‘The overarching aim of the Budget was to accelerate growth and push India towards a developed country status’
| Photo Credit: PTI

The Union Budget has got many things right. Its projection of nominal GDP growth for 2025-26, at 10.1%, is reasonable and acceptable. The Economic Survey 2024-25 had indicated a real GDP growth in the range of 6.3%-6.8% for 2025-26. This provides some buffer if growth picks up more. The increase in the capital expenditure of the government in 2025-26 over the revised estimates of 2024-25 is estimated at ₹1.03 lakh crore. But the capital expenditures in 2025-26, at ₹11.2 lakh crore, are nearly the same as was indicated in the Budget of 2024-25 at ₹11.1 lakh crore.

The overarching aim of the Budget was to accelerate growth and push India towards a developed country status. The required rate of real growth to achieve this is estimated differently including a rate of 8% in the Economic Survey for 2024-25. In any case, the country needs a definite pickup in growth rate. The various measures indicated in the Budget are welcome. In fact, some of these could have been implemented even earlier. The concession given to the ‘middle-class’ in terms of income-tax is welcome as a relief. But its impact on demand depends on the marginal propensity to consume of the households who are expected to largely benefit from these concessions and their consumption basket.

Gross tax revenues

Growth in the Government of India’s gross tax revenues (GTR) have trended downwards in recent years. The buoyancy of GTR has fallen for three successive years from 1.4 in 2023-24 to 1.15 in 2024-25 (RE) and then to 1.07 in 2025-26 (BE). As a result, growth in the Government of India’s GTR has kept falling from 13.5% in 2023-24 to 11.2% in 2024-25 (RE), and to 10.8% in 2025-26 (BE). Within the government’s tax revenues, the growth rate of Goods and Services Tax (GST) has also fallen from 12.7% in 2023-24 to 10.9% in 2025-26 (BE).

In fact, the structure of the government’s taxation has moved away from indirect to direct taxes. The share of direct taxes in the government’s GTR has increased from 52% in 2021-22 to 59% in 2025-26 (BE) which is a welcome development. Within direct taxes, however, it is personal income-tax which has performed better than corporate income-tax in terms of growth and buoyancy.

However, even in the case of personal income-tax there has been a fall in growth from 25.4% in 2023-24 to 20.3% in 2024-25 (RE) and 14.4% in 2025-26 (BE). This fall in growth in 2025-26 (BE) is partly due to the announced income-tax concessions. In the case of corporate income-tax, the growth in 2024-25 (RE) is quite low at 7.6%. This growth has been raised to 10.4% in 2025-26 (BE). On the whole, assumptions regarding the government’s tax revenue growth in 2025-26 (BE) appear to be realistic.

In the case of non-tax revenues, the main contribution has been in the form of dividends from the Reserve Bank of India and public sector companies, which together accounted for about ₹3.25 lakh crore in 2025-26 — an increase of ₹35,715 crore over the revised estimates. Thus, the non-tax revenues have been raised from ₹5.3 lakh crore (RE) to ₹5.8 lakh crore in 2025-26 (BE).

Level of government expenditure

Tax and non-tax revenues, non-debt capital receipts and fiscal deficit together determine the size of government expenditure. As discussed, a gross tax revenue growth at a lower level of 10.8% appears to be realistic. Given the commitment to fiscal consolidation, the size of government expenditure as a percentage of GDP had to be reduced from 14.6% in 2024-25 (RE) to 14.2% in 2025-26 (BE). Growth in total expenditure, at 7.6% in 2025-26 (BE), is lower than the budgeted nominal GDP growth at 10.1%.

In fact, this was so even in 2024-25 (RE), when the government’s total expenditure growth was 6.1% as against the nominal GDP growth of 9.7% as per the first advanced estimates. However, there has been a steady improvement in the quality of government expenditure as the share of capital expenditure in total expenditure has been improving. In fact, this share has improved by 10% points over the period from 2020-21 to 2025-26 (BE). Given the contemporary context, the Government of India has to build up large-scale Artificial Intelligence (AI) infrastructure in order to facilitate the adoption of emerging technologies. In this context, China has taken a clear lead. The United States has recently announced an investment of $500 billion for AI infrastructure. In the field of AI, India’s technology companies have failed to anticipate developments. India should have done what China did. Perhaps, India should push these companies for research and development, by offering some tax concessions, if necessary.

A less transparent fiscal health indicator

One wrong measure introduced in the Budget is to move away from fiscal deficit as an indicator of fiscal prudence. Contrary to what is stated in the Budget document, we are moving from a transparent to a less transparent indicator. As per the glide path given in the Medium-Term Fiscal Policy Cum Fiscal Policy Strategy Statement of the 2024-25 Budget, the fiscal deficit was to be brought down to below 4.5% by 2025-26.

