New Delhi, NFAPost: India’s economic growth remains for a steady trajectory with real GDP expected to grow at 6.4% in FY25 and in the range of 6.3%-6.8% in FY26, reflecting resilience despite global uncertainties.
Agriculture and services have been the primary growth drivers in the first half of FY25, while industrial growth, particularly manufacturing, has been constrained by weak global demand and supply chain disruptions. Given the ongoing geopolitical conflicts, the survey’s growth projection appears realistic.
Rural demand is expected to play a key role in supporting economic momentum, backed by a rebound in agricultural production, easing food inflation, and a stable macroeconomic environment. However, sustained medium-term growth will require structural reforms and deregulation to enhance India’s global competitiveness.
India continues to be a global leader in IT and business services, with the IT/ITeS industry maintaining a prominent position globally. In FY24, the industry generated estimated revenues of USD 254 billion, marking a 3.8% YoY growth (excluding e-commerce). Tech exports reached nearly USD 200 billion, reflecting a growth of 3.3%, while the domestic market is expected to grow by 5.9%, crossing USD 54 billion.
In addition to IT services, there is significant untapped potential in sectors like travel, transport, and financial services. India’s Global Capability Centres (GCCs) are also emerging as key players in reshaping both the Indian corporate landscape and global business dynamics. The number of GCCs in India has grown from approximately 1,430 in FY19 to over 1,700 in FY24, employing nearly 1.9 million professionals.
As India becomes a hub for GCCs and continues to innovate, focusing on skill development and strategic policy interventions will be critical to sustaining growth. Strengthening emerging sectors and enhancing global competitiveness will help India maintain its leadership in the services sector in the years ahead.
While India’s retail inflation moderated from 5.4% in FY24 to 4.9% in FY25 (April-December), food inflation remains a significant challenge, reaching 8.4% in FY25, due to supply-side disruptions, extreme weather events, and logistical inefficiencies. Looking ahead, the RBI projects headline inflation to moderate further to 4.2% in FY26, aided by a projected 5.1% decline in global commodity prices and policy measures such as buffer stocks and import duty rationalisations.
Deregulation key to unlocking economic growth
Viksit Bharat@2047 envisions India as a developed nation by 2047, the centenary of India’s independence. The Economic Survey 2024-25 points out that to achieve developed nation status, India must sustain 8% annual growth for the next couple of decades, raising the investment rate to 35% of GDP. This will require developing the manufacturing sector, investing in emerging technologies like AI and biotechnology, and creating 78.5 lakh new jobs annually till 2030. Structural reforms in the last decade, including GST, the Insolvency and Bankruptcy Code (IBC), and the Real Estate Regulation Act (RERA), have boosted ease of business, digitalisation, and revenue collection.
However, challenges remain, particularly in the MSME sector, which still faces significant regulatory burdens. The existing regulatory framework often discourages growth and innovation, as businesses are incentivised to remain small to avoid compliance complexities. This hampers their access to capital, skilled labour, and technology, creating a cycle of underperformance and missed opportunities for expansion.
Deregulation is positioned as the key lever for achieving the long-term growth aspirations outlined in the survey. This deregulation push, by both central and state governments, includes efforts to digitise systems, streamline processes, and reduce unnecessary barriers that hinder business growth. By enhancing economic freedom and promoting innovation through reduced regulatory constraints, India can empower SMEs, boost competitiveness, and create a thriving business ecosystem.
Artificial Intelligence: balancing opportunities and risks
The advancement of artificial intelligence (AI) is poised to significantly impact labour markets worldwide, with OpenAI expecting to have office-ready AI workers by the end of 2025. Between 2021 and 2023, global corporate investments in AI surged to USD 761 billion, as organisations look to harness the productivity and profitability gains offered. However, this rapid progress also poses risks, with up to 300 million full-time jobs globally exposed to AI-driven automation and 75 million jobs at risk of automation worldwide.
India’s demographic advantage and diverse economic landscape uniquely position it to benefit from AI’s rapid growth. However, this presents both opportunities and risks, necessitating proactive policymaking to ensure equitable growth. Policy recommendations for India emphasise the importance of workforce skilling, prioritising foundational skills over tech-specific training, and fostering collaboration between government, industry, and academia. Regulatory frameworks should balance innovation with accountability and worker protection.
Reviving FDI: enhancing efficiency amid global challenges
FDI inflows in India are showing signs of revival in FY25, although net FDI inflows have declined due to higher repatriations and disinvestments. Nevertheless, since April 2000, cumulative FDI inflows have surpassed USD 1 trillion, solidifying India as a major investment hub.
Global factors such as rising interest rates, geopolitical uncertainties, and economic slowdowns have impacted FDI trends worldwide. India must focus on investment efficiency, not just volume. If capital inflows slow, enhancing investment efficiency through deregulation and ease of doing business becomes essential. The Economic Survey highlights deregulation as a key strategy to boost India’s global competitiveness and FDI attractiveness.
India remains an attractive destination for private capital, but investors are likely to adopt a measured approach. Growth opportunities, valuation concerns, and external risks will influence investment decisions. The extent to which the Finance Budget facilitates domestic consumption, industrial growth, and fiscal consolidation will be crucial in sustaining private investment momentum.
Inclusive growth through advancements in social infrastructure
India has made significant strides in social infrastructure, particularly in education and healthcare, with the government steadily increasing social services expenditure (SSE). The Economic Survey shows that SSE has risen from 23.3% of total expenditure in FY21 to 26.2% in FY25, reflecting a strong focus on inclusive growth.
