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Economic Survey- 2025-26

3rd Feb,2025
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Economic Survey 2025-26

V. Anantha Nageswaran
Chief Economic Advisor
Government of India
January 31, 2025

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Driving domestic growth and resilience�through deregulation

Lowering the cost of business through deregulation will make a significant contribution to accelerating economic growth and employment amidst unprecedented global challenges.
2024 was a year of elections. Three big democracies went in for elections: India, America and Indonesia:
Only Modi Saheb survives
POTUS of USA changed�Indonesia government changes

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Driving domestic growth and resilience�through deregulation

Europe faces both political and economic uncertainties.
Europe’s biggest economic engine, Germany, experienced economic contraction for two successive years. Political uncertainty too, is a factor since elections are due to be held in February this year.
France has had political uncertainty due to developments in the wake of the snap elections called there.
The United Kingdom had a change of government. After a long gap, the Labour Party came into office amidst fiscal pressures and a slowing economy.
In general, Europe is facing competitiveness pressures amidst much higher energy costs caused, in part, by the transition towards renewable energy.
To a large extent, these developments have affected the global economy.
The Index of Global Economic Activity of the Federal Reserve Bank of Dallas has been volatile since the pandemic began slowing at the end of 2023

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Driving domestic growth and resilience�through deregulation

The reopening of the Chinese economy after the Covid shutdown has not led to a spurt in economic growth rate as overcapacity and financial strains in the real estate sector have come to the fore.
Due to weak aggregate demand, the economy is in deflationary mode.
The absence of a significant policy stimulus to boost domestic consumption means excess capacity spills over into external markets. Chinese exports are thriving. China’s trade surplus in 2024 was nearly one trillion US dollars.

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Driving domestic growth and resilience�through deregulation

India’s youth population is an advantage, but come with lots of responsibility.
China’s manufacturing colossus is incomparable with India/European countries
India faces limitations in producing critical goods at the scale and quality required to serve the infrastructure and investment needs of an aspiring economy. For instance, India has low production capacity in the solar energy sector for key components like polysilicon, ingots, and wafers. The production capacity of monocrystalline silicon ingot is expected to quintuple by 2025 from 2 GW in 2023, but it won’t be enough to meet the demand in the country. Several solar equipment manufacturers in the country significantly depend on Chinese supply chains and related services. The single-source concentration risk in several product areas exposes India to potential supply chain disruptions, price fluctuations and currency risks. India’s task is cut out.

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Driving domestic growth and resilience�through deregulation

Fossil fuel is gone.
Energy security and Energy affordability needs to be focused.
E-vehicles and public transport only helps to reduce the energy requirements.
India’s youth needs to be skilled develop to use new environment.
This includes establishing Artificial Intelligence Centres of Excellence (CoE) at top educational institutions across India and the announcement of a ₹1 lakh crore financing corpus to catalyse private sector innovation and R&D in sunrise sectors.
Achieving competitiveness will be an incomplete project without raising productivity in the primary sector. As we wrote in the Economic Survey 2023-24, the agriculture sector needs to be freed, empowered and emboldened to diversify away from water-dependent crops.
Simultaneously, irrigation cover has to rise. Agricultural research will need a leg up. Much more can be done. Farmer support policies can benefit from a perusal of a report that the OECD put out in November.

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Driving domestic growth and resilience�through deregulation

Government wants as a policy not to interfere in the business until found guilty.
The business will be allowed to grow as if they are innocent.
“Getting out of the way” and allowing businesses to focus on their core mission is a significant contribution that governments around the country can make to foster innovation and enhance competitiveness.
The Government chart out a philosophy for “Vikshit Bharat-2047”
On the basis of which public, industrialist, policy implementers and law makers will understand each other for growth of India.
So, Government plants to regulate with possible and is aware of effect of regulation as well as not regulating creates adverse effects on the community.

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Driving domestic growth and resilience�through deregulation

Similarly, if India were to realize the vast potential of its youthful population, their mental, emotional and physical health need to be nurtured.
Scientific evidence abounds that the consumption of ultra-processed foods (High in Fat, Salt and Sugar or HFSS) is a big factor in undermining both physical and mental health.
In this regard, globally, self-regulation has been ineffective.
Stringent front-of-the-pack labelling rules are needed and to be enforced.
It is not an exaggeration to suggest that the country’s future growth potential rides a lot on this measure.
According to a WHO report published in 2023, India’s consumption of ultra-processed foods shot up from about USD 900 million in 2006 to over USD 37.9 billion in 2019.
That is an annual compounded growth rate of over 33%.
It is unclear if India has clear front-of-the-pack labelling stipulations for HFSS food.

