JAMMU: While the Union Budget 2024-25 is hogging all the spotlights, with voices—both in favour and against filling the air, there is an equal need to understand the state of affairs of India’s economic landscape in the fiscal that is gone by.
The Economic Survey 2023-24 which provides a comprehensive review or annual report of Indian economy during the closed financial year, thus becomes a very important document. Prepared by the Economics Division of the Department of Economic Affairs of the Finance Ministry under the guidance of the India’s Chief Economic Advisor (CEA), the document functions as a summary of the government’s economic performance, major developmental programmes, and policy initiatives; besides also providing an outlook for the upcoming financial year.
The Economic Survey 2023-24, which was tabled in Parliament on Monday, highlighted its resilience and strategic initiatives aimed at sustainable and inclusive growth. With focused efforts on macroeconomic stability, financial inclusion, climate action, and social welfare, India is well-positioned to navigate future challenges and capitalize on growth opportunities.
Here, I analyse the Economic Survey 2023-24, simplifying it for the readers.
Diving deep into the Economic Survey 2023-24, the document projected India’s GDP to grow at 6.5-7 per cent in 2024-25, down from a high of 8.2 per cent in the preceding financial year, while cautioning that escalation of geopolitical conflicts may have bearing on growth prospects.
Asserting that Indian economy has solidified after the impact of 2020 pandemic, the survey praised India’s calibrated response to the COVID-19 pandemic on the economic front which was based on three salient components– focus on public spending on infrastructure, which kept the economy afloat by creating a strong demand for jobs and industrial output and triggered a lagged yet vigorous private investment response; a natural response of business enterprise and public administration amidst adversities, i.e., digitalisation of service delivery; and the Atmanirbhar Bharat Abhiyan in terms of targeted relief to different sectors of the economy and sections of the population, and structural reforms that assisted a firm recovery and increased the medium-term growth potential.
It praises the administrative and monetary policy responses which managed the global troubles, supply chain disruptions, and vagaries of monsoons which intermittently stoked domestic inflationary pressures, as the economy continues to grow despite global volatilities.
“However, the chances of geopolitical disturbances and conflicts have only gone up in recent times. The net impact of these developments has been that the Indian economy recovered and expanded in an orderly fashion in the last three years. The real GDP in FY24 was 20 per cent higher than its level in FY20, a feat that only a very few major economies achieved, while also leaving a strong possibility for robust growth in FY25 and beyond. Growth has been inclusive with a reduction in unemployment and multi-dimensional poverty and an increase in labour force participation. Overall, the Indian economy looks forward to FY25 optimistically, anticipating broad-based and inclusive growth,” says the Survey.
The survey highlights the necessity of substantial domestic efforts sustain recovery, given the challenging global environment.
“For the recovery to be sustained, there has to be heavy lifting on the domestic front because the environment has become extraordinarily difficult to reach agreements on key global issues such as trade, investment, and climate,” the Survey read.
Public investment has been pivotal in sustaining capital formation, with the private sector also beginning to invest significantly.
The Survey noted, “Now, private sector has to receive the baton from the public sector and sustain the investment momentum in the economy. The signs are encouraging.”
According to the Economic Survey 2023-24, inflationary pressures, driven by global issues, supply chain disruptions, and unpredictable monsoons, have been effectively managed through strategic administrative and monetary policies. Consequently, retail inflation, which averaged 6.7% in FY23, decreased to 5.4% in FY24. The report further noted that the government’s timely policy interventions, combined with the Reserve Bank of India’s measures to ensure price stability, successfully kept retail inflation at 5.4% in FY24, marking the lowest level since the pandemic.
The Survey further acknowledged that the food inflation is a significant issue globally and India has faced extreme weather events and crop damages in the recent past, which have impact farm output and thus contributed to rising food prices.
On Monetary Management and Financial Intermediation, the Survey noted that India’s banking and financial sectors have performed exceptionally well in FY24, on the back of Credit growth mainly.
