In News:

• Released on 31st January 2025, a day before the Union Budget.
• Prepared by the Department of Economic Affairs, Ministry of Finance.
• Provides a comprehensive review of India’s macroeconomic trends, sectoral developments, and key policy challenges.
• Real GDP growth estimated at 6.4% in FY25 (close to decadal average); projected between 6.3–6.8% in FY26.
• Reflects India's resilience amidst global slowdown, supply chain disruptions, and geopolitical uncertainties.

Sector-wise Performance

Agriculture:

• Expected growth: 3.8% in FY25.
• Record Kharif foodgrain production: 1647.05 LMT (+5.7% YoY).
• Growth driven by horticulture, livestock, and fisheries.
• Supported by above-normal monsoons and robust reservoir levels.

Industry:

• Estimated growth: 6.2% in FY25.
• Construction, utilities, and mining contribute significantly.
• Challenges: Sluggish export demand, climate disruptions, and festival timing variations.
• Manufacturing PMI remains in the expansionary zone.

Services:

• Robust growth: 7.2% in FY25.
• Services exports up by 12.8% (April–Nov FY25) vs 5.7% in FY24.
• Growth led by finance, real estate, public administration, and professional services.

Inflation and Price Stability

• Retail inflation eased to 4.9% (Apr–Dec 2024) from 5.4% (FY24).
• Food inflation remains high at 8.4%, driven by pulses and vegetables.
• CPI expected to align with RBI's 4% target by FY26.

Investment and Infrastructure

• Capital Expenditure grew 8.2% YoY (Jul–Nov 2024); sustained increase since FY21.
• Infrastructure momentum:
  • 2031 km railways commissioned (Apr–Nov 2024).
  • 17 Vande Bharat trains introduced.
  • Port efficiency improved; container turnaround time reduced from 48.1 to 30.4 hours.
• Renewable energy capacity rose by 15.8% YoY (Dec 2024).

External Sector and Trade

• Overall exports grew by 6% (Apr–Dec 2024); merchandise exports up 1.6%.
• Services exports surged; India now 7th largest globally.
• FDI inflows: $55.6 billion (Apr–Nov FY25), +17.9% YoY.
• Forex reserves at $640.3 billion (Dec 2024), covering 10.9 months of imports and 90% of external debt.
• CAD contained at 1.2% of GDP in Q2 FY25.
• Strong remittance inflows support BOP stability.

Fiscal Health

• Gross Tax Revenue rose 10.7% YoY (Apr–Nov 2024).
• Stable deficit indicators allowed for developmental expenditure.
• State revenue expenditure grew 12%, with subsidies increasing by 25.7%.

Banking, Credit, and Financial Markets

• Gross NPAs dropped to 2.6% (lowest in 12 years).
• CRAR of scheduled banks at 16.7% (Sept 2024), well above regulatory norms.
• Stock market cap to GDP ratio: 136%, higher than China (65%) and Brazil (37%).
• Credit-GDP gap reduced to -0.3% in Q1 FY25 (from -10.3% in Q1 FY23).

Employment and Labour Market

• Unemployment rate declined to 3.2% (2023-24) from 6.0% (2017-18).
• Labour Force Participation Rate (LFPR) and Worker-Population Ratio (WPR) improved.
• Emphasis on AI skill development to future-proof labour markets.

Health, Education & Social Sector

• Government health expenditure rose from 29% to 48% of total health spending (FY15–FY22).
• Out-of-pocket expenditure dropped from 62.6% to 39.4% in the same period.
• Education reforms aligned with NEP 2020 via programs like Samagra Shiksha, DIKSHA, PM SHRI, etc.
• Social services spending grew at 15% CAGR (FY21–FY25).
• Decline in Gini coefficient indicates improving consumption equality.

Policy Recommendations and Reform Agenda

• Deregulation as central theme to boost productivity and EoDB.
• Advocates Ease of Doing Business 2.0, led by states, targeting:
  • Simplification of compliance norms.
  • Risk-based regulation.
  • Reduction in tariffs and licensing hurdles.
• ?50,000 crore Self-Reliant India Fund launched for MSME equity support.
• Need for long-term infrastructure investment to achieve Viksit Bharat@2047.

Global Backdrop

• Global GDP grew by 3.3% in 2023, with an average 3.2% growth projected over next five years (IMF).
• Weak global manufacturing; services sector remains stronger.
• Risks: Geopolitical tensions, trade policy fragmentation, energy transition dependence on China.

Way Forward

• Balanced outlook for FY26 with upside from:
  • Strong rural demand.
  • Agricultural recovery.
  • Easing food inflation.
• Challenges include:
  • Geopolitical tensions.
  • Global trade and commodity price volatility.
  • Delay in private investment materialisation.