India's Economic Growth and Inflation

India's economic growth is expected to rebound with strengthening domestic demand, although food inflation remains a concern. The Reserve Bank of India's (RBI) State of the Economy report highlights these key aspects:

Economic Growth Outlook

• India's GDP growth declined to a seven-quarter low of 5.4% in the July-September period of the current financial year.
• For FY25, GDP growth is projected to slow to a four-year low of 6.4%, according to the NSO.
• Public capital expenditure on infrastructure is expected to stimulate growth in key sectors.
• Potential risks include rising input costs, weather-related challenges, and global economic headwinds.

Factors Influencing Growth

• Rural demand is gaining momentum due to brighter agricultural prospects.
• NSO confirms India as the fastest-growing major economy, despite a slowdown in the second half of the financial year.
• Localized excess rainfall, lack of visible private capital expenditure, and moderation in government capital expenditure are cited for sluggish growth.
• Agriculture and allied sectors performed well, supported by a record kharif harvest and higher rabi sowing.

Inflation Concerns

• Headline inflation eased to a four-month low of 5.2% in December, while food inflation decelerated to 7.7%.
• High food inflation remains concerning, necessitating careful monitoring for second-order effects.

Monetary Policy and Liquidity Conditions

• The Monetary Policy Committee (MPC) has kept the policy repo rate unchanged after a 250 basis point increase from May 2022 to February 2023.
• Tighter liquidity conditions in the banking system are noted, with banks reluctant to lend in the money market.
• Banks' placement of funds under the Standing Deposit Facility (SDF) averaged Rs 83,000 crore in December 2024 to January 2025.

Corporate and Private Consumption

• Early indications suggest better corporate revenue and earnings growth in the third quarter compared to the first half of FY25.
• Private final consumption, driven by e-commerce and q-commerce, is a bright spot in the economy.
• The report suggests rekindling 'animal spirits' through consumption boosts could stimulate economic activity.

Economic Growth Projections for India

The First Advance Estimates (FAE) for the fiscal year 2024-25 indicate a real GDP growth of 6.4% and a nominal GDP growth of 9.7%. This is slightly below the Reserve Bank of India's (RBI) revised estimates and the Union Budget projections.

Comparison with Previous Estimates

• The RBI’s revised growth estimates were 6.6% for real GDP and 10.5% for nominal GDP.
• The growth for the first half of 2024-25 is expected to be 6%, improving to 6.7% in the second half.
• The 2023-24 growth was notably higher at 8.2% for GDP and 7.2% for Gross Value Added (GVA).

Sectoral Analysis

• Manufacturing sector growth fell sharply from 9.9% in 2023-24 to 5.3% in 2024-25.
• The Gross Fixed Capital Formation rate has stabilized around 33.4% during 2021-22 to 2024-25.

Investment and Government Expenditure

• Investment growth is crucial, with government investment slowing down significantly at (-)12.3% eight months into 2024-25.
• The Government of India’s capital expenditure in the first eight months was 46.2% of the budget target, reaching ₹5.14 lakh crore.
• There is a need to accelerate capital expenditure growth to at least 20% for 2025-26.

Future Growth Prospects

• India's real GDP growth is projected to stabilize at 6.5% over the next five years, according to the International Monetary Fund (IMF).
• Nominal GDP growth is anticipated in the range of 10.5%-11% with an implicit price deflator (IPD)-based inflation of about 4%.
• Achieving a developed country status would require sustained real GDP growth of 6.5% with nominal growth of 10.5%-11% over the long run.

Challenges

Maintaining a growth rate of 6.5% may be challenging as the economic base expands. Early years will require higher growth rates, but the potential growth rate remains at 6.5%.

The article concludes by emphasizing that a 6.4% growth rate in 2024-25, while below the previous year, aligns with India's potential growth rate. 

Reduction in Reserve Price of FCI Rice under OMSS

The Centre has reduced the reserve price of Food Corporation of India (FCI) rice under the Open Market Sale Scheme (OMSS) by Rs 550 per quintal. This adjustment lowers the price to Rs 2,250 per quintal specifically for states and ethanol producers.

