Economic Survey sees lower GDP growth

The Indian economy has consolidated its post-Covid recovery with policymakers- fiscal and monetary- ensuring economic and financial stability. For the recovery to be sustained, there has to be heavy lifting on the domestic front - V Anantha Nageswaran, Chief Economic Advisor

Defying Global Challenges

• Geopolitical conflicts may influence RBI’s monetary policy stance
• Domestic growth drivers supported economic growth
• Corporates improved their balance sheets
• PMI mfg consistently remained above threshold value of 50
• Various high-frequency indicators reflect growth in services sector
• Indian economy grew 8.2% in FY24

New Delhi: The Economic Survey for 2023-24, which was tabled in Parliament on Monday, painted a rosy picture of the domestic economy, even as it highlighted several concerns. While the growth rate in the last fiscal was 8.2 per cent, the Survey conservatively projected a real GDP growth of 6.5-7 per cent for the current financial year, with risks evenly balanced.

However, the growth projection in the Survey is a tad lower than the Reserve Bank’s growth estimates of 7.2 per cent. However, major global agencies, including the International Monetary Fund (IMF) have projected the growth at 7 per cent.

However, the Survey expressed its displeasure over the private sector’s less-than-enthusiastic response to the central government’s huge expenditure on infrastructure.

In the preface of the Survey, V Anantha Nageswaran, Chief Economic Advisor, wrote: “The Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geo-political challenges.” The CEA brings out the Survey every year.

“The Indian economy has consolidated its post-Covid recovery with policymakers - fiscal and monetary - ensuring economic and financial stability. Nonetheless, change is the only constant for a country with high growth aspirations. 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,” he wrote.

Domestic growth drivers supported economic growth in 2023-24 despite uncertain global economic performance, the Survey noted. Improved balance sheets will help the private sector cater to strong investment demand.

But it added that a note of caution is warranted here. “Private capital formation after good growth in the last three years may turn slightly more cautious because of fears of cheaper imports from countries that have excess capacity.”

While merchandise exports are likely to increase with improving growth prospects in advanced economies, services exports are also likely to witness a further uptick. A normal rainfall