India’s FY26 economic prospects balanced: Economic Survey FY25

India’s economic prospects for fiscal 2025-26 (FY26) are balanced, according to the annual Economic Survey for FY25 presented by Finance Minister Nirmala Sitharaman in parliament today.

Headwinds to growth include elevated geopolitical and trade uncertainties and possible commodity price shocks. Domestically, the translation of order books of private capital goods sector into sustained investment pick-up, improvements in consumer confidence and corporate wage pick-up will be key to promoting growth, the Survey document noted.

India’s FY26 economic prospects are balanced, said the Economic Survey FY25 presented by Finance Minister Nirmala Sitharaman in parliament.
“India will need to improve its global competitiveness through grassroots-level structural reforms and deregulation to reinforce its medium-term growth potential,” it said.
Despite challenges, India continues to see the fastest growth in manufacturing PMI.

Rural demand backed by a rebound in agricultural production, an anticipated easing of food inflation and a stable macro-economic environment provide an upside to near-term growth.

“Overall, India will need to improve its global competitiveness through grassroots-level structural reforms and deregulation to reinforce its medium-term growth potential,” it said.

The country’s industrial sector grew by 6.2 per cent in fiscal 2024-25 (FY25), but declined to 3.6 per cent in the second quarter (Q2) of the fiscal.

The Q2 FY25 decline is attributed to a sharp slowdown in manufacturing exports due to economic challenges in destination countries and intensified trade competition and industrial policies followed by many major trading nations; the impact of unprecedented levels of monsoon that disrupted mining, construction and manufacturing sectors; and the variation in the timing of festivals between September and October in the previous and current years.

Despite challenges, India continues to register the fastest growth in manufacturing purchasing managers’ index (PMI), which remained well within the expansionary zone in December 2024 and the expansion rate exceeding its long-term average, driven by new business gains, robust demand and advertising efforts.

Orders from abroad grew to a four-month high midway through Q3 FY25, signalling recovering external demand, as reported by companies.

As per the first advance estimates of national accounts, India’s real gross domestic product (GDP) is estimated to grow by 6.4 per cent in FY25. Growth in H1 FY25 was supported by agriculture and services. The manufacturing sector faced pressures due to weak global demand and domestic seasonal conditions. Private consumption remained stable, reflecting steady domestic demand.

Fiscal discipline and strong external balance supported by a services trade surplus and healthy remittance growth contributed to macroeconomic stability. Together, these factors provided a solid foundation for sustained growth amid external uncertainties.

Despite possessing a complete value chain, the country’s textile sector faces several challenges, the Survey document noted. The dominance of micro, small and medium enterprises (MSMEs) limits scale and efficiency, while its fragmented nature increases logistical costs.

India’s reliance on cotton, unlike the global shift towards man-made fibres (MMF), limits its competitiveness in the worldwide market.

The sector has attracted limited foreign direct investment (FDI), hindering technological advancements and reliance on imported textile machinery. A significant skill gap persists, hindering productivity and innovation. Addressing these challenges is crucial for India to realise its full potential as a global textile powerhouse, the Survey said.

The technical textiles sector is another area of potential growth. India’s technical textile industry is rapidly growing, ranking fifth globally. Indian technical textiles market stood at $26.8 billion in FY24. India is a net exporter of technical textiles, with exports valued at $2.58 billion in FY24.

Fibre2Fashion News Desk (DS)

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