By DK Srivastava

According to the Economic Survey, India’s real GDP growth may be in the range of 6.3-6.8% for 2025-26. It prefers to give real GDP growth ranges rather than specific projections. Similarly, a range of 6.5-7% was given in last year’s Survey for 2024-25 growth prospects.

As per the first advance estimates of 2024-25, real GDP growth is estimated 6.4% lesser than the lower bound of the projection given last year.

The likelihood is that in 2025-26, real GDP growth may be closer to 6.3%. This may be realistic. However, for the 2025-26 Budget, what is more relevant is the prospect of nominal GDP growth.

The Survey does not itself give an estimate for nominal GDP growth. Instead, it has referred to the IMF’s nominal growth projections. According to the IMF, India’s nominal GDP is estimated to grow by 10.4% for 2025-26. This implies an implicit price deflator-based inflation of 3.9%.

Accordingly, in the Budget, we may see a growth rate for the Centre’s gross tax revenues in the range of 10-10.5%.

Assessment of general government finances by utilising data given in the appendix tables of the Survey, a positive view of the trends in general government finances, that is, the finance of the Centre and the state governments considered together emerges.

The tax-GDP ratio of the government has also increased from a recent low of 16.1% in 2019-20 to a level of 18.5% in 2023-24 (RE). This was budgeted to further increase to 18.8% in 2024-25 (BE).

Also, the quality of expenditure, particularly that of the Centre, has improved. This is reflected in an improvement in the share of capital expenditure in total expenditure from 15% in 2021-22 to 21.4% in 2023-24.

Alongside, the share of revenue deficit in fiscal deficit has fallen from a peak of nearly 80% in 2020-21 to a level of 46% in 2023-24. Robust government finances would help India negotiate the ongoing global headwinds with a view to achieving its Viksit Bharat target.

Global headwinds and India’s manufacturing prospects

The Survey also highlights the challenges that the current global economic situation poses to India’s growth prospects. It acknowledges that India has a considerable distance to cover in terms of its manufacturing capabilities as the nation has a meagre share of 2.8% in global manufacturing. The corresponding figure for China is 28.8%.

There is also a noticeable tendency amongst major economies for developing inward looking and restrictive trade policies, including imposing high import tariffs. There is, therefore, a need for India to develop carefully calibrated manufacturing and industrial polices where protection is offered with respect to production of final goods while imports are facilitated for inputs and intermediate goods.

Indian manufacturing may focus on strategic sectors, including AI, space, defence and other forward-looking sectors.

Towards Viksit Bharat

The Survey also underlines the need for maintaining a real GDP growth of 8% up to 2046-47 for achieving a developed nation status.

This would call for raising the current nominal investment rate as measured by gross fixed capital formation of 31% to 35%.

Further, there is a need to invest in emerging technologies, including AI, robotics, and biotechnology and also create new non-farm jobs at the rate of 7.85 million annually till 2030 and achieve 100% literacy.

The writer is chief policy advisor at EY India. Muralikrishna Bharadwaj, senior manager, tax and economic policy group, EY India, also contributed to the article. 

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