Economic Survey: 'Public spending remains a key driver'

India’s Economic Survey 2024 projects a GDP growth rate of 6.3% to 6.8% for FY 2025-26. However, the ground reality presents a different picture with sluggish private investment and slow rural demand recovery. Public spending has remains a key driver, but concerns over its sustainability persist. The Federal’s Editor-in-Chief, S Srinivasan, shares insights on the broader economic outlook, the role of government intervention, and key expectations from the upcoming Union Budget.

GDP growth and consumption trends

The Indian economy has witnessed fluctuating growth, with Q1 of FY 2024-25 recording 6.7% growth, which dipped to 5.7% in Q2. According to Srinivasan, this slowdown is attributed to delayed capital expenditure and lower government spending due to elections. “If we are to achieve the projected 6.3% growth, significant momentum is required in Q3 and Q4,” he notes.

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Consumer spending, which constitutes 60% of India’s GDP, remains weak. Low disposable incomes and lack of confidence among the middle class have contributed to this trend. “The Finance Minister is expected to introduce measures that put more money in the hands of consumers, boosting demand,” he adds.

Global trade slowdown: Can India pivot?

With global trade facing uncertainty, India’s export-driven growth strategy is under scrutiny. Factors such as the potential return of Trump-era tariffs, trade tensions between the US. and China, and geopolitical shifts threaten India’s external trade.

“India is not heavily reliant on exports, but we do need them for foreign exchange reserves,” Srinivasan explains. “If global markets become less accessible, India must explore alternate trade agreements and strengthen its domestic economy to mitigate risks.”

Fiscal discipline and developmental spending

The Economic Survey highlights the government’s commitment to fiscal discipline, with the fiscal deficit expected to be around 4.8%, targeting 4.5% in the near future. However, this raises concerns over developmental spending.

“The government has managed to keep fiscal consolidation on track, but the challenge lies in balancing expenditure,” Srinivasan notes. “There could be more targeted cuts, especially in subsidies, while election-related spending remains a growing concern.”

The increasing trend of government and state-led direct benefit transfers and welfare schemes, often labelled as ‘freebies,’ is under scrutiny. “Despite criticism of ‘revdi culture,’ we see continued spending on social benefits, even during state elections,” he remarks.

The rise of GCCs and AI’s impact on jobs

The Economic Survey highlights India’s potential to become a global hub for Global Capability Centers (GCCs), which include IT services, SaaS, and back-office operations. However, the rise of Artificial Intelligence (AI) presents both opportunities and risks.

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“AI will replace repetitive, low-skill jobs, but GCCs encompass a broader range of functions,” Srinivasan says. “India has the potential to be the back office of the world, just as China became the world’s factory.” While AI may disrupt traditional call-centre roles, other specialized services in the GCC ecosystem could thrive.

What to expect from Union Budget

The upcoming budget must address critical economic challenges:

Boosting Consumer Demand: Tax reliefs or incentives for the middle class to encourage spending.

Investment in Public Infrastructure: Accelerating capital expenditure to drive growth.

Export Diversification: Reducing reliance on traditional markets and exploring new trade avenues.

Balancing Fiscal Deficit: Ensuring targeted spending without compromising economic stability.

Strengthening GCCs & AI Integration: Creating policies that balance AI-driven efficiency with job creation.

With the Finance Minister set to present the budget, the key question remains: Will this be a business-as-usual budget, or will it introduce bold reforms to tackle structural economic challenges?

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