While the RBI maintained a steady policy rate, keeping the policy repo rate at 6.5%, Credit disbursal by Scheduled Commercial Banks (SCBs) reached Rs 164.3 lakh crore, growing by 20.2% by March 2024. Particularly, the Agriculture and allied activities saw double-digit credit growth in FY24 while Industrial credit growth was 8.5%, up from 5.2% the previous year. Also, the Gross and net Non-Performing Assets are currently at multi-year lows, indicating improved bank asset quality.
The Survey noted that Indian stock market’s market capitalisation to GDP ratio is the fifth largest in the world, but outlined that Digital Financial Inclusion (DFI) is the next big challenge for sustainable economic growth.
In the External Sector chapter, the Survey noted that India’s external sector remained strong amidst ongoing geopolitical headwinds accompanied by sticky inflation.
“Though merchandise exports moderated owing to lower demand from major trading partners, services exports continued to perform well, cushioning the overall trade deficit from USD 121.6 billion in FY23 to USD 78.1 billion in FY24. The moderation in merchandise imports and rising services exports have improved India’s current account deficit (CAD). Amongst services exports, software/IT services have driven an increase in overall exports; at the same time, business services exports have also been rising, supported by India emerging as a hub for Global Capability Centres (GCCs),” it said.
While India is moving up the global value chains (GVCs), with the share of GVC-related trade in gross trade rising to 40.3 per cent in 2022 from 35.1 per cent in 2019, its rank in the World Bank’s Logistics Performance Index improved by six places, from 44th in 2018 to 38th in 2023 out of 139 countries.
“The shock absorbers of India’s external sector – forex reserves, sustainable external debt indicators, and market-determined exchange rate, are in place to cushion the global headwinds,” it said.
On China, the Survey calls for allowing the companies from this neighbour to invest in India.
“India faces two choices to benefit from China plus one strategy: it can integrate into China’s supply chain or promote FDI from China. Among these choices, focusing on FDI from China seems more promising for boosting India’s exports to the US, similar to how East Asian economies did in the past. Moreover, choosing FDI as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade. This is because China is India’s top import partner, and the trade deficit with China has been growing. As the US and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value, and then re-exporting them.
“Hence, it is imperative that India finds the right balance between importing goods from China and importing capital (FDI) from China,” the Survey says.
The Survey also noted India’s efforts for combating Climate Change by the world, asserting that India is the only G20 nation aligned with a 2-degree centigrade warming target and has led a number of global climate change mitigation efforts.
India has significantly increased its renewable energy sources, with non-fossil sources having reached 45.4% of installed electricity generation capacity by 31 May 2024. Not just that, it had reduced emission intensity of GDP by 33% from 2005 levels by 2019.
India has achieved total annual energy savings of 51 million tonnes of oil equivalent, translating to annual cost savings of Rs 1,94,320 Crore and has issued green bonds worth Rs 16,000 Crore in January-February 2023 and Rs 20,000 Crore in October-December 2023, said the Survey.
The Economic Survey also outlines the great strides made in the social sector with the digitisation of healthcare, education, and governance increasing the impact per rupee spent.
It praised the Welfare Expenditure Growth, Inequality Reduction, Ayushman Bharat, Mental Health Coverage, Vidyanjali Initiative, Higher Education Enrolment, R&D Progress and Housing and Roads gains.
“The Indian economy is moving forward with a reformed approach to welfare, focused on empowerment, efficiency in the delivery of services, and participation of the private sector and civil society. In terms of outreach, the saturation of basic necessities has been recognised as the first step to productive participation of every citizen in the economy, imperative for sustained medium-term growth. In terms of efficiency, the digitisation of healthcare, education and governance is a force multiplier for every rupee spent on a welfare programme,” says the Survey.
“The education sector is bustling with the across-the-board transformation led by the NEP 2020, which is expected to yield Foundational Literacy And Numeracy for every child passing the third standard in the near future. That said, improving learning outcomes and undoing the COVID-induced learning loss is more urgent than ever. In healthcare, Ayushman Bharat is not only saving lives but also saving generations from the trap of debt. The challenge of ensuring mental health and well-being is intrinsically and economically valuable. In the age of social media and ‘the great rewiring of childhood’, this challenge must be met together with destigmatisation, community participation, and fortification of specialised human resources.