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Driving domestic growth and resilience�through deregulation

In the Economic Survey 2023-24, in the chapter on the Social Sectors, we focused on the impact of screen time and ultra-processed foods on children.
This time, the chapter examines the impact of work culture, lifestyle and eating habits on mental health.
These are some of the areas where the state has to step in. At the same time, when it comes to higher education, the chapter posits that the implementation of the National Education Policy is held back by regulations that are supposedly voluntary but effectively mandatory.

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Driving domestic growth and resilience�through deregulation

Further, the chapter delves into the policy priorities for women, farmers, youth and the poor.
Facilitating their productive and enhanced participation in economic activity is the litmus test of inclusive development policies.
Investment in education, skill, and physical and mental health will be the focus for the youth of both genders.
The poor will be provided targeted support to improve their livelihoods and opportunities to move from the periphery to the center of economic activity.
It is about finding pathways for advancing their income and living standards through empowerment.
For women, governments around the country will have to eliminate legal and regulatory hurdles that hold back their participation in the labour force besides undertaking facilitative measures. In other words, governments must get out of the way of women joining the workforce.

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Driving domestic growth and resilience�through deregulation

The chapters on the Industrial Sector and Employment and Skill Development bat for deregulation to boost capital formation and accelerate employment and output growth.
In particular, the chapter on Industries notes the positive correlation between states that score on the ‘Ease of Doing Business’ parameters and the level of industrial activity.
States that aspire to raise their industrialization quotient know what they need to do. At the same time, the chapter celebrates the success story of the Production-Linked Incentive Scheme in air-conditioners, which is a story of successful indigenization through government intervention.

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Driving domestic growth and resilience�through deregulation

The chapter on external sector developments wades into the challenges that India will face in the near future, such as the threat of restrictive trade policies that the European Union has initiated in the name of avoiding carbon leakage and saving the forests of the world.
These have the potential to restrict India’s exports and widen the current account deficit at a time when the net foreign direct investment into India is declining because of successful exits by foreign investors, incentives given by many governments for investments to stay onshore and higher interest rates in hard currencies.
Therefore, the chapter raises the question of whether India’s sustainable current account deficit is lower than previously estimated.
That has implications for capital formation and investment efficiency or lowering the incremental capital-output ratio.
In that sense, this chapter provides a neat segue for the domestic issues covered in later chapters.

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Driving domestic growth and resilience�through deregulation

The external factors always have challenges like import restriction, tariff war, colonization so and so forth…
The above factors raises current account deficit in India and vulnerable too.
FDI is getting tougher and tougher because other country also allow easy exit.
Only way for India is to reduce the cost of manufacturing, cost of transportation and increase consumption.
The other way is effective use of demonstration of military power which USA has established allowing our colonial growth.
The other way is R&D, research in pharmaceuticals, Hi-end products, tourism, Medical tourism and so and so forth… creating a power which China has done in manufacturing sector.

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Driving domestic growth and resilience�through deregulation

There is a mention on Artificial Intelligence (AI) and its implications for employment generation in India is a brave attempt on our part to put forward some hypotheses on whether the technology would be hugely and adversely disruptive to employment.
It suggests with all humility tentatively that some of the fears might be misplaced.
The chapter does not answer the question of whether the problems that the world faces need a technological solution, such as artificial intelligence.
Technologists would scoff at such a question.
They would counter that technology evolves due to the creative ingenuity of humans and that applications follow.

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Driving domestic growth and resilience�through deregulation

Further, given the rapid ageing in some societies, this was perhaps a welcome development for them.
It may not be so for all countries.
Particularly so for a labour-rich country like India.
Therefore, policymakers in those countries have to question whether AI is necessary.
If the answer is unclear, it warrants closer scrutiny of its costs and benefits with necessary follow-up action.
Even in countries where AI may fill the shrinking labour force, AI’s enormous demand for water and electricity is slowly coming into view, much to the bewilderment of policymakers.
Therefore, whether the world is better or worse off with AI is not easily answered now.