However, in the 2025-26 Budget, the practice of giving a glide path in terms of fiscal deficit is being discontinued. It has been stated that from now on, the focus will be on reducing the debt-GDP ratio annually. In the annexure statement titled ‘Statements of Fiscal Policy as required under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003’, alternative paths of the debt-GDP ratio with nominal GDP growth assumptions of 10.0%, 10.5% and 11.0% are given.

The glide paths are indicated in terms of alternative growth assumptions and alternative assumptions regarding mild, moderate, and high degrees of fiscal consolidation. This makes the whole exercise vague and non-transparent. It is better for fiscal discipline to indicate specific fiscal deficit target for different years and the corresponding debt-GDP ratios for those years. It should clearly be shown by what year the FRBM Act targets are to be achieved. A larger claim on the available investible resources by the government will make it difficult for private investment to pick up.

C. Rangarajan is Chairman, Madras School of Economics and a former Governor of the Reserve Bank of India. D.K. Srivastava is Honorary Professor, Madras School of Economics and Member, Advisory Council to the Sixteenth Finance Commission. The views expressed are personal

‘The Budget’s policy announcements and fiscal plans need closer scrutiny’
| Photo Credit: ANI

The Union Finance Minister, Nirmala Sitharaman’s presentation of the Union Budget on Saturday, February 1, was against the backdrop of pressing macroeconomic challenges — persistently high taxes and unemployment squeezing the middle-income class, subdued private investment, mounting external vulnerabilities that threaten to derail the growth story, and a looming fiscal overhang. While the Finance Minister laid out an ambitious road map for Viksit Bharat, spanning agriculture, manufacturing, micro, small and medium enterprises (MSME), social welfare, and infrastructure, the Budget’s policy announcements and fiscal plans need closer scrutiny.

Targets that raise questions

First, the fiscal consolidation target of 4.4% of GDP in FY26 is a key highlight of the Budget. However, achieving this target hinges on ambitious revenue projections, including a 11.2% growth in total tax revenues and a 14.4% increase in income tax revenues compared to FY25 estimates. These assumptions appear overly optimistic given the significant tax cuts announced in the Budget and the prevailing economic headwinds such as softening domestic consumption and weakening external demand. Much will also depend on the success of the second asset monetisation plan (2025-30), announced in the Budget. The underperformance of the previous asset monetisation programme raises valid concerns. Furthermore, the estimated ₹11.54 lakh crore in net market borrowings risks crowding out private capital at a critical juncture when credit demand remains tepid. Achieving the ambitious revenue targets will require improved tax buoyancy, more efficient tax administration, and realistic asset monetisation strategies to ensure that the fiscal consolidation plan remains on track.

Second, the revisions in personal income-tax rates and slabs under the new tax regime, exempting incomes up to ₹12 lakh from tax (after factoring in the rebate benefit), and significantly reducing tax liabilities across various income brackets, offer welcome relief to middle-income taxpayers.

However, while these changes are likely to boost disposable income, they shall come at a cost — of ₹1 lakh crore in foregone direct tax revenue, which, in turn, could constrain the government’s ability to fund critical developmental initiatives. The tax-base erosion also comes when household savings have shown a structural decline over the past decade, dropping to 18.4% of GDP in FY23 (Economic Survey 2024-25). This raises pressing questions about the long-term sustainability of these tax cuts, particularly when public investments in infrastructure and social welfare remain critical to drive inclusive economic growth.

Third, on the manufacturing front, the Budget reiterates India’s ambition to emerge as a global manufacturing powerhouse. The Economic Survey 2024-25 flagged India’s underperformance in manufacturing, which accounts for a mere 17% of GDP. While production-linked incentives (PLIs) have shown moderate success in sectors such as electronics, their scalability and long-term impact remain uncertain. In that light, the Budget announcements on enhanced credit facilities for MSMEs and the launch of a National Manufacturing Mission aimed at improving ease of doing business, to foster a future-ready workforce, and promote clean-tech manufacturing, are important steps. The revision of MSME classification criteria — increasing investment limits by 2.5x and doubling turnover thresholds— may improve scale economies. However, the measures fall short of addressing core competitiveness issues such as regulatory inefficiencies, infrastructure gaps, and low innovation capacity. The absence of concrete measures to boost industrial research and development — currently at a dismal 0.64% of GDP — undermines India’s ability to compete with innovation-driven economies such as China and Germany. While the Budget’s focus on manufacturing is a step in the right direction, achieving global competitiveness will require deeper structural reforms and sustained investment in innovation and infrastructure.