Education and healthcare spending have grown significantly, helping to improve rural consumption and reduce income inequality. The rural-urban consumption gap has narrowed, from 84% in 2011-12 to 70% in 2023-24, highlighting progress in rural areas.
Agriculture and allied activities contribute around 16% to India’s GDP and support 46.1% of the population. Despite progress, the sector faces challenges like weather variability and limited irrigation, with only 55% of the net sown area receiving irrigation. The Economic Survey highlights reduced volatility in agricultural growth but stresses that climate change and water scarcity remain significant obstacles. To address this, the country should focus on aligning practices with regional conditions, investing in climate-resistant crops and micro-irrigation, and promoting digital technologies for productivity.
The survey also advocates for market systems that allow farmers to receive price signals and mitigate risks. It suggests policies to combat soil degradation, conserve water, and reduce resource-intensive crop production. These changes aim to boost productivity, target a 5% growth rate in agriculture, and enhance land and labor productivity, contributing 1% growth to overall GVA.
Welfare programmes like the Public Distribution System (PDS) and direct cash transfers have helped reduce poverty, with 77% of households benefiting. Self-Help Groups (SHGs) are also empowering rural populations, with 37% of households involved and 78% receiving loans. Meanwhile, the government has invested in higher education, increasing enrollment by 26.5% between 2014-15 and 2021-22.
Health expenditure has reached INR 9.04 lakh crore, focusing on improving infrastructure and accessibility. The Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) now covers 12 crore families, while new initiatives, including telemedicine and affordable medicine schemes, are improving healthcare access.
Housing initiatives under the Pradhan Mantri Awas Yojana-Gramin (PMAY-G), scheme have significantly improved living standards, with 88% of respondents reporting a better quality of life. Since 2016, 2.69 crore houses have been built under the and 68,843 water bodies constructed under Mission Amrit Sarovar. These efforts support the Sustainable Development Goals (SDGs) and are backed by initiatives like Mission Antyodaya and the Aspirational Districts Programme.
In education, the National Education Policy (NEP) 2020 has prioritised inclusive learning, with initiatives like NIPUN Bharat addressing literacy. The goal is to increase the Gross Enrollment Ratio (GER) in higher education to 50% by 2035. Social and Emotional Learning (SEL) programmes are preparing students with the skills necessary for modern challenges.
Balancing climate change with economic growth
India’s climate strategy is firmly rooted in its ambitious commitment to achieve net-zero emissions by 2070—a goal intricately linked to its broader vision of becoming a developed nation by 2047. To drive sustainable economic growth, the Indian government has introduced a range of initiatives, such as the Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyaan (PM KUSUM) and the Perform Achieve and Trade (PAT) scheme, aimed at fostering environmental responsibility and shaping economic behaviour. The India-led global movement, Lifestyle for Environment (LiFE), also aims to enhance the country’s sustainability efforts.
Despite these efforts, India remains the seventh most vulnerable country to climate change, even though its per capita carbon emissions are only one-third of the global average. Achieving net-zero emissions will require a comprehensive and forward-looking approach that balances climate action with economic imperatives. In order to achieve its net zero targets, India need a multifaceted approach including both renewable, transition fuels and nuclear power.
India’s shift toward clean energy is already underway. As of 30 November 2024, the country had an installed electricity generation capacity of 213,701 megawatts from non-fossil fuel sources, accounting for 46.8% of its total capacity, with a target of reaching 50% by 2030. Given its expanding energy needs, India must capitalise on its vast resources, technological advancements, and sectoral expertise to accelerate its transformation into a developed economy while maintaining low-carbon emissions.
Investment and infrastructure: keeping it going
Building infrastructure—spanning physical, digital, and social—has been a key priority for the government over the past five years. This focus has driven increased public investment, the establishment of institutions to de-bottle approvals and execution, and the adoption of innovative financing mechanisms.
Between FY20 and FY24, capital expenditure by the union government on major infrastructure sectors grew at a rate of 38.8%, gaining further momentum in FY25 following the elections. Infrastructure-related ministries utilised an average of 60% of their budgeted capital expenditure from April to November 2024.
India’s logistics sector is undergoing a strategic transformation, positioning itself as a critical driver of economic growth. Reducing logistics costs remains a key priority, with the Economic Survey emphasising the need for further infrastructure investments, policy reforms, and private sector participation, especially from large industrial groups and PE players. Capital expenditure on key infrastructure sectors has grown at a rate of 38.8% from FY20 to FY24. India’s ranking in the World Bank’s Logistics Performance Index improved to 38th among 139 countries in 2023.
Ports and Shipping, Civil Aviation, and Railways have made the most progress in infrastructure capital expenditure. Corridor-based approach for national highway development has increased highway length and the use of sustainable construction practices has significantly improved logistic efficiency and safety of road transport. For Railways, network expansion remained steady compared to the previous year, but the addition of rolling stock increased significantly.
Despite strong efforts by the union government—complemented by increased capex from several state governments and public sector undertakings—a significant gap in infrastructure development remains. While such gaps are characteristic of a rapidly evolving economy, India’s vision of Viksit Bharat calls for a steady narrowing of this deficit through innovative financing solutions and enhanced private sector participation.
To sustain high economic growth over the next two decades, India must continue scaling up infrastructure investments. Achieving this will require a well-coordinated effort across all stakeholders, including governments at various levels, financial market players, project management experts, and private enterprises. Additionally, strengthening capacities in project conceptualisation, sector-specific execution strategies, risk and revenue sharing, contract management, conflict resolution, and project closure will be essential to driving long-term infrastructure expansion.
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