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Driving domestic growth and resilience�through deregulation

The topic of climate change and energy transition, as well as their international implications and linkages, has figured prominently in the last couple of editions of the Economic Survey.
It is no different this time.
The topic will be with us at least for another decade or two.
This is another area where the government is front and center, and the private sector will be somewhat peripheral since public goods are not the private sector’s priority.
Globally, strong evidence is emerging that high and rising dependence on intermittent sources of power, and high energy costs are strongly correlated.

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Driving domestic growth and resilience�through deregulation

Indeed, causality is likely running from the former to the latter and is one of the causes of the rapid and deep slide in industrial production in Germany, as industries, citing higher energy costs, relocate to other places.
Research notes that firm low carbon resources—including nuclear power, bioenergy, and natural gas plants that capture CO2– help reduce the costs of lowering the carbon emission of electricity generation as, without these resources, costs rise rapidly as CO2 limits approach zero.
While global warming warrants energy transition, as Prof. Mike Hulme pithily titled his book, ‘Climate change isn’t everything’.

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Driving domestic growth and resilience�through deregulation

As we noted earlier in this preface - and it is time to conclude it - energy transition plans must be mindful of geopolitical vulnerabilities and avoid deepening India’s dependence on external sources for critical imports. Strategic thinking is warranted.
The two obsessions of the West - the water and power-guzzling AI and energy transition - do not sit well with each other. One has to give.
It appears to be the latter because the more the West (Europe, in particular) goes for wind and solar in its energy mix, the greater the coal consumption in China.
The link between the two runs as follows: the requirement for critical minerals and rare earths rises with the share of renewable energy in the overall energy consumption.

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Driving domestic growth and resilience�through deregulation

China dominates the production or processing of these materials.
Processing requires cheap power.
Otherwise, these inputs would be costlier, making energy transition even more expensive for Europe than it already is.
Cheap power is possible only with coal-fired thermal plants.
So, both are two sides of the same coin, wrote Ed Conway.
This complex interplay makes one thing clear for India.
It has to focus a lot more than it has so far on adaptation than on emission mitigation.
That is the focus of the chapter on Climate and Environment.

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Driving domestic growth and resilience�through deregulation

The first and fifth chapters deal with near-term and medium-term outlooks for the Indian economy.
The first chapter delves more than it normally does on global developments and the risk factors.
That is as it should be, given the state of the world.
The medium-term outlook is an elaborate examination of several of the issues this preface touches upon and, therefore, the need to get the domestic economic engine purring by pulling all the levers of deregulation.
As is the tradition with all Economic Surveys, the first chapter gives our outlook for the real economy growth rate for the financial year 2025-26.

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Driving domestic growth and resilience�through deregulation

I am not going to reveal it here and stop you from flipping the pages further.
You can see the number at the end of the first chapter.
The philosophy behind the growth projection is consistent with the philosophy that the government and the Ministry of Finance have adopted in the last five years with respect to fiscal goals: be realistic and strive harder to do better than that.
The stellar progress in bringing public finances on track in this period is a vindication of this approach.

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Driving domestic growth and resilience�through deregulation

This edition of the Economic Survey does not deal with state capacity issues.
The previous edition published in July 2024 did so.
The demand for state capability and capacity to respond to these developments and make progress on social and economic indicators amidst rising geopolitical conflicts will be unlike anything we have experienced since independence.
Meeting that demand is a priority above all else.

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Driving domestic growth and resilience�through deregulation

The Indian economy is on a steady growth path.
The macroeconomic health checklist looks good.
As the country aims to accelerate its economic growth rate in the coming years, it has the tailwind of strong balance sheets in the domestic corporate and financial sectors.
But, globalization is on the retreat.
Hence, raising the growth average in the next two decades will require reaping the demographic dividend through a deregulation stimulus.
As the Spartans apparently believed, “the more you sweat in peace, the less you bleed in war”. This Economic Survey is all about that, or so we would like to believe.

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Driving domestic growth and resilience�through deregulation

I hope this preface has given you a flavour of this Economic Survey and whetted your appetite to know more about what it packs between the pages.
I am responsible for the views expressed and the errors, if any, committed in this document.
Please let us know what you think of the former and point out the latter.
We promise to get better at each outing.
As always, putting it and pulling it all together is a labour of love and a Yagna. Making the changes happen in reality is a Sadhana.

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