The gaps remain in agriculture

Fourth, agriculture, a key pillar of the economy, received significant attention through initiatives such as the Prime Minister Dhan-Dhaanya Krishi Yojana and the National Mission on High-Yielding Seeds. These measures are with the aim of enhancing productivity and climate resilience, which are critical for food security. The increase in the Kisan Credit Card (KCC) loan limit from ₹3 lakh to ₹5 lakh, along with targeted interventions in 100 low-productivity districts, signals a strategic pivot from blanket subsidies to precision support, empowering farmers with greater financial flexibility. However, the measures fall short of addressing systemic inefficiencies in agricultural markets. The Budget lays an emphasis on credit enhancements, yet the focus on short-term loans perpetuates the dependency of farmers on debt without addressing the issues of price volatility or market access. Moreover, the absence of concrete measures to promote agricultural exports — particularly as India eyes leadership in millets and natural farming — represents a missed opportunity.

Fifth, while the Budget introduces some promising measures for the external sector, significant gaps remain unaddressed. Services exports, particularly in IT and business process outsourcing, continue to grow at a robust 10.5% CAGR, but budgetary efforts to diversify the export portfolio remain insufficient. Trade facilitation initiatives such as Bharat Trade Net (BTN) and export credit support for MSMEs, which were announced in the Budget, are positive steps but lack the scale required to tackle India’s persistent trade deficits. Moreover, the challenges posed by the depreciation of the rupee and declining forex reserves require a more ambitious export strategy. The fiscal push to value-added sectors such as pharmaceuticals, electronics, renewable energy, and high-value agricultural products could have strengthened India’s position in global supply chains and enhanced export competitiveness.

Not a transformative push

Finally, while the Budget signals intent on climate action and clean energy, its financial commitments reveal a cautious, incremental approach rather than a transformative push. The Budget’s focus on supply-chain resilience — through incentives for lithium-ion battery recycling, duty exemptions on critical minerals, and support for domestic solar photovoltaic and battery manufacturing — is a pragmatic move to reduce import dependence. However, without a parallel investment in grid modernisation, energy storage, and industrial decarbonisation, the transition to a low-carbon economy will remain fragmented.

The Budget’s fiscal outlays will eventually be judged by how effectively they address the fundamental trade-offs of Indian growth: how to unleash private enterprise while ensuring inclusive development; how to boost consumption without compromising savings, and how to accelerate growth while maintaining macroeconomic stability. Ultimately, the credibility of execution and the government’s willingness to course-correct where necessary will matter.

Amarendu Nandy is an Assistant Professor (Economics Area) at the Indian Institute of Management (IIM) Ranchi. The views expressed are personal

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| Photo Credit: G.N. RAO

The country’s higher education system ranks among the largest globally with 4.33 crore students enrolled in 2021-22, a 26.5% increase from 3.42 crore in 2014-15. The Gross Enrolment Ratio (GER) for the 18–23 age group also increased from 23.7% to 28.4% during this same period. “To achieve the government’s goal of increasing GER to 50% by 2035 in higher education, there is a need to double the educational network and infrastructure,” the Economic Survey tabled in Parliament stated on Friday (January 31, 2025).

Also Read | Challenge of school education is to maintain retention rates: Economic Survey

The survey, citing government records, said the number of Indian Institutes of Technology increased from 16 in 2014 to 23 in 2023, while Indian Institutes of Management grew from 13 in 2014 to 20 in 2023. “Similarly, medical colleges experienced remarkable growth, increasing from 387 in 2013-14 to 780 in 2024-25. Universities have also seen substantial expansion, rising from 723 in 2014 to 1,213 in 2024, registering a growth of 59.6%. Total Higher Education Institutions (HEIs) increased by 13.8% from 51,534 in 2014-15 to 58,643 in 2022-23,” it added.

Elaborating on the National Education Policy (NEP), implemented in 2020, the survey added that by 2040, all higher education institutes are to become multidisciplinary institutions. “The measures to achieve this aim include greater opportunities for outstanding public education; scholarships by private/philanthropic universities for disadvantaged and underprivileged students; online education and Open Distance Learning (ODL); and all infrastructure and learning materials accessible and available to learners with disabilities. The policy calls for making ‘India a global knowledge superpower’,” it said.

