India economy report predicts sluggish growth, pushes for more reforms
India's economy is likely to continue its sluggish pace of growth next fiscal year weighed down by global risks, according to a finance ministry report that has called on states to pursue business reforms to boost economic activity.
The annual Economic Survey, which was presented in parliament by Finance Minister Nirmala Sitharaman, has projected GDP growth at 6.3%-6.8% in the next fiscal year that starts on April 1, with growth set to sag to a four-year low this year from 8.2% last year.
The report on the state of economy, authored by Chief Economic Adviser V. Anantha Nageswaran and his team in the finance ministry, said the risks to India's economic prospects next year are balanced.
"Rural demand backed by a rebound in agricultural production, an anticipated easing of food inflation and a stable macro-economic environment provide an upside to near-term growth," Nageswaran said in the report.
He added geopolitical and trade uncertainties, along with possible commodity price shocks, pose headwinds to the economy.
Early economic growth projections have a patchy record of accuracy. However, this year's growth estimate of 6.4% lands close to Nageswaran's and his team's initial projection of 6.5%-7%.
"The range of growth forecast in the economic survey is appropriate given the global uncertainties," said Aditi Nayar, economist at ICRA, the India arm of Fitch ratings.
ICRA has forecast growth of 6.5% for 2025/26.
Prime Minister Narendra Modi, in his third term's first full budget, is likely to provide support for the world's fifth-largest economy where high prices and tepid wage growth have crimped consumption.
Sitharaman will present the budget for the next fiscal year on Feb. 1 at 0530 GMT.
Economists expect tax cuts to boost the spending capacity of India's large middle class and tariff cuts to encourage local manufacturing.
EASING INFLATION
Food inflation is likely to soften in the January to March quarter as some vegetable prices will ease seasonally along with good crop arrivals, Nageswaran said in the report.
Estimates suggest India's retail inflation will "progressively" align with the central bank's target, he added.
However, any bad weather events and rise in international agricultural commodity prices pose a risk to food inflation, Nageswaran said.
India's retail inflation in December eased to a four-month low of 5.2%. But inflation in food, which account for nearly half of the consumption basket, continued to remain high at 8.39% in December, with vegetable prices rising at an eye-watering pace of 26.56%.
The nation has set a 4% headline inflation target for the central bank's rate-setting panel, with a tolerance band of 2 percentage points on either side.
The panel is expected to cut rates for the first time in over four years at its meeting on Feb 5-7.
DE-REGULATION AS A PRIORITY
While near-term growth is in line with the 10-year average, India needs a growth rate of 8% to meet its longer term economic goals, the survey said. For this, Indian states, along with the centre, must pursue systematic de-regulation as a priority.
Areas in which regulations need to be eased range from land to labour and factories, the survey said.
"Without deregulation, other policy initiatives will not deliver on their desired growth," Nageswaran said.
A weaker manufacturing sector and slower corporate investments are among the factors dragging India's growth to 6.4% in 2024/25.
The nation's regulatory maze is often cited as a weight on private investment plans.
Foreign direct investment in India is plummeting, despite efforts to acquire supply chains moving away from China.
Net foreign direct investment between April and November 2024 in the current fiscal year stood at $479 million, according to data from the Reserve Bank of India, sharply down from $8.5 billion a year earlier.
