Why in the News?
The Budget session of Parliament has started at a time when India’s economic situation is shifting. After four years of strong growth following the pandemic, the economy is slowing down.
What are the key projections for India’s economic growth in FY 2024-25?
- Projected GDP Growth: The National Statistical Office (NSO) has estimated that India’s GDP will grow by 6.4% in FY 2024-25. This figure marks a decline from the 8.2% growth recorded in FY 2023-24 and is lower than earlier forecasts which ranged from 6.5% to 7%.
- Sectoral Performance: The slowdown is attributed to weaker performance in sectors such as manufacturing and services. The first half of FY 2024-25 is expected to see a growth rate of around 6%, necessitating a stronger performance of 6.8% in the second half to meet the annual target.
- Comparative Estimates: While the NSO’s estimate stands at 6.4%, other organizations like the International Monetary Fund (IMF) have projected a slightly higher growth rate of 7%, reflecting differing outlooks on economic recovery and consumer demand.
How does the Economic Survey address challenges such as inflation and global uncertainties?
- Food Inflation Concerns: Despite the overall decline in inflation, food inflation remains a challenge, rising from 7.5% in FY24 to 8.4% in the same period due to supply chain disruptions and adverse weather conditions.
- The survey emphasizes the need for improved agricultural practices and climate-resilient crops to manage these risks effectively.
- Inflation Trends: The survey reports a reduction in retail inflation from 5.4% in FY24 to 4.9% during April-December 2024, indicating a positive trend towards achieving the RBI’s target of around 4% by FY26, contingent on stable global commodity prices and favorable domestic agricultural output.
- Global Economic Uncertainties: The survey highlights that ongoing geopolitical tensions and global trade risks pose significant challenges to inflation management, necessitating careful policy interventions to mitigate potential impacts on the domestic economy.
- Policy Recommendations: To address these challenges, the Economic Survey advocates for strategic policy measures, including enhancing supply chain resilience, improving data collection for better price monitoring, and fostering an environment conducive to investment and growth.
What structural reforms are recommended to enhance long-term economic stability?
- Deregulation and Ease of Doing Business: The Economic Survey advocates for significant deregulation to foster a more conducive business environment. It stresses that the government should “get out of the way” of businesses by minimizing micro-management and enhancing accountability among regulators.
- Empowering Small Firms: Recommendations include empowering small enterprises, enhancing economic freedom, and ensuring a level playing field across sectors to stimulate growth and investment.
- Focus on Domestic Demand: The budget is expected to prioritize boosting domestic demand through increased government spending, particularly in infrastructure and capital projects, as a countermeasure against global uncertainties and inflationary pressures.
Way forward:
- Strengthen Domestic Resilience – Focus on boosting domestic consumption and investment through targeted fiscal measures, infrastructure expansion, and support for MSMEs to counter global uncertainties.
- Enhance Inflation Management – Implement climate-resilient agricultural policies, improve supply chain efficiency, and strengthen monetary-fiscal coordination to maintain stable inflation and ensure sustainable growth.
Mains PYQ:
Q Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India.(UPSC IAS/2022)
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