Also Read | Economic Survey calls for doubling education infrastructure to achieve NEP goal

On the higher education regulators, the University Grants Commission and the All India Council for Technical Education, the survey said there are over 50 regulations addressing different aspects of education and research. “However, this approach does not fully align with the ‘light but tight’ regulatory model envisioned by the NEP,” the survey added. It suggested that it should be explicitly stated that compliance with regulations beyond the minimum accreditation requirements (proposed in NEP) is voluntary. “Such compliance will be desired by institutions wishing to signal their capability and credibility,” it said.

Chief Economic Advisor V. Anantha Nageswaran during a press conference on Economic Survey 2024-25, in New Delhi on Friday.
| Photo Credit: ANI

India’s equity market has rapidly grown particularly after the pandemic, but its debt market remains undercapitalised, according to the Economic Survey for 2024-25 tabled in Parliament on Friday.

Corporate bond issuances in India for the period April to December 2024 rose to ₹7.3 lakh crore, with an average monthly issuance of ₹0.8 lakh crore as against ₹0.66 lakh crore during the same period the earlier year. Still, the size of India’s corporate bond market stands at just 18% of the country’s total GDP as against 80% in Korea and 36% in China, the Survey noted. A majority of these funds were gathered by firms through private placements, thus deterring the participation of retail investors. “In FY24, the public placement of corporate bonds stood at ₹19,000 crore against the private placement of around ₹8,38,000 crore,” the Survey found.

Most of the borrowing in the bond market was done only by borrowers with the highest credit ratings. About 97% of corporate bond issuances came from firms with the top-three highest ratings (AAA, AA+, and AA), the Survey noted. It further mentioned that this could be the reason why most borrowers in the bond market are NBFCs and PSUs.

“If liquidity has to enter corporate bond markets, problems such as entry costs, information asymmetry, and the absence of a secondary market must be addressed,” the Survey pointed out.

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The secondary markets have delivered positive performance amidst significant volatility witnessed since the commencement of FY25 and on a longer-term basis, Indian markets have been among the best-performing markets in the world the Economic Survey 2024-25 has stated. 

“The compounded annualised returns of Nifty 50 for the past ten years [since March 2014] stand at 8.8% [adjusted for USD], trailing below few indices, such as the U.S. NASDAQ composite index [15.3% and U.S. Dow Jones [9.2%] among a select set of significant markets as of December 2024,” the survey pointed out.

Also Read | Excessive financialisation can hurt the economy says Economic Survey

“The corresponding CAGR of China’s Shanghai Composite indices stands at 3.2%. The positive performance of the Indian stock was driven by strong profitability growth, rapid traction of digital financial infrastructure, expanding investor base and substantial reforms in products and processes,” it stated. 

In line with the performance of Indian markets, India’s weight in the MSCI-EM index reached a new high of 20% in July 2024 before settling down at 19.4% at the end of December 2024. This is only the third highest after China and Taiwan, the Survey highlighted.

Emphasising that the period since the pandemic has seen a surge in individual and household participation as capital market investors through direct (trading in markets through their accounts) and indirect (through mutual funds) channels, the Survey stated that healthy corporate earnings, stable macro fundamentals, trust garnered by mutual fund ecosystem and online digital investment platforms have encouraged greater participation in capital markets.

“The incremental addition to demat accounts has been continuously increasing, with the number of demat accounts rising sharply by 33% to 18.5 crore at the end of December 2024 on a YoY basis. In the equity cash segment, individual investor share turnover41 was 35.6 per cent from April to December 2024,” it mentioned.

There are 11.5 crore unique investors with demat accounts and 5.6 crore unique investors in mutual funds as of the end of December 2024, it added.

“Higher investor participation has engendered a self-reinforcing cycle of strong market returns, bringing in even more investors. This, in turn, will eventually transform the securities market into a more diverse, inclusive, and robust platform for wealth creation,” the Survey emphasised.

Notwithstanding the market volatility and geopolitical uncertainties, the primary markets continued to witness heightened listing activities and investor enthusiasm in FY25, the Survey found. 

Also Read | Economic Survey 2024-25 cautions against ‘meaningful’ market correction in 2025

“As per the E&Y Global IPO trends, Indian stock exchanges provide conducive market conditions for foreign conglomerates to list their local subsidiaries, thereby offering a good opportunity for unlocking value. India’s share in global IPO listings surged to 30% in 2024, up from 17% in 2023, making it the leading contributor of primary resource mobilisation globally,” it started.

“The total resource mobilisation from primary markets [equity and debt] stands at ₹11.1 lakh crore from April to December 2024, which is 5% more than the amount mobilised during the entire FY24. This also amounts to 25.6% of gross fixed capital formation of private and public corporations during FY24,” it concluded. 

