GDP growth to slow to 6.3-6.8% in FY26; 8% trajectory, reforms crucial for ‘Viksit Bharat’
New Delhi: India’s economy is projected to grow between 6.3 per cent and 6.8 per cent in the next fiscal year, a rate that falls short of the nearly 8 per cent annual growth needed to achieve developed nation status by 2047, according to the Economic Survey tabled in Parliament by Finance Minister Nirmala Sitharaman on Friday. The survey highlighted that while India’s growth remains among the highest globally, a slowdown is evident, necessitating regulatory and policy reforms in key areas such as land and labour to sustain momentum.
Chief Economic Adviser V Anantha Nageswaran stated that rural demand, supported by improved agricultural output, easing food inflation, and stable macroeconomic conditions, could bolster short-term growth. However, he cautioned that global trade uncertainties and potential commodity price fluctuations could pose risks. The survey noted that achieving the long-term goal of a developed economy requires boosting the investment rate to 35 per cent of GDP from the current 31 per cent. The International Monetary Fund (IMF) projects India to reach a $5 trillion economy by FY28 and $6.3 trillion by FY30, with an annual nominal growth rate of 10.2 per cent in USD terms.
The report underscored the importance of deregulation and reducing compliance costs to enhance economic efficiency. It argued that excessive regulation hampers competition and innovation, drawing comparisons with nations such as Germany, Switzerland, Japan, and Singapore, where a robust SME sector has played a critical role in economic success. The survey recommended that states take the lead in liberalising regulatory standards and streamlining approval processes to improve the ease of doing business.
Inflation trends were another focal point, with expectations that food inflation would ease in the January to March quarter due to seasonal factors and new crop arrivals. Retail inflation was projected to progressively align with the Reserve Bank of India’s target of 4 per cent. The survey, however, warned that inflation risks remain due to potential weather-related disruptions and fluctuations in global commodity prices. India’s retail inflation stood at 5.2 per cent in December 2024, with food inflation remaining elevated at 8.39 per cent.
On the external front, merchandise exports have exhibited moderate growth amid a global demand slowdown, while strong domestic consumption has fuelled imports. The survey called for a strategic trade roadmap to navigate increasing global protectionism and shifting trade dynamics. The financial sector has remained resilient despite global uncertainties, with improved banking profitability and narrowing gaps between credit and deposit growth. Capital markets have played an expanding role in capital formation, with IPO listings rising sixfold between FY13 and FY24, largely driven by young investors.
The survey reiterated that sustaining high economic growth over the next two decades requires systematic reforms across various sectors. It proposed expanding the manufacturing sector, investing in emerging technologies such as AI, robotics, and biotechnology, and improving the quality of education. It emphasised that India must generate 78.5 lakh non-farm jobs annually until 2030-32 to support economic aspirations and achieve full literacy. Infrastructure development at scale and speed was identified as another critical factor in achieving long-term growth targets.
Highlighting the need for states to drive regulatory changes, the survey suggested that the Ease of Doing Business (EoDB) 2.0 initiative should focus on resolving structural inefficiencies. It recommended revising regulations related to land, labour, and building laws to create a more conducive environment for businesses. The survey noted that achieving an 8 per cent growth rate over the next decade requires consistent infrastructure investments and mobilising additional private sector financing. While infrastructure spending slowed in the first quarter of FY25 due to election-related constraints and monsoon disruptions, capital expenditure picked up in subsequent months, with ministries utilising 60 per cent of budgeted capex by November 2024.
The report also addressed the impact of financialisation on policy and economic outcomes, cautioning against an overreliance on asset price growth. It highlighted that advanced economies have faced challenges due to excessive financial sector dominance, leading to high levels of public and private debt. The survey suggested that India must balance financial sector expansion with economic fundamentals, ensuring that financial incentives align with national growth objectives.
The banking sector has shown stability, with improved profitability and a narrowing credit-deposit growth gap. Liquidity conditions have remained in surplus, and consumer credit has grown significantly over the past decade, increasing from 18.3 per cent of total bank credit in FY14 to 32.4 per cent in FY24. The survey also noted a shift towards non-bank financing, with banks’ share in total credit declining from 77 per cent in FY11 to 58 per cent in FY22, while non-banking financial companies (NBFCs) and bond market financing gained prominence. Equity-based financing has surged, with India leading globally in the number of IPO listings in FY24.
The government’s rural development strategy was also outlined, focusing on infrastructure, sanitation, housing, and financial inclusion. The survey reported that 8,34,695 km of rural roads have been sanctioned under the Pradhan Mantri Gram Sadak Yojana, with 7,70,983 km completed. Since 2016, 2.69 crore houses have been built under the Pradhan Mantri Awas Yojana-Gramin, and over 12.2 crore households have received tap-water connections under the Jal Jeevan Mission. The SVAMITVA scheme has advanced the digitisation of land records, improving land management and individual economic empowerment.
Employment and income distribution trends were another key area of analysis. The survey highlighted disparities between corporate profitability and wage growth, noting that while corporate profits reached a 15-year high in FY24, employment growth remained subdued. The Nifty 500 profit-to-GDP ratio rose from 2.1 per cent in FY03 to 4.8 per cent in FY24, the highest since FY08. While listed companies saw a 22.3 per cent rise in profits in FY24, employment increased by only 1.5 per cent. The survey warned that stagnant wages could suppress demand and impede economic expansion, calling for balanced income distribution to sustain long-term growth.
Drawing lessons from Japan’s post-war economic trajectory, the survey pointed out that Japan’s development model was characterised by a social contract among the government, businesses, and workers. Japanese corporations reinvested in productivity improvements, shared gains with workers, and maintained restrained executive compensation, while the government invested in top-tier infrastructure. The report suggested that similar strategies could aid India’s long-term economic ambitions.
The survey emphasised that policy continuity, infrastructure investments, and regulatory reforms remain essential for achieving sustained high growth. It underscored the necessity of fostering a conducive business environment, strengthening financial stability, and enhancing workforce productivity to meet the goal of becoming a developed economy by 2047.
