades.
However, there are a few things that are going in the right direction. First, the ES 2024-25 reveals the government’s initiative towards fiscal prudence. This is reflected in bringing down the governmental dis-savings (defined as a government’s excess spending over its revenue earnings through borrowings to cover the difference) in FY24. Despite that, the capital expenditure by the government increased over time and stood at 21.4 percent of the GDP in FY 24. Although during Q1 of FY25, capital expenditure took a backseat owing to general elections, it bounced back after July, though the non-debt receipts declined due to an increase in the devolution of taxes to states. Recent estimates suggest that the multiplier effect of capital expenditure is twice the revenue expenditure multiplier and hovers at around 2, as compared to the latter, which stands at merely 0.9. So, it apparently seems that the government has successfully circumvented the trade-off between fiscal discipline and capital expenditure.
Second, there is a revival in consumption growth. India has primarily encountered consumption-driven growth over the last three decades. There was a deceleration in consumption growth FY24 as can be seen from Figure 2. The trend continued till Q2 of FY25. However, there has been a recent revival in consumption growth with Private Final Consumption Expenditure (PFCE) at Constant Prices, witnessing a growth rate of 7.3 percent during FY25 over the growth rate of 4.0 percent in the previous financial year. Further, the Household Consumption Expenditure Survey (HCES) 2023-24 highlight the narrowing urban-rural gap in consumption expenditure.
Figure 2: Consumption and GDP growth; PFCE-GDP (C/Y) Ratio (2012-13 to 2023-24)

Source: MOSPI
The forex reserves are in a very healthy state. It breached the US$ 700 billion benchmark by September 2024 and then moderated to US$ 640.3 billion by the end of December 2024.
Third, the asset qualities of the (Scheduled Commercial Banks) SCBs are improving, as stated by the ES 2024-25. The Gross Non-Performing Assets (GNPA) ratio of SCBs has steadily declined from its peak in FY18, reaching a 12-year low of 2.6 percent by September 2024. Such improvements have been driven by lower slippages and better recoveries, upgrades, and write-offs. Additionally, higher provisioning in recent years has pushed net NPAs down to just 0.6 percent.
Fourth, the forex reserves are in a very healthy state. It breached the US$ 700 billion benchmark by September 2024 and then moderated to US$ 640.3 billion by the end of December 2024. What makes things interesting is that these reserves are sufficient to cover approximately 90 percent of India’s external debt, reflecting a strong buffer against external vulnerabilities.
The problem lies with the fact that adaptation financing demand has been underestimated in India, and no document has so far been able to acknowledge that.
Fifth, this is one of the rare occasions when a governmental document from the Ministry of Finance acknowledges the bias of Development Financial Institutions in favouring the financing of mitigation projects as against adaptation projects. However, though the ES 2024-25 mentions that “… the increase in adaptation expenditures from 3.7 per cent to 5.6 per cent of GDP between FY16 and FY22 indicates the prominence adaptation and building resilience play in the development strategy”, this does not solve the problem. The problem lies with the fact that adaptation financing demand has been underestimated in India, and no document has so far been able to acknowledge that. Rather, this creates a mandate for the government to find ways to involve the private sector in adaptation financing—that is not an easy proposition given the fact that adaptation financing largely results in the creation of “public goods” without concomitant return on investment. In any case, the very dawning of the idea that the economy cannot move ahead towards Viksit Bharat without adaptation financing is important, and that’s what the ES 2024-25 has done.
Economic challenges
The first challenge lies in tackling the domestic agricultural supply chain. While the nation fared well in the context of global supply-chain problems and kept commodity price inflation under control even during the peak of the problems, food price inflation has lately been a concern. As such, this is nothing new. Agricultural commodities in India have often revealed this cyclical pattern due to market cornering, and so far, physical market regulation has been a gross failure. The ES 2024-25 states, “… Pressures in food prices have been driven by factors such as supply chain disruptions and vagaries in weather conditions. Food inflation, measured by the Consumer Food Price Index (CFPI), has increased from 7.5 percent in FY24 to 8.4 percent in FY25 (April-December), primarily driven by a few food items such as vegetables and pulses”. However, the story misses out on the critical role of speculation and market cornering that keeps on happening in commodities like onions. The problem is neither new nor temporary, but a reflection of a historical malaise prevailing in Indian the agricultural sector.
Agricultural commodities in India have often revealed this cyclical pattern due to market cornering, and so far, physical market regulation has been a gross failure.
The second concern will emerge at a macroeconomic level and that too very soon, and that has been missed out by the volume. With the announcement of the 8th Pay Commission, whose recommendations will come into force from January 2026, there will be substantial implications on the revenue expenditure, as the wages, salaries and pensions of government employees and pensioners will witness a substantial increase (25-30 percent going by the previous trend). This will put pressure on the fiscal deficit. How can the government combat such a scenario? Reducing the capital expenditure for a growing economy is a suicidal idea while increasing the income taxes under a scenario where the households are already reeling under pressure will only puncture the consumption expenditure stream that has been the prime growth driver of the economy. By all means, the middle-class household always expects a tax sop from the government, and given that they are the biggest savers of the economy thereby contributing to the pooled investible fund, they deserve a reward and not a penalisation! The leeway, of course, lies in two elements: a) broad-basing and rationalising corporate tax collection modes whose contribution to total tax revenue is lower than households; b) better rationalisation of GDP by covering elements that are still not covered and not discussed (fuel and alcoholic beverages); c) daring to do the undoable: progressive tax on agricultural incomes at least of the rich and super-rich.
Third, there remains the need to convert the massive population base of India to effective and productive human capital so that demographic dividends can be adequately exploited. This will require long-term expenditures in health, education and training, and skilling. With the skewed demographic or large components of the ageing population prevailing in the advanced economies that are slowing down due to a scarcity of productive labour, the Indian labour force with the necessary skill set can help in bridging the much-needed gap. Skilled labour movement from India in those economies can result in higher consumption demand spurring growth in the recipient economies, and also help the cause of income generation through repatriation in the source economy, i.e., India.
Nilanjan Ghosh leads the Centre for New Economic Diplomacy (CNED) and the Kolkata Centre at the Observer Research Foundation.
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