India is projected to grow at a rate of 7% in the next fiscal year, driven by a strong financial sector and business reforms, according to a review by the economic division of the finance ministry. The review report, presented ahead of the interim budget for fiscal year 2025, also identified priority areas for future reforms. These include education, health, and energy security. The review report expressed confidence in India’s potential to become the world’s third-largest economy with a GDP of $5 trillion in the next three years and $7 trillion by 2030. This growth trajectory is seen as a significant milestone in India’s journey towards delivering a quality life and exceeding people’s aspirations.
The review report also stated that the goal of turning India into a developed country by 2047 is achievable, given the persistent structural and substantive reforms. It highlighted that robust domestic demand, driven by reforms, investment in physical and digital infrastructure, and increasing manufacturing prowess, will continue to spur economic growth going forward. The financial sector, which has rebounded from the bad loan crisis, is expected to provide crucial support to the sustained growth rates.
The review report emphasized that ongoing swift physical infrastructure creation will allow the incremental capital-output ratio to decline, translating private investments into output quickly. At the same time, the rapidly growing digital infrastructure is continuously improving institutional efficiency. The transition from the dominance of public investment to the co-existence of public and private investments has also been acknowledged as a positive development.
However, the review report also highlighted some key challenges. It noted that the era of hyper-globalisation in global manufacturing is over, and exporting one’s way to growth will not be easy, especially with governments pursuing onshoring and friend-shoring of production. The advent of artificial intelligence was also identified as a challenge, as technology may remove the advantage of cost competitiveness that countries (including India) exporting digital services enjoy. The review report further stated that in the short run, there is a trade-off between economic growth and energy transition. Additionally, ensuring a healthy, talented, and appropriately skilled workforce in the domestic industry is another significant challenge.
The regular annual Economic Survey will be released after the elections by the next government, ahead of its full budget. However, the review report sets the stage for future policy reforms and provides valuable insights into the government’s vision for India’s economic growth and development in the coming years.
