(Bloomberg) -- India’s government set a fairly conservative economic growth forecast for the current fiscal year, concerned about mounting global risks.
The economy will likely expand 6.5%-7% in the year through March 2025, the Ministry of Finance said its Economic Survey report released Monday. That compares with 8.2% in the past financial year and the central bank’s projection of 7.2% for the current year.
The report, which is authored by the chief economic adviser’s office, acknowledged that this year’s forecast was on the conservative side, and lower than market expectations. It cited slower investment growth by the private sector as well as uncertain weather patterns as some of the reasons for caution.
The report comes a day before Finance Minister Nirmala Sitharaman gives her budget speech, laying out the economic priorities of a new coalition government under Prime Minister Narendra Modi. She’s expected to trim the fiscal deficit target, possibly cut some taxes and boost welfare spending to shore up support among voters, according to analysts.
Modi must also balance demands from his coalition allies to spend billions of dollars in their states, with pressure from credit rating companies to curb government debt.
The Economic Survey projected India’s economy could expand more than 7% in the medium term, and highlighted several areas where the government should focus its policies:
- Job creation. Agriculture employs more than 45% of the labor force, while 11.4% work in manufacturing. Job growth in manufacturing has been subdued in the past decade
- Improving skills. 65% of India’s population are under the age of 35, but many lack the skills for a modern economy. About 51% of young people are deemed employable
- Increasing the productivity of agriculture
- Easing red tape for small businesses
- Managing the transition to green energy. Raising financial resources for climate change adaptation and mitigation actions is an “unprecedented challenge”
- Consider boosting investment from China while reducing imports from the country
- Deepen the corporate bond market. The market lacks depth since it is dominated by highly-rated issuers and a limited investor base of domestic institutions
- Tackle income inequality. Tax policies will likely play a more important role in the coming years to address gaps
- Improve the quality of health of India’s young population
“We need all hands and approaches on the table to boost growth and generate employment,” V Anantha Nageswaran, the chief economic adviser, told reporters in New Delhi on Monday.
On inflation, the report advocated strengthening price monitoring mechanisms and market intelligence, as well as focusing efforts to increase the domestic production of essential food items like pulses and edible oils. It added that the consumer price index should be revised with fresh weights and items.
Aditi Nayar, chief economist at ICRA Ltd. said the Economic Survey stressed that managing inflation isn’t just the prerogative of the central bank, and “would require active intervention” by the government, especially on food price management.
--With assistance from Anup Roy and Shruti Srivastava.
(Updates with additional details.)
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