Summary of Economic Survey

Summary of the key points from the Economic Survey 2025

The Economic Survey 2025, presented by Finance Minister Nirmala Sitharaman, provides a detailed analysis of India's economic performance over the past year and outlines key projections and policy suggestions for the upcoming financial year. The survey, prepared under the leadership of Chief Economic Adviser Dr V Anantha Nageswaran, highlights several critical aspects of the Indian economy.

Economic Growth: India's economy is projected to grow by 6.6% in FY25, which is attributed to strong private consumption and investment. This growth is supported by government policies that encourage economic activities, investments in infrastructure, and reforms aimed at improving the ease of doing business.

Inflation: Food inflation remains high due to supply disruptions, with the Consumer Food Price Index (CFPI) rising to 8.4%. This is primarily driven by adverse weather conditions affecting crop yields, supply chain issues, and increased demand for food products.

Global Trends: On the global front, inflation has eased from previous highs, but risks persist due to geopolitical tensions, such as trade conflicts and instability in certain regions, and central bank policies that impact global financial markets.

Sector Performance: All major sectors of the economy—agriculture, industry, and services—are performing well. Agriculture, in particular, has been thriving above its trend levels, supported by favourable monsoon rains and government initiatives aimed at improving agricultural productivity.

Capital Expenditure: Capital expenditure (capex) has seen an 8.2% growth between July and November 2024. This indicates robust investment in infrastructure projects, machinery, and equipment, which is expected to further drive economic growth and development.

GDP Growth: Real GDP growth for FY25 is estimated at 6.4%. This reflects stable economic performance despite global challenges such as fluctuating commodity prices and geopolitical uncertainties. The government's focus on structural reforms and investment in key sectors contributes to this growth.

Fiscal Deficit: The fiscal deficit is projected to be 4.9% of GDP, which indicates the gap between the government's revenue and expenditure. Efforts are being made to reduce the fiscal deficit over the coming years through better fiscal management and increased revenue generation.

Urban Demand: Strong urban demand has led to increased housing rents and healthcare expenses. This is driven by higher disposable incomes, urbanisation, and improved access to credit, which have boosted consumer spending on housing and healthcare services.

Weather Impact: Extreme weather events, such as unseasonal rains and heatwaves, have significantly impacted agricultural output. This has contributed to food price pressures and variability in crop yields, making it challenging for farmers and affecting overall food supply.

Government Interventions: To stabilise food prices, the government has released buffer stocks of essential commodities and invested in cold storage and logistics infrastructure. These measures aim to ensure a steady supply of food products and reduce price volatility.

Core Inflation: Core inflation, which excludes volatile food and fuel prices, eased to 4.1%. Despite this overall reduction, the cost of services such as housing, healthcare, and education continued to rise. These sectors faced higher demand and supply constraints, contributing to the persistent increase in prices.

Retail Inflation: Retail inflation, measured by the Consumer Price Index (CPI), averaged 5.4% during FY25 (April-December). This reflects the combined effects of various factors, including elevated food prices, increased service costs, and global commodity price fluctuations.

Global Inflation: Globally, inflation has eased from the peaks seen post-pandemic. This can be attributed to the stabilisation of supply chains, lower energy prices, and monetary policies aimed at controlling inflation. However, risks remain due to ongoing geopolitical tensions and economic uncertainties.

US Inflation: Inflation in the United States declined to 3.4% by the end of 2024. This decrease was driven by lower energy costs, improved supply chain conditions, and the Federal Reserve's monetary tightening policies. The easing of inflation provides some relief to consumers and businesses alike.

Eurozone Inflation: The Eurozone's inflation rate fell to 2.9%, primarily due to lower energy prices and weak demand. The European Central Bank's monetary policy and lower global commodity prices also contributed to the reduction in inflationary pressures.

Rupee Depreciation: The Indian rupee depreciated by 4.5% against the US dollar over the year. This depreciation can be linked to various factors, including global economic conditions, fluctuations in capital flows, and the strength of the US dollar.

RBI Policy: The Reserve Bank of India (RBI) maintained a steady repo rate of 6.5% throughout most of 2024. This policy aimed to anchor inflation expectations and ensure economic stability. By keeping the repo rate unchanged, the RBI sought to balance growth and inflation objectives.

Supply-Side Measures: To stabilise staple food prices, the government released 5 lakh tonnes of wheat and rice from buffer stocks. These supply-side measures were intended to address food price volatility and ensure adequate availability of essential commodities in the market.

Food Processing Sector: The government introduced a Rs 10,000 crore incentive for the food processing sector. This initiative aims to strengthen long-term food supply chains, enhance processing infrastructure, and promote value addition in agriculture. The incentive is expected to improve food security and create job opportunities.

Housing Rents: Housing rents increased by 12% due to strong urban demand. The rise in rents is driven by factors such as urbanisation, higher disposable incomes, and limited housing supply in urban areas. This trend underscores the need for policies that address affordable housing and urban planning.