“Women-led development is emanating from their social, economic, and political empowerment, occurring through a constructive intermingling of policy and social change. Nevertheless, much scope remains to enhance asset ownership among women, with significant intrinsic and instrumental gains of fairness and economy to be secured,” it says.
Better quality of life in the hinterland is being reinforced by a host of enabling programmes. The self-help movement has come far in terms of its outreach, and the social capital stands to gain from professional assistance in marketing and management. To provide a fillip to rural enterprises, RSETI can be utilised as district hubs of skill development and enterprise.
The Survey notes that a scheme, however well-designed and noble in its formulation, is only as good as its implementation.
“To maximise this efficiency of translating spending into outcomes, many channels at the ground level will have to be unclogged. At the heart of economic development lies human development, which is both the means and ends of the former. Unswerving in its commitment, India has a lot to be content about and a lot to be impatient for,” it says.
The Survey noted that Agriculture sector registered an average annual growth rate of 4.18% over the last five years while total credit disbursed to agriculture amounted to Rs 22.84 lakh crore as of January 31, 2024. Over 7.5 crore Kisan Credit Cards were issued with a limit of Rs 9.4 lakh crore while 90.0 lakh hectares covered under ‘Per drop more crop’ from 2015-16 to 2023-24.
“The performance of the agriculture sector remains critical for the economy’s growth and has been growing at an average growth rate of 4.18 per cent over the last five years. The growing significance of allied sectors such as animal husbandry, dairying, and fisheries in enhancing farmers’ income suggests that greater emphasis should be placed on tapping into the potential of these activities to boost farmers’ incomes. Smallholder farmers’ incomes cannot be increased by producing rice, wheat, or even millets, pulses and oilseeds. They need to move to high-value agriculture – fruits and vegetables, fisheries, poultry, dairy and buffalo meat. Once the incomes of smallholders increase, they will demand manufactured goods, spurring a manufacturing revolution,” it says.
It calls for promoting crop diversification towards oilseeds, pulses, and horticulture which requires addressing critical issues such as investment in agri-infrastructure, credit accessibility and appropriate market institutions.
“Efforts must be made to encourage production patterns and practices in various geographies that are consistent with their agro-climatic characteristics and natural resources. Research and development and promotion of digital technologies in agriculture, as well as improving the quality of seeds, including promoting organic and natural farming, can play a significant role in the realisation of sustainable agriculture practices that efficiently improve farm income and influence farmer behaviour.
“Enhancing private sector investment in agriculture is vital to provide impetus to the agriculture sector. Investment in technology, production methods, marketing infrastructure, and reduction in post-harvest losses need to be scaled up. A greater focus on post-harvest infrastructure and the development of the food processing sector can reduce wastage/loss and increase the length of storage, ensuring better prices for the farmers. Productivity of the crop sector can also be enhanced through greater investment, including from the private sector,” it added.
On Industries front, the last fiscal registered 9.5% industrial growth supporting overall economic growth of 8.2% in FY24, while manufacturing Sector has achieved an average annual growth rate of 5.2% over the last decade.
The Survey said that Pharmaceutical Market of India is the world’s third largest by volume with a valuation of USD 50 billion, while India’s Clothing Manufacturing is the second-largest globally and among the top five exporters.
“Government has taken many recent initiatives to improve ease of doing business, reduce compliance burden and to alleviate logistic and infrastructural bottlenecks. The PLI schemes for key sectors have attracted significant investments, boosted production, sales and exports and generated jobs, particularly in the case of white goods. Where governments across the country can help is in reviewing, amending, relaxing and annulling regulations that are messy, stifling, counterproductive and raise the cost of operations for businesses without commensurate public benefits. Decisions that are best left to the entrepreneurs are mandated by law, leading to fear of prosecution.
“The path to further industrialisation in India is paved with deregulation. Two common requirements across industries relate to incentivising R&D and innovation and improving the skill levels of the workforce. With respect to both, industry must take the lead. Commitment to R&D must be in the DNA of the industry, independent of any fiscal incentive, since it is about global competitiveness and profitability. With active collaboration between industry and academia and emphasis on vocational education in curriculums, India can meet the skill shortage more effectively than hitherto,” it noted.
