On economic performance
This Economic Survey symbolises the key message that we have on the importance of manufacturing and exports for India’s growth in a very fragmented world and a fractious global environment. The presentation takes you through five parts: our current economic performance; our priorities for the next 25 years; how we are going to pursue them in the global context which is somewhat unpredictable and even dangerous; what kind of preparations we need to make to be able to achieve our priorities; and conclusion.
First, India is indeed an oasis of macro stability in an otherwise turbulent world. The International Monetary Fund has forecast 7.3% growth for India for this fiscal, and the statistics ministry has pegged it at 7.4%. In fact, the Fund has forecast 6.4% growth for the next two years-FY27 and FY28.
If we are able to achieve manufacturing and export competitiveness and pursue further process reforms in the areas of land and cost subsidisation, the potential 7% growth can even rise to 7.5-8% in the next few years.
On rupee undervaluation
Of course, it does not hurt to have an undervalued rupee in these times, as it offsets to some extent the impact of higher American tariffs on Indian goods, and there is no threat of higher inflation from higher-priced crude oil imports now. However, it does cause investors to pause. Investor reluctance to commit to India warrants examination.
On fiscal indiscipline by states
The goal is to cut the combined fiscal deficit of the Centre and states to about 6% in the medium-to-long term. The unconditional physical transfers that many states are pursuing today do have a useful short-term role. However, sustaining growth requires careful re-prioritisation within revenue spending by states so that short-term income support does not erode the very investments on which inclusive, medium-term prosperity ultimately rests.
So, any fiscal indiscipline at the state level is also lately casting a shadow on the sovereign borrowing cost. The 10-year union government security yield is 6.7% and a similarly rated Indonesian 10-year one is about 6.3%. Global investors look at the general government deficit. That is why it’s important that states also begin to walk on the path of fiscal consolidation.
On impact of US deal on growth
We have signed a number of free trade agreements, the most recent being with the EU; of course, it will take a year or so to get ratified and then be effective. So the 7% medium-term growth projection doesn’t necessarily depend, to a large extent, on the tariff situation resolution (with the US) because at this stage, we don’t know the timelines attached to it. But if it happens, it will definitely further bolster the chances of achieving 7% growth or even better.
On private investment & growth
It’s important to realize the gross fixed capital formation to (nominal) GDP ratio of 30% isn’t entirely due to the public sector. The private sector capital formation growth may not be at the level that we saw between 2003 and 2008, when it was a different world. That’s why we are not going back to the 8.5-9% economic growth projection over the medium term. So, the kind of growth composition that we have (forecast) is feasible with the current level of the private and public sector capital formation. Whether it requires public capex at more than 3% of GDP or less in some specific years-those are things we need to calibrate based on the prevailing situation at that point.
On global environment
We have done well; we are doing better, post-Covid. But the world is more unpredictable and dangerous. We have promises to keep and miles to go before we can sleep. We have to reimagine the way we are organised as a state and function. Businesses and households have to internalise their responsibilities. We have to be patient and embrace delayed gratification. We have to become strategically indispensable.