The real challenge in school education is to maintain the retention rates for all classes, from primary to higher secondary levels, the Economic Survey 2024-25 said on Friday.

Retention rate is the percentage of students who enrol in a school and continue over a specific period of time. “Retention rates stand at 85.4% for primary (Classes I to V), 78% for elementary (Classes I to VIII), 63.8% for secondary (Classes I to X), and 45.6% for higher secondary (Classes I to XII),” the survey states. 

Also Read | Economic Survey calls for doubling education infrastructure to achieve NEP goal

The National Education Policy, 2020 aims for a 100% Gross Enrolment Ratio (GER) by 2030. “The GER is near-universal at the primary (93%) and the efforts are under way to bridge the gaps at the secondary (77.4%) and higher secondary level (56.2%),” the survey states. 

Expenditure on education has grown at a CAGR of 12% from ₹5.8 lakh crore in FY21 to ₹9.2 lakh crore in FY25 (BE), the survey says. 

India’s school education system serves 24.8 crore students across 14.72 lakh schools with 98 lakh teachers (UDISE+ 2023-24).

The National Initiative for Proficiency in Reading with Understanding and Numeracy (NIPUN Bharat) was launched in July 2021 by the Education Ministry to achieve foundational literacy and numeracy (FLN) for every student by end of Class 3 by 2026-27. The Economic Survey proposes that to achieve this peer teaching, apart from teacher-led instruction, is a promising solution, where students learn by teaching and supporting their peers.

The survey says that while Mission Ankur in Madhya Pradesh and Gujarat and Bihar’s Mission Daksh aims to provide personalised mentoring for lagging students to achieve grade-level competencies by 2025, they heavily rely on teachers, highlighting the need for scalable, adaptable teaching strategies that offer personalisation without overburdening educators.

Also Read | Budget 2025: Reduced taxes, investment in digital education needed for education 

The survey states that The ‘Nalli-Kali’ (joyful learning in Kannada) programme, which was launched in 1995 in Karnataka’s Mysuru district, focuses on peer and group work to create a collaborative classroom environment that supports self-paced, personalised learning and is now the primary pedagogy for Classes 1-3 in Karnataka to develop age-appropriate skills. The ‘Prerana’ model of education, implemented in Andhra Pradesh, Karnataka, Maharashtra, Tamil Nadu, and Telangana through the Sikshana Foundation, also emphasises peer learning and group work, where small groups of four to five students collaborate on classroom activities, teaching and learning from each other. 

It says that Involve Learning Solutions Foundation is working with educators in six districts across Uttar Pradesh, Bihar, and Karnataka to integrate structured peer teaching into government schools. The model pairs students identified as ‘Student Champions’ with ‘Learners.’ Each Student Champion, with better subject mastery, is trained further to support a group of four learners, their peers who struggle to understand concepts, thereby facilitating their progress through 40-minute sessions three to four times a week. 

Early evaluations in Karnataka’s Anekal block have shown increased learning outcomes in numeracy for students by 15% compared with students who did not participate in the programme. Similarly, in Bhagalpur, structured peer interactions have helped bridge reading and numeracy gaps among children who could not meet age-appropriate learning milestones, the survey states. 

The survey points out that there is a rural-urban digital divide in India with lower Internet-searching capabilities in rural areas, especially among women. It says that 63% of men and 55% of women in rural areas can search the Internet for information compared with 74% of men and 69% of women in urban areas. 

“The results highlight the need for focused efforts to close the digital gap,” the survey states. 

The survey speaks of leveraging artificial intelligence (AI) for teachers’ professional development and providing AI-driven personal tutors for students. It says AI can automate tasks like lesson planning and assessment development and foster critical thinking, freeing teachers to focus on instruction and mentoring. 

Also Read | Economic Survey 2024-25: Key takeaways in charts

It also lauds the ‘Illam Thedi Kalvi’ Scheme launched by the Tamil Nadu government to bridge the education gap brought about by the pandemic and the digital divide. The initiative focuses on education through physical methods. The scheme was designed during the pandemic to reduce students’ reliance on Internet resources for their learning, with volunteers assisting them. These volunteers conducted door-to-door efforts to educate the students. 

The State Planning Commission conducted a rapid assessment of the programme’s impact through a comprehensive survey in September 2022. This assessment involved the active participation of volunteers, teachers, headmasters, and parents from 362 schools across six districts — Ariyalur, Cuddalore, Nagapattinam, Salem, Thiruvarur, and Villupuram. Parents reported a noticeable improvement in their children’s learning experiences, noting that education has become a more enjoyable activity for them. The scheme continues to run till date post pandemic to bridge learning gaps, the survey states.

