New Delhi: India’s economy is projected to grow between 6.3 per cent and 6.8 per cent in FY26, according to the Economic Survey 2024-25, tabled in Parliament on Friday.
The survey highlights that the country’s economic fundamentals remain strong, supported by a stable external account, fiscal consolidation, and private consumption.
It noted that the government plans to strengthen long-term industrial growth by focusing on research and development (R&D), micro, small, and medium enterprises (MSMEs), and capital goods.
However, the country’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.
“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.
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.
The survey also highlighted significant growth in the formal employment sector. Net Employees’ Provident Fund Organisation (EPFO) subscriptions have more than doubled from 61 lakh in FY19 to 131 lakh in FY24.
It said, “The formal sector in India has seen significant growth, with net Employees’ Provident Fund Organisation (EPFO) subscriptions more than doubling from 61 lakh in FY19 to 131 lakh in FY24.”
The Economic Survey presents a positive outlook for India’s economic growth in FY26, backed by strong macroeconomic fundamentals, rising formal employment, and stable external reserves.
However, risks such as global uncertainties, adverse weather events, and international price fluctuations remain key challenges for the economy in the coming year.