Friday, February 28, 2025 | 09:15 AM ISTहिंदी में पढें
Business Standard
Notification Icon
userprofile IconSearch

Economic Survey 2025 suggests deregulation as a trigger for higher growth

We broadly concur with the Survey's assessment of a pick-up in rural demand on the back of improved crop output, disinflation, and an uptick in domestic investment activity

Aditi Nayar is Chief Economist, Head- Research & Outreach at ICRA

Aditi Nayar New Delhi

Listen to This Article

The Economic Survey 2024-25 has pegged India’s real gross domestic product (GDP) growth in the range of 6.3 per cent – 6.8 per cent for fiscal 2025-26 (FY26). Our own forecast, at 6.5 per cent for the coming fiscal, is right in the middle of this range.
 
We broadly concur with the Survey’s assessment of a pick-up in rural demand on the back of improved crop output, disinflation, and an uptick in domestic investment activity supporting growth outcomes in the next fiscal.
 
In terms of the medium-term growth outlook, the Economic Survey 2025 stresses that India needs to achieve a real GDP growth of around 8 per cent, on average, for at least a decade, while ramping up the investment rate to around 35 per cent of GDP from the current 31 per cent, on the path to Viksit Bharat by 2047.
 
 
For this, the government, the Survey said, needs to accelerate and amplify the deregulation agenda that has been underway in the last 10 years. It would be crucial to reduce the compliance burden, improving investment efficiency and fostering innovation. Moreover, the state governments must adopt risk-based regulations, simplify licensing and enhance business-friendly policies to promote enterprise growth.
 
While we broadly concur with the idea of deregulation and easing the compliance burden, and the potential these measures could have in boosting GDP growth over the medium-term, achieving a sustained growth of over 7 per cent seems quite unlikely in the current global context.
 
We expect India’s medium-term growth potential to be constrained by exports, particularly for the merchandise segment, which would also weigh on the performance of the manufacturing sector. The Survey also acknowledges this by highlighting that given the uncertain global environment and fraught geopolitics, expectations of the external sector's contribution to our economic growth must be realistic. Consequently, we believe that policy must focus on how to increase the market share of a global export pie that may not grow very rapidly.
 
Simultaneously, India has to ensure that it does not over-export precious resources like water (by the way of water-intensive crops) and accentuate negative externalities such as climate change and unacceptably high AQI levels in many cities and regions.
 
Interestingly, the Economic Survey 2025 emphasises the need for continued step up in infrastructure investment over the next two decades to sustain a high rate of growth. However, it stresses that the public sector cannot do this alone and private participation on this account would be crucial.
 
We see this as an acknowledgment of the fact that fiscal constraints would limit the pace of expansion of government capex over the medium term, and the same is unlikely to expand at the rapid pace of 25-30 per cent that was seen during FY21-24, even though some of it was on account of the ‘on-budgeting’ of off-budget capex. However, we remain circumspect of large-scale participation by the private sector in taking on the financial infrastructure creation.
 
On the inflation front, while the Survey does not explicitly spell out projections for the CPI inflation, it highlights that forecasts from the Reserve Bank of India (RBI) and the International Monetary Fund (IMF) suggest that inflation will align progressively with the target.
 
It also emphasises that elevated food inflation in the recent period has largely been concentrated in a few items such as pulses and vegetables. For instance, excluding the three most price-sensitive vegetables (tomato, onion and potato) from the CPI basket, the food and headline inflation prints are substantially lower during April-December FY25. The need for focused research to develop climate resilient varieties, enhance yields and reduce crop damage, to bridge the deficit in some of these crops is also suggested.
 
A dip in food inflation in FY26 is seen, aided by the healthy kharif output for major crops, in line with our own expectations; we expect the average CPI inflation to dip to 4.2 per cent in FY26 from 4.8 per cent forecasted in FY25, entirely on the back of a sharp fall in food inflation.
 
(The writer is the chief economist, head- Research & Outreach, Icra. Views are her own.)

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jan 31 2025 | 3:52 PM IST

Explore News