What Economic Survey 2024-25 says on 7 challenges facing the government

1. Growth

According to the Economic Survey, the Indian economy is projected to grow between 6.3% and 6.8% in 2025-26, against an expected growth of 6.4% in 2024-25. The continued subdued growth is attributed to below trend level global growth rate and global excess capacities in sectors like steel, dampening domestic output. In addition, the Survey also cites a slowdown in capital expenditure by the government and private sector in the current fiscal as reasons for the lower-than-expected growth rate.

For India to achieve developed nation status by 2047, the Survey says: “This would entail sustained growth to close to 8% every year for at least a decade." An essential requirement would be an investment rate of 35% of GDP, as against the 31-33% band it has been stuck in. The survey recommends deregulation as one focus area to achieve higher growth, adding that states that have enacted reform measures in the last decade have reaped higher growth.

2. Consumption

The big challenge facing the economy was weak consumption growth, which is also the biggest contributor to the GDP. On this front, there seems to have been an uptick. In 2023-24, consumption growth in the economy had fallen to levels that were last seen in 2002-03. According to the first advance estimates, this has rebounded to 7.3% in 2024-25.

“Private consumption remained stable, reflecting steady domestic demand," says the Economic Survey, adding that, “indicators such as 2-wheeler and 3-wheeler sales and tractor sales signal that rural demand contributed to private consumption growth." However urban demand is a different story, as the Survey admits, with growth in passenger vehicle sales slowing to 4.2% in April-November 2024, compared with 9.2% in the same period of 2023. FMCG sales in urban areas too have recorded modest growth.

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3. Investments

Investments is basically companies set up new factories and units, something that has a multiplier effect on jobs and consumption. In 2024-25, GDP growth in real terms slowed to 6.37%, its slowest since 2014-15 (excluding the covid outlier year of 2020-21). According to the Survey: “the moderation in real GDP growth can be traced to a softening of growth in gross fixed capital formation (i.e investment)."

Further, the first quarter of 2024-25, “…witnessed a slowdown in capital expenditure across different levels of government on account of the conduct of the general elections. Private sector investment growth may have remained subdued thus far in FY25 on account of the domestic political timetable, global uncertainties and overcapacities."

Additional reasons for the investment slowdown, according to the Survey include a slowdown in house construction by households. As a share of GDP, investment has remained within a stubbornly narrow range of 33.3%-33.5% after covid. Thus, one of the biggest challenges in recent years, investment in the economy, remains a challenge for the budget.

4. Employment

On the face of it, employment seems to have improved, with the Survey saying that, “India has experienced good employment growth in recent years, following the nation's sustained economic momentum." Labour participation rates among women—the share of overall female population in paid work or looking for paid work—has also increased, from 23.3% in 2017-18 to 41.7% in 2023-24, as per the Survey.

However, the Survey’s own data points to the fact that a huge chunk of that extra employment for women has been generated in agriculture, a sector that has grown in low single-digits over this period. The share of women employed in agriculture in 2023-24 was 64%, up from 57% in 2017-18. Thus, women have shifted back to agriculture en masse, with the share of women workers in manufacturing and services falling. Further, real wages for both men and women in salaried employment have actually declined between 2017-18 and 2023-24, as per the Survey.

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5. Services

While recognising the big contribution of the services sector to economic growth, the Survey recognises the challenges ahead, including the growing use of artificial intelligence (AI) across sectors. “It is widely believed that the manpower (and sectors) with suitable digital and technical skills stand to benefit from AI penetration," it says. “Hence, one of the primary conditions for manufacturing and service sector progress is the focus on appropriate skilling of the labour force."

This is where the problems arise, since government data for 2023-24 shows that 90.2% of the workforce has equivalent to or less than secondary level of education. This educational skill composition, as a result, leads to most of the workforce (88.2%) being involved in low-competency occupations that require elementary skilled and semi-skilled occupational skills, says the survey. The problem is that low-skill service work is precisely the kind of work that is most at danger of being displaced by AI. Hence, upskilling is critical.

6. Exports

One of the areas of opportunity, as well as solution to its jobs problem, is driving labour-intensive exports. Historically, one of the biggest drivers of employment through exports has been the textiles sector, which is both labour-intensive and operates at scale. In 2023, India exported textiles worth $33.3 billion. But in spite of employing about 45 million people, the Survey says that while textile exports remained resilient during Covid, “their performance has been weak over a decadal timeframe."

It points out that India’s textile production occurs across independent and clustered small and medium enterprises (SMEs) spread across India. This is a contrast to competitors like China and Vietnam, which have “vertically integrated ‘fibre-to-fashion’ firms" that are competitive on cost, maintain quality and are nimble in their respond to market trends. The Survey concludes: “Simplification, consolidation, and elimination of processes that consume the financial and managerial bandwidth of our exporters is a low-hanging fruit. Addressing these challenges can significantly reduce costs and ease the burden on exporters, helping them become more efficient and competitive."

7. Deregulation

In the last five calendar years, Indian industry had to face more new restrictions than the average of 2010-19. According to the Survey, deregulation with an aim to decrease the cost of compliance, especially for small and medium enterprises, can be a growth trigger for the Indian economy.

It cites three examples where deregulation can happen. One, it’s cheaper to run two 150-worker factories than one 300-worker factory because of provisions in the Factories Act, 1948. Two, Indian workers cannot formally work overtime as the law requires employers to pay at least twice the regular wage. Three, a factory owner with a 5,000 sq m plot will be required to “forgo up to 69% of their plot to comply with building standards". The survey says this land cost up to ₹1.58 crore and could have created additional 509 jobs. “The focus on domestic growth levers is not an option but a conclusion. Without deregulation, other policy initiatives will not deliver on their desired goals," the survey said.

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