Get out of the way of business to speed up growth: Economic Survey tells government

India must fire up domestic growth engines with deregulation and private investments to stay the course at a time when the tide of globalization has gone out, the Economic Survey for 2024-25 said. If India has to achieve its goal of becoming a developed nation by 2047, it must grow at a rate of 8% for at least a decade, the crucial pre-budget document said, amid worries of a slowdown in the backdrop of an uncertain world.

As aggressive trade policies rear their heads overseas, the government should "get out of the way of businesses" to support higher investments that would unleash growth potential and support sustained growth close to 8%, the Survey presented in the Parliament on Friday showed.

Scripted by Chief Economic Adviser V. Anantha Nageswaran and team, the Survey did not mince words about the possibility of Indian exports getting walloped by the evolving trade stance of a few major economies. It pointed to the threat of China remaining the world's manufacturing powerhouse lording over key resources, and India dependent on single sources for several key imports.

All these call for a growth strategy focusing on domestic growth, the Survey pointed out. With net exports in the negative zone, the only engines still firing are government and household spending, and investment in factories.

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Achieving 8% growth will require an increase in the investment rate to around 35% of GDP from the current level of around 31%, the Survey said, referring to the growth models of Japan after the Second World War and of China in the last four decades.

Pay more

In order to boost household spending, the Survey reiterated its last year’s message: businesses swimming in profits should pay more wages.

Corporate profitability soared to a 15-year peak in FY24, fuelled by robust growth in financials, energy, and automobiles, but wages lagged, the Survey pointed out. It said that while corporate India’s profits climbed 22.3% in FY24, employment grew by a mere 1.5%.

“Sustained economic growth hinges on bolstering employment incomes, which directly fuel consumer spending, spurring investment in production capacity. To secure long-term stability, a fair and reasonable distribution of income between capital and labour is imperative,” the Survey said.

“It is essential for sustaining demand and supporting corporate revenue and profitability growth in the medium to long run,” it said.

Growth @6.3-6.8%

The Survey projected the economy to grow between 6.3% and 6.8% in FY26, as its fundamentals remain strong.

The growth projection, which is a range and not a point forecast, and the assessment of 8% sustained annual growth to become a developed nation by 2047 are fairly realistic, said Sachchidanand Shukla, group chief economist at Larsen & Toubro.

The Survey's reform proposals apply to sub-national governments as well. By simplifying regulations, we are lowering the cost of doing business for businesses, Nageswaran said at a media briefing.

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“Undertaking reforms is the sensible thing to do as the confidence of consumers and investors has to be built on a sustainable basis. Union budget is only the starting point of articulating that vision, and it has to be followed up with the required steps,” said Pronab Sen, former Chief Statistician of India.

Reforms, Nageswaran said, “opens up the space for them to hire more, which will lead to income growth and therefore better consumption. That is a very precise recommendation that the Economic Survey is making to governments all around the country," Nageswaran said.

The Survey said rolling back regulation significantly means stopping micromanaging economic activity and embracing risk-based regulations. “That means changing the operating principle of regulations from ‘guilty until proven innocent’ to ‘innocent until proven guilty’.

“As the Survey says, we need to double down on reforms as business-as-usual entails risks of stagnation. We need to work harder on factor reforms and ensure areas like agriculture, land and labour are reformed given that the window of opportunity for India is limited,” said Shukla.

“Growth and profitability are akin to oxygen for businesses, and as these trends are influenced by various factors, it is desirable that businesses are free to exercise their balanced judgement rather than following a policy prescription,” said Shukla.

Pre-budget hints

The Survey’s emphasis on reforms and de-regulation indicates it may resonate in the Union budget to be presented by finance minister Nirmala Sitharaman on Saturday. Prime Minister Narendra Modi said on Friday at the beginning of the budget session of Parliament that the NDA government, in its third term in office, was “moving forward in mission mode towards comprehensive development, be it geographically, socially, or economically.”

The Survey suggested the importance of India diversifying its export markets and increasing market shares, even as ‘friend-shoring’ and ‘near-shoring’ surface in a less open global trade landscape. The trade dependence of Russia and China on the EU, and of US on China, have been declining, the Survey said.

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In the case of deploying artificial intelligence tools too, Nageswaran advocated a judicious approach by businesses, as AI presents both opportunities and challenges for a labour-rich country. Private sector needs to weigh the benefits of AI against its social costs, the Survey said.

Butterfly effect

Reforms, the Survey said, may set off a 'butterfly effect', explaining that small actions can have large consequences. “Small acts of deregulation may set off big waves of entrepreneurship, investment, innovation and growth,” the Survey said. It recommended “grassroots-level structural reforms and deregulation” to reinforce the country’s medium-term growth potential.

India’s economic prospects for FY26 are balanced, the Survey said, identifying geopolitical and trade uncertainties and possible commodity price shocks as headwinds. Domestically, the translation of order books of private capital goods sector into sustained investment pick-up, improvements in consumer confidence, and corporate wage pick-up will be key to promoting growth, the Survey said.

Rural rebound

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, it said.

Food inflation is likely to soften in the fourth quarter of FY25 with the seasonal easing of vegetable prices and Kharif harvest arrivals. Good Rabi production is likely to contain food prices in the first half of FY26. Adverse weather events and rise in international agricultural commodity prices, however, pose risks to food inflation, the Survey said.

Service trade surplus and overseas remittances helped to contain the current account deficit (CAD) somewhat in the second quarter of FY25, when it stood at 1.2% of GDP against 1.3% a year ago. Private transfers, mainly driven by remittances by Indians employed overseas, formed the bulk of net transfers, growing steadily from $28.1 billion in the September quarter of FY24 to $31.9 billion in the September quarter of FY25, reflecting the continued strength of India’s diaspora and robust remittance inflows despite global economic uncertainties, the Survey said.

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It also said caution was needed about a downturn in the US stock market, which impacts the Indian market too, as individual participation in financial markets has deepened. Bank of Baroda said in an analysis shared on Friday that it assumed a GDP deflator of around 3.5% for FY26, which would translate nominal GDP growth to 9.8-10.3% in FY26.

Rhik Kundu, Dhirendra Kumar and Priyanka Sharma contributed to the story.