Economic challenges in the New Financial Year

Every financial year (FY) brings a set of challenges for an economy, regardless of its current performance.

- Kishore Kumar Biswas

Even when an economy is doing well, it must maintain momentum or strive for further improvement. In the case of India, FY 26 presents several structural challenges to sustaining GDP growth.

In FY 24, India achieved an impressive GDP growth rate of 8.2%—the highest in the last 12 years—compared to 7% in FY 23. However, in the recently concluded FY 25, the growth rate is expected to remain below 6.5%. Accelerating economic expansion is, therefore, a key challenge for Indian policymakers. Some observers aspire to achieve sustained double-digit growth, aiming for India to attain developed-country status by 2047. A developed country is typically defined by an annual per capita income of $14,500, whereas India's current per capita income stands at approximately $2,400. This underscores the need for higher GDP growth to improve living standards.

Boosting the Manufacturing Sector

Another critical challenge is increasing the share of manufacturing in GDP. Currently, manufacturing contributes about 13%, down from over 15% a few years ago, despite the “Make in India” initiative launched more than a decade ago. Expanding the manufacturing sector is essential, primarily for employment generation. Micro, small, and medium enterprises (MSMEs), the second-largest employer after agriculture, have seen a decline in their employment share over the past five years. Reviving and strengthening this sector is a major challenge for the Indian economy.

Challenges in the Export Sector