A few days ahead of the Interim Union Budget 2024, the finance ministry on Monday released a report titled ‘Indian Economy — A Review’, saying the Indian economy is expected to grow at a rate above 7% in coming years
The growth will be riding on the strength of its financial sector and other recent and future structural reforms and can aspire to become a $7 trillion economy by 2030.
“In the next three years, India is expected to become the third-largest economy in the world, with a GDP [gross domestic product] of $5 trillion. The government has, however, set a higher goal of becoming a ‘developed country’ by 2047,” said the report.
Importantly, the report indicates continuity in economic reforms if the Modi government comes to the power for a third-term.
Accounting for the two terms of the Modi government, the report said, “This 10-year journey is marked by several reforms, both substantive and incrementa. These reforms have also delivered an economic resilience that the country will need to deal with unanticipated global shocks in the future.”
India, which was the 10th largest economy in the world with a GDP of $1.9 trillion at current market prices, is now the 5th largest with a GDP of $3.7 trillion (est. FY24), despite the Covid pandemic and “despite inheriting an economy with macro imbalances and a broken financial sector”, it said.
“The strength of the domestic demand has driven the economy to a 7% plus growth rate in the last three years… the robustness seen in domestic demand, namely, private consumption and investment, traces its origin to the reforms and measures implemented by the government over the last 10 years,” the report added.
The government’s policies also strengthened the supply side with investment in physical and digital infrastructure to boost output.
“Accordingly, in FY25, real GDP growth will likely be closer to 7%,” it said.
Despite global headwinds such as conflicts in Ukraine and Gaza and the Red Sea trade disruption, India’s first advance estimates of growth released on January 5 projected a higher-than-expected GDP growth of 7.3% in FY24.
The report further highlighted that finally, the overall investment climate is increasingly becoming more favourable with sustained enhancement in the ease of doing business.
Further, the ministry’s report said the collaboration between the Centre and states would help in accelerating India’s growth and making it more equitable.
“The reforms will be more purposeful and fruitful with the full participation of the state governments. The participation of the states will be fuller when reforms encompass changes in governance at the district, block, and village levels, making them citizen-friendly and small business-friendly and in areas such as health, education, land and labour in which states have a big role to play,” it said.
The report , however, pointed at some challenges, mostly external. “Only the elevated risk of geopolitical conflicts is an area of concern,” it said.
It highlighted that in order to accelerate growth, the government must focus on future reforms in areas such as skilling, learning outcomes, health, energy security, reduction in compliance burden for micro, small and medium enterprises (MSMEs), and gender balancing in the labour force.
The report does not, however, replace the Economic Survey, V Anantha Nageswaran, the chief economic adviser (CEA) in the finance ministry said.
“That will come before the full budget after the general elections,” he said.
The full Budget for FY25 is expected to be presented after the 2024 general elections in July as an interim Budget is only a Vote on Account, presented in an election year to cover expenditure for a brief period to keep the government functioning.