Presenting the Economic Survey on Friday (January 31, 2025), Chief Economic Adviser V. Anantha Nageswaran, among other things, put forth a case for deregulation. According to him, “pervasive” deregulation would not only facilitate ease of doing business but also enable conditions for employment generation. He emphasised this an imperative, among other things, as a means to “raise our game in a new level playing field when globalisation is no longer going to provide the tailwind”. 

Separately, the CEA emphasised about the role of private sector in nation-building and addressed concerns about the adoption of artificial intelligence (AI) urging companies weigh social costs as well.  

Deregulation makes it easier for small, medium enterprises to grow  

According to Mr. Nageswaran, deregulation at the local and state government level would not only be a boost to medium and small enterprises (MSMEs) but would also help lift manufacturing and facilitate GDP growth in the country.  

The Chief Economic Advisor noted certain regulations affect small businesses “disproportionately”. He elaborated that adherence to certain operational restrictions raises the fixed cost of doing business, in turn, disincentivising more hiring. “These (regulations) affect the day-to-day activities of businesses that do not have the kind of bandwidth which large enterprises have – whether it is in land, building and construction, utilities, logistics and sector-specific areas”.  

Mr. Nageswaran articulated deregulation entailed removing the fear of growth in micro, small and medium enterprises. “It is about plumbing the nuts and bolts of deregulation, which are primarily there in the state and local government space,” he stated, adding, “We must continue to augment internal capacities for growth, particularly agriculture sector which has the potential to contribute to 1% of GDP.”  

Salary growth helps build aggregate demand 

Reflecting the importance of private sector in nation building, the Chief Economic Advisor, among other things, argued for balanced deployment of capital and labour, fairer distribution of incomes and according importance to workplace culture, safety and mental health.  

The CEA in his address pointed to an observed “huge disparity” between the growth of profitability among companies to their employment expenses in recent months. Arguing a case for private sector’s role in “raising the game for a new level playing field”, he pointed to automobile magnate Henry Ford’s reasoning to raise the minimum wages of workers to ensure people can buy their cars. The CEA explained, “In some sense, raising wage and salary growth for workers is also a source of building aggregate demand for businesses in the medium run as well…It is in enlightened self-interest rather than just being seen from a moral prism.”  

Private sectors need to weight benefits of AI with social costs 

The CEA contended that deployment of artificial intelligence presents both opportunities and challenges. “Sometimes we all feel that technology eventually generates more jobs. That is true, but the key word here is ‘eventually’,” he explained, adding, “What happens between now and then is critical, and this is where I think, we need to create supporting institutions, enabling institutions to train people, prepare them (for the AI advent) alongside a change in academic curriculums and workplace practices.” 

Reflecting from technological transitions of the past, he held the private sector must weigh the benefits of artificial intelligence against social costs. “They may be subterranean in nature and surface over a longer period, eventually affecting the environment that is necessary for running business smoothly.”  

Growth outlook between 6.3-6.8% for FY 2026 

Mr. Nageswaran in the Economic Survey pegged the growth outlook for FY 2026 between 6.3% to 6.8%. He stated the risk factor emanated not only from global conditions but stock markets being volatile lately. “That is a factor we need to keep in mind because the massive growth in retail participation in the stock market may be a good thing but when the market corrects, it has implications on spending intentions and affects sentiments – which could be significant”.  

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| Photo Credit: The Hindu

Lack of localisation and complexity of the Indian textile value chain result in higher costs for Indian exporters in the textile sector, relative to global competitors.

India’s textile production occurs across multiple independent and clustered Small and Medium Enterprises (SMEs) spread across the country. In contrast, vertically integrated ‘fibre-to-fashion’ firms in competitor nations such as China and Vietnam export low-cost products, maintain consistent quality, and are “nimble enough to adjust to the fast-changing nature of the industry,” said the Economic Survey.

Simple and liberal customs procedures further reduce regulatory costs and lend a competitive edge to the exports of global textile competitors such as China and Vietnam. On the other hand, in India, textile exporters are constrained by complex procedures.

Apart from possessing structural attributes (such as vertical integration, liberal labour laws, etc.) that allow for cost advantages, competitors in the textile markets also have the added benefit of Free Trade Agreements (FTAs) with consumer countries. In effect, Indian apparel exports do not face a level playing field compared to its competition.

In general, the costs for the textile industry are likely to rise over the coming years mainly because of the global structural shift towards sustainable sourcing. The EU, for instance, has as many as 16 pieces of legislation spanning the entire fashion value chain, which came into force between 2021 and 2024.