Healthcare Expenses: Healthcare expenses rose by 6.5%, primarily driven by increased costs of medical treatments, drugs, and healthcare services. The rise can also be attributed to higher demand for healthcare services due to urbanization and greater awareness of health issues.

Vegetable Prices: Tomato prices soared by 37% during peak summer due to heatwaves that adversely affected crop yields. Extreme temperatures led to reduced tomato harvests, creating supply shortages and driving prices up significantly.

Onion Prices: Onion prices remained 20% above their five-year average following unseasonal rainfall. The erratic weather patterns disrupted the sowing and harvesting cycles, leading to supply shortages and increased prices.

Crop Area Damage : Over the past three years, there was a 15% increase in crop area damage due to erratic weather. Unpredictable weather conditions such as heavy rains, droughts, and heatwaves have caused significant damage to crops, impacting agricultural productivity and farmer incomes.

Global Commodity Prices: A decline in global commodity prices, especially crude oil, provided some relief to the economy. Lower crude oil prices helped reduce the cost of imports, easing inflationary pressures and improving the trade balance.

Economic Stability: Despite global uncertainties, India's economy is expected to remain stable. Factors contributing to this stability include strong domestic demand, robust industrial and agricultural performance, and effective government policies aimed at sustaining growth and managing inflation.

GDP Forecast: GDP growth for FY26 is forecasted to range between 6.3% and 6.8%. This growth projection is based on continued investments in infrastructure, favourable demographic trends, and policy measures aimed at enhancing productivity and economic resilience.

Sectoral Growth: The industrial sector has surpassed pre-pandemic growth levels, driven by increased manufacturing activity, infrastructure development, and government initiatives to boost industrial production. The sector's recovery has been a key contributor to overall economic growth.

Services Sector: The services sector has reached its trend growth levels, supported by strong demand for IT services, financial services, and other professional services. The sector's performance has been buoyed by digital transformation, increased consumer spending, and global demand for India's service exports.

Agricultural Growth: Agriculture continues to thrive above trend levels, benefiting from favourable weather conditions, government support programs, and advancements in agricultural technology. The sector's robust performance has contributed to food security and rural income growth.

Retail Investor Base: India's growing retail investor base adds resilience to the stock market. Retail investors, consisting of individual and small investors, have shown increased participation in stock markets. This diversified investor base helps to stabilise the market, reducing dependency on foreign institutional investors.

Market Resilience: Despite foreign portfolio investor outflows, the Nifty 50 index saw only a 6.2% correction. This resilience is attributed to robust domestic investor participation and strong economic fundamentals. The diversified portfolio of Nifty 50 companies has also contributed to maintaining market stability.

US Market Impact: India's stock market is sensitive to downturns in the US market. Given the interconnectedness of global financial markets, any significant downturn in the US market can lead to volatility in Indian markets. This sensitivity underscores the importance of monitoring global economic trends.

US Stock Market: The US stock market saw a 24% gain in 2023 and continued strong performance in 2024. The gains were driven by economic recovery, corporate earnings growth, and positive investor sentiment. The strong performance of the US market has had a positive impact on global investor confidence.

Retail Investor Participation: Individuals invested a net amount of Rs 4.4 lakh crore in the NSE’s cash market segment over the past five years. This significant investment by retail investors highlights their growing confidence in the stock market and their role in providing liquidity and stability to the market.

Geopolitical Risks: Geopolitical risks continue to pose challenges to the global economic outlook. Factors such as trade conflicts, political instability, and international tensions can impact economic growth and market stability. It is crucial for policymakers to navigate these risks to sustain economic progress.

Government Initiatives: Government initiatives aim to improve infrastructure, innovation, and social development. Programs focused on building physical infrastructure, promoting technological advancements, and enhancing social welfare are expected to drive economic growth and improve the quality of life for citizens.

Climate Sensitivity: Emphasis on climate sensitivity and sustainable practices is increasingly important. The government is prioritising policies that address climate change, promote renewable energy, and encourage sustainable agriculture. These efforts aim to mitigate environmental risks and ensure long-term ecological balance.

Healthcare Spending: Increased government spending on healthcare is a key focus. Investments in healthcare infrastructure, accessibility, and quality of care are essential to improving public health outcomes. Enhanced healthcare spending also aims to address challenges such as disease prevention and health equity.

Education System: Focus on improving the education system to support future economic growth. The government is committed to reforms that enhance the quality of education, promote digital literacy, and align curricula with industry needs. These efforts aim to equip the workforce with skills necessary for a competitive global economy.

The Economic Survey 2025 provides valuable insights into India's economic health and outlines a roadmap for sustainable growth. With a focus on innovation, inclusion, and investment, the survey sets the stage for the upcoming Union Budget and highlights the government's commitment to achieving long-term economic prosperity.

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