Key Details of the Scheme

• Eligibility and Quotas:
  • State governments and state-run corporations can purchase up to 12 lakh tonnes.
  • Ethanol distilleries are allowed to procure up to 24 lakh tonnes at the reduced rate.
• Previous and Current Prices:
  • The previous reserve price was Rs 2,800 per quintal for both states and ethanol producers.
  • Private traders and cooperatives will continue paying Rs 2,800 per quintal.
  • Central cooperatives like Nafed, NCCF, and Kendriya Bhandar will pay Rs 2,400 per quintal under the 'Bharat' brand.

Implementation and Duration

The revised policy will be effective until June 30, 2025, and managed through weekly e-auctions. The measure is designed to support food security and bolster ethanol production.

Additional Provisions

• Preference for ethanol production will be given to old rice stocks wherever feasible.
• Rice sales to states under OMSS are restricted to non-surplus regions requiring additional supplies.
• Sales under the 'Bharat' brand are not permitted to private millers but can be made to hostels, religious institutions, hospitals, and charitable organizations.

Government's Goal

This policy aims to enhance food security, stabilize prices in the open market, and ensure efficient rice distribution to various stakeholders. It reflects the government's commitment to aiding states in fulfilling welfare scheme obligations and promoting ethanol production.

Context and Impact

The revision comes in response to relatively low rice sales compared to wheat under the same scheme, intending to boost availability and stabilize market prices.

SVAMITVA Programme Overview

The Union government has undertaken a comprehensive survey of rural land as part of the SVAMITVA programme, initiated by the Panchayati Raj Department.

Survey Details

• The survey covers an area of 67,000 sq km of rural land, valued at ₹132 lakh crore.
• Drones are used for the survey, offering an accuracy of up to five centimetres.
• So far, 92% of the drone mapping is complete, covering 3.17 lakh villages.
• The target is to cover more than 3.44 lakh villages by 2026.

State Participation

• 31 States and Union Territories have joined the scheme.
• Sikkim, Telangana, and Tamil Nadu participated only in the pilot phase.
• Telangana and Bihar have developed their own versions of this scheme.

Benefits of the SVAMITVA Programme

• Helps landowners monetise their land parcels.
• Property cards will be accepted by banks for loan applications.
• Aims to resolve long-standing land disputes.
• Provides clarity on land quantum available with panchayats.
• Enables panchayats to raise money via leasing or build infrastructure like community halls.

India's Future Job Market

India ranks second in preparedness for future jobs, including artificial intelligence (AI) and green skills, according to the QS World Future Skills Index 2025. However, in economic transformation and workforce readiness, India ranks 40th and 37th, respectively.

QS World Future Skills Index

• Overall Ranking: India is 25th, labeled a "future skills contender".
• Top Countries: The United States, United Kingdom, Germany, Australia, and Canada are "future skills pioneers".

Prime Minister Narendra Modi finds the ranking "heartening", emphasizing efforts to equip youth with self-reliance and innovation skills.

Indicators Assessed by QS Survey

• Skills Fit: Evaluates alignment of graduate skills with employer needs.
• Future of Work: Assesses readiness for skills needed in future jobs.
• Academic Readiness: Evaluates preparation for future work.
• Economic Transformation: Assesses readiness to support work and skills growth.

India's Performance on Indicators

1. Future of Work:
   • India ranks 2nd, focusing on digital, AI, and green skills.
   • Derived from analysis of over 280 million global job postings.
2. Skills Fit:
   • India ranks last among 30 countries, scoring 59.1.
   • Highlights a significant gap in meeting employer demands.
3. Innovation in Sustainability:
   • India scores 15.6 out of 100, lowest in future-oriented sustainability innovation.
   • G7 countries score 68.3, and EU countries score 59.
4. Economic Transformation:
   • India ranks 40th with a score of 58.3.
   • Challenges include investment and innovation capacity.
5. Academic Readiness:
   • India ranks 26th, with a score of 89.9.

Report Insights on India's Education System and Policy

The report notes that Indian graduates struggle to adapt to changing skill requirements, with a notable gap in entrepreneurial and innovative mindsets. Employers highlight a mismatch between workforce skills and economic needs, challenging the higher education system.

Recommendations include embedding creativity and problem-solving in curricula and fostering collaborations with industry. Continuous reskilling programs are also suggested to maintain workforce relevance and productivity.