As the EU accounts for nearly 20% of India’s exports, such a shift poses a challenge for small enterprises that need to shift to environmentally sustainable production methods, says the Survey.

India has a great opportunity to align with the evolving global shifts in apparel demand because of the changing trends in the global textile industry. The global demand has shifted to products made from man-made fibre (MMF). As per the International Cotton Association, MMF comprised 77% of global fibre consumption in 2024, whereas it was just 22% for cotton. Indian textile and apparel exporters can benefit by tapping into the MMF value chain.

India’s share of global MMF production is currently 9.2% and the potential to catch up with the production levels of global leaders like Vietnam, China, and Taiwan is high. The MMF sector must move towards vertical integration and significantly invest in research and development and sustainable production techniques.

The industry should step up its research efforts and vertically integrate and tailor products to international quality and sustainability requirements. “Simplification, consolidation, and elimination of processes that consume the financial and managerial bandwidth of our exporters is a low-hanging fruit,” the Survey said.

Skyrocketing fees for undergraduate medical education remains a considerable challenge that denies the opportunity to make the MBBS degree accessible and affordable for students from less privileged backgrounds, states the Economic Survey 2024-25.

Since financial year 2018-19, the number of medical colleges grew from 499 to 648 in FY 2023 to 780 in FY 2025, during which time the MBBS seats increased from 70,012 to 96,077 in FY 2023 to 1,18,137 in FY 2025 and post-graduate seats increased from 39,583 to 64,059 in FY 2023 to 73,157 in FY 2025.

Despite the National Medical Commission (NMC) issuing guidelines for determination of fees and all other charges in respect of 50% of seats in private medical institutions and deemed to be universities, fees remain high ranging from ₹60 lakh to ₹1 crore or even more in the private sector, which holds 48% of MBBS seats, the survey notes.

The number of candidates aspiring to study MBBS has increased consistently over the years, from around 16 lakh in 2019 to around 24 lakh in 2024.

“The consequence is that every year thousands of students go abroad especially those with lower fees such as China, Russia, Ukraine, Philippines, Bangladesh,” the survey further states.

These aspirants invest multiple years in repeated attempts at exams — the NEET-UG before taking admission, the Foreign Medical Graduates (FMG) Exam on completing the course and then complete compulsory internships of 12 months in India. “FMGs in China (during COVID lockdowns) and Ukraine (as the conflict escalated), had to return to India dropping their education and faced uncertain prospects,” the survey states.

The very low pass percentage of FMGs in the qualifying exam for practising in India (16.65% of 2,02,385 students) indicates sub-par quality of medical education abroad including lack of clinical training. “As policy intervention to dissuade medical education abroad is crafted, keeping costs is India within reasonable limits is essential,” the survey points out.

The availability of opportunities for medical education is geographically skewed, apparent from the fact that 51% of undergraduate seats and 49% of postgraduate seats are in the southern states, the survey says.

There is also a skewed distribution of seats in favour of specialisations like radiology, dermatology, gynaecology, cardiology while specialities like psychiatry, geriatrics, etc., are neglected.

Also, the survey points out that market estimates indicate that remuneration of fresh graduates is around ₹5 lakh per year and senior doctors earn between ₹12.5 and ₹18.4 lakh per annum in cities.

“This is almost similar or lower to the packages that are available to other graduates at the entry level. The attraction towards the medical profession, as seen from the consistently increasing number of aspirants, seems to arise more from the social status attached to it rather than its earning potential,” the survey says.

The survey points out that doctors from India are already migrating to greener pastures. “The OECD countries reported in 2021 that there were close to 19,000 physicians from India in their workforce and migration in 2021 alone was over 2,800 physicians,” the survey says.

The Economic Survey has stated that while the National Medical Commission (NMC) has put in place measures such as CCTV cameras and an Aadhaar-based attendance system in medical colleges, issues like shortage of faculty, ghost faculty, low patient load in hospitals, etc., continue to affect the quality of training.

The survey has stated that there may be a need to revisit the incentive-disincentive and design of regulatory measures to improve compliance, reduce costs and prevent associated rent-seeking, with regards to NMC and revamping the medical education system in India.

“The success of any policy, including regulatory ones, lies in its execution. If outcomes do not align with our goals or if there are unexpected effects, it is essential to take a step back and refine these policies to make them more meaningful and impactful,” the survey states.

Growth in corporate profits needs to be commensurate with wages to boost the economy, Economic Survey 2024-25 said, noting that sharp disparities between the two pose risk to the economy by curbing demand.