The Survey has noted that Employment is the crucial link between growth and prosperity, and its quantity and quality determine the extent to which economic output translates into better quality of life for the population.
To foster employment is to oil the engine of demand-led growth, kept running by a populace progressively less dependent on the Government for its dignified survival and sustenance. Generation of suitable employment opportunities, commensurate with the legitimate aspirations of India’s youth, is also necessary to reap the country’s once-in-a-lifetime demographic dividend.
While the employment situation in India has experienced a positive transformation over the last decade, with notable achievements in formalisation, skill development, entrepreneurship, industry diversification, and inclusive growth, positioning India as a dynamic and resilient player in the global job market, the foundations of employment creation by creating an ecosystem of ease of doing business, lower logistical costs, meaningful skill development, and easy credit for entrepreneurship will facilitate sustainable employment creation for everyone in the country.
“Nevertheless, there remain long-existing challenges of formalising a burgeoning workforce, facilitating job creation in sectors which can absorb workers shifting from agriculture, and ensuring social security benefits for those in regular wage/salaried employment,” says the Survey, adding that the agro-processing sector lies at the overlap of India’s requirements of productive, intermediate, and large-scale job creation for rural youth and women, with rich dividends to reap from the convergence of schemes and a mission-mode unwavering focus at a national scale.
“Concurrently, the employment landscape is fast changing worldwide, and India, aspiring to be a developed nation by 2047, must partake in the massive reshaping of jobs that AI has and is likely to further spin off. The impact of automation on workers being complex and uncertain, the direction of technological change remains susceptible to forces of political economy. India thus needs to invest in research and steer the AI bandwagon towards shared prosperity. At the same time, something as basic and age-old as unpaid care work needs our attention too,” it advises.
The Survey advises businesses to bear in mind their responsibility for employment generation and the consequent impact on social stability, while asking Governments – union and states – to remove the challenges and hurdles with respect to skilling of Indian population.
“More than jobs, economic growth is about generating livelihoods. Technological change, geopolitical churn and climate change combine to make this a formidable challenge. Rising to it requires us – Governments at all levels and the private sector – to strive together,” it concludes.
HIGHLIGHTS
* Projects economic growth at 6.5-7 pc in FY25 versus 8.2 pc in 2023-24
* Unprecedented third popular mandate of Modi government signals political, policy continuity
* Domestic growth drivers supported economic growth in FY24 despite uncertain global economic performance
* Indian economy on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges
* To sustain post-pandemic recovery, there has to be heavy lifting on the domestic front
* Reaching agreements on key global issues like trade, investment and climate, has become extraordinarily difficult
* Short-term inflation outlook benign, but India faces persistent deficit in pulses and consequent price pressures
* Expectations of normal monsoon, and moderating global prices of imports give credence to benign inflation projections by RBI
* Hardships caused by higher food prices for poor and low-income consumers can be handled through direct benefit transfers or coupons for specified purchases valid for appropriate durations
* Suggests ways to explore whether India’s inflation targeting framework should target the inflation rate excluding food items
* Escalation in geopolitical conflicts and its impact may influence RBI’s monetary policy stance
* Outlook for India’s financial sector appears bright, says Economic Survey
* As financial sector undergoes critical transformation, it must brace for likely vulnerabilities originating globally or locally
* Economic Survey 2023-24 says healthier corporate and bank balance sheets will further strengthen private investment
* India’s policy adeptly steered through challenges, ensuring price stability despite global uncertainties
* Tax compliance gains, expenditure restraint, and digitisation help India achieve fine balance in govt’s fiscal management: Survey
* Capital markets becoming prominent in India’s growth story; market resilient to global geopolitical, economic shocks
* AI casts a huge pall of uncertainty over the impact on workers across all skill levels
* Increased FDI inflows from China can help India enhance participation in global supply chain, boost exports
* As much as 54 pc of disease burden due to unhealthy diets; need transition towards balanced, diverse diet
* Remittances to India to grow at 3.7 pc to USD 124 billion in 2024, 4 pc in 2025 to reach USD 129 billion.
