The latest round of FICCI’s Economic Outlook Survey puts forth an annual median GDP growth forecast for the year 2024-25 at 7.0 per cent.The median growth forecast for agriculture and allied activities has been put at 3.7 per cent for 2024-25. This marks an improvement vis-à-vis growth of about 1.4 per cent reported in the year 2023-24. Ebbing El Nino effect with expectation of a normal southwest monsoon are likely to bode well for agricultural production. Industry and services sector, on the other hand, are anticipated to grow by 6.7 per cent and 7.4 per cent respectively in the current fiscal year.
The present round of FICCI’s Economic Outlook Survey was conducted in the month of July 2024 and drew responses from leading economists representing industry, banking and financial services sector. The economists were requested to share their forecast for key macro-economic variables for the year 2024-25 and for Q1 (April-June) and Q2 (July-September) FY25.
According to the survey results, median GDP growth is estimated at 6.8 per cent and 7.2 per cent in Q1 2024-25 and Q2 2024-25 respectively.
Further, the median forecast for CPI based inflation has been put at 4.5 per cent for 2023-24, with a minimum and maximum range of 4.4 per cent and 5.0 per cent respectively. While food prices remain sticky with inflation inching up in cereals, fruits and milk, the survey participants expect easing of prices in second quarter with kharif output reaching the market.
On RBI’s policy action, economists were of the view that a cut in the repo rate is expected only in the latter half of the current fiscal year as RBI is expected to continue with its cautious approach keeping a close watch on the inflation trajectory. Policy repo rate is forecasted to moderate to 6.0 per cent by the end of the fiscal year 2024-25 (March 2025).
Given the Union Budget 2024-25 will be announced next week, the participating economists were asked to share their expectations from the first major public policy announcement of the new government. The economists anticipated continuity in policy and further momentum in reforms already being undertaken by the government.
On the subject of fiscal management and expenditure, the participating economists mentioned that the government has done a deft job on the fiscal side. It is expected that such prudence will continue as it is important to ensure macro-economic stability. According to economists, government has an opportunity to leverage additional resources from robust tax collections and Reserve Bank of India’s dividend transfer. This fiscal headroom could be used to increase the spend on social sector schemes especially to support the rural economy. On capital expenditure, it was pointed out that the target could be increased but not much deviation was expected from Rs 11.1 trillion figure that was indicated in the interim budget for FY2025.
The survey participants indicated that the focus of the forthcoming budget could be on the following key priorities.
- Taxation reforms: The surveyed economists expected some reforms on the taxation side aimed at stimulating economic growth. Potential revisions in tax rates to boost disposable income and stimulate consumption, particularly for lower income brackets, is anticipated. Further, it was suggested that enhancing limits under Section 80C and similar provisions could encourage long-term savings and investment. Simplification of capital gains tax regime and a framework guiding towards streamlining of GST slabs are also expected.
- Employment generation and skill development: The participating economists indicated that the forthcoming budget is expected to introduce comprehensive measures to boost employment and enhance workforce capabilities. Announcement of an Employment-Linked Incentive Scheme, introduction of an urban counterpart of MGNREGA, increased investments in labour skilling programs and soft infrastructure, and implementation of targeted policies and support systems to increase female labour force participation were some of suggestions highlighted by the surveyed economists.
- Innovation: The Interim Budget announced earlier this year displayed a clear intention towards encouraging innovation and this is expected to continue. The participants expected further details and modalities on the R&D and innovation fund announced in Interim Budget for its effective utilization.
- Sustainable Development: The budget is expected to maintain focus on sustainable development. Incentives for electric vehicles (EVs) and green hydrogen production and energy transition support were the key asks from the participants.
- Agriculture: The agricultural sector is expected to receive much greater attention in the upcoming budget. The economists proposed creation of reform-linked incentives for states to implement agricultural reforms and improve efficiency; increased support for developing weather-resistant crops and implementing adaptive measures against climate effects; measures to improve storage infrastructure; and establishment of a price forecasting mechanism for non-MSP crops to strengthen the agri-supply chain are the other suggestions / expectations shared by the participants.
- Manufacturing: The budget is also expected to keep the focus on creating a more conducive environment for industrial growth. Review of PLI Scheme to include more labour-intensive sectors and component manufacturing; creation of large SEZ-like clusters with liberal land and labour laws in the domestic tariff area; expediting labour law reforms to increase flexibility and competitiveness – were some of the key expectations.
- Housing: Introduction of interest subvention for middle-class housing schemes, potentially administered through agencies like the Housing and Urban Development Corporation Ltd (HUDCO) was a suggestion that came from some of the survey participants.
- MSMEs: Continuation of support for Micro, Small, and Medium Enterprises remains critical. The MSMEs need to grow in scale and size. Leveraging Account Aggregator framework for MSME lending and extended NPA Classification Period (increase from 90 to 180 days to provide financial breathing room) were two key suggestions made for the sector by the surveyed economists.
- Education and healthcare: Increased government spending on health and education sectors to build robust social infrastructure and support long-term economic growth were also listed as a priority by the economists.