The document tabled in Parliament on Friday (January 31, 2025) noted that while the labour share of GVA (gross value added) shows a slight uptick, the disproportionate rise in corporate profits — predominantly among large firms — raises concerns about income inequality.

A higher profit share and stagnant wage growth risk are slowing the economy by curbing demand, it pointed out.

Sustained economic growth hinges on bolstering employment incomes, which directly fuels consumer spending, spurring investment in production capacity, it stated.

To secure long-term stability, a fair and reasonable distribution of income between capital and labour is imperative, it suggested.

It is essential for sustaining demand and supporting corporate revenue and profitability growth in the medium to long run, it pointed out.

The Survey noted that corporate profitability soared to a 15-year peak in FY24, fuelled by robust growth in financials, energy, and automobiles.

Among Nifty 500 companies, the profit-to-GDP ratio surged from 2.1% in FY03 to 4.8% in FY24, the highest since FY08.

Large corporations, especially in non-financial sector, significantly outperformed their smaller peers in profitability, it pointed out.

However, the Survey stated that while profits surged, wages lagged.

A striking disparity has emerged in corporate India: profits climbed 22.3% in FY24, but employment grew by a mere 1.5%. State Bank of India (SBI) analysis reveals that 4,000 listed companies recorded a modest 6% revenue growth.

At the same time, employee expenses rose only 13% — down from 17% in FY23 — highlighting a sharp focus on cost-cutting over workforce expansion, the Survey stated.

Despite Indian companies achieving a stable EBITDA margin of 22% over the last four years, wage growth has moderated. This uneven growth trajectory raises critical concerns.

Wage stagnation

Wage stagnation is pronounced, particularly at entry-level IT positions.

Citing an example, the Survey stated that Japan succeeded in industrialisation and in becoming a developed economy, despite its defeat in World War II through a social contract between the government, businesses and workers.

It noted that Japanese workers, consumers, and retirees all subsidised industrial development by overpaying for goods and services, by taking home a lower share of national output than their counterparts in the West, and by using a financial system designed to transfer purchasing power from households to businesses.

Japanese companies returned the favour by upgrading the country’s manufacturing base, passing along productivity gains to workers, and refraining from excessive executive pay, while the government invested in top-tier infrastructure, it noted.

The Survey noted that driven by robust post-pandemic recovery and increased formalisation, labour market indicators in India have improved substantially in the last few years.

As per Periodic Labour Force Survey (PLFS), the unemployment rate in India has dropped significantly and labour force participation and the worker population ratio have shown considerable improvements.

Additionally, sectors like the digital economy and renewable energy offer vast potential for creating high-quality jobs, which is essential for achieving the Viksit Bharat’s vision.

Economic Survey mentions that the growing participation of women in entrepreneurship can propel the country towards higher levels of development by tapping into their latent potential to contribute to economic activities.

To give a fillip to women’s entrepreneurship, the government has launched several initiatives in terms of easier access to credit, marketing support, skill development, support to women start-ups, etc.

Schemes and initiatives like PM Employment Guarantee Programme, SANKALP, PM Micro Food Processing scheme, Adivasi Mahila Sashaktikaran Yojana, Swayam Shakti Sahakar Yojna, DAY-NRLM etc. are promoting women-led enterprises by offering women entrepreneurs financial support, training, and mentorship, empowering them to start and scale their businesses.

Economic Survey advocates for fostering an enabling labour regulations environment that supports business growth, creates employment and promotes economic development.

It says that by promoting flexible working hours and removing restrictions on the number of overtime hours workers can perform and the overtime wages they can earn, it can lead to growth for firms, creating more employment opportunities.

It will also safeguard labour rights and allow workers to increase their earnings.

Economic survey notes that the growing digital economy and renewal energy sector are providing enhanced opportunities for job creation.

Immense potential

Both these sectors offer immense potential to increase employment, especially opening opportunities for the women and thereby leading to their financial independence and empowerment.

It suggested that skilling strategy needs to adopt a layered approach to address diverse industry demands and workforce needs effectively.

This new approach could include skills tailored for specific tasks or job roles, targeted at selected groups of workers, and foundational AI skills provided universally to everyone and across all sectors.

By aligning these skill tiers with the aspirations and needs of workers, the strategy can better prepare the workforce for a dynamic job landscape with changing demands. The tiered approach allows for training cost-effectively.

Economic Survey mentions that for creating industry-ready workforce, initiatives like internships in companies (PM Internship Scheme) and public-private partnership for skill development and vocational training will go a long way.

Additionally, by creating a skilling ecosystem with a high-quality, globally competitive workforce, India can enhance employability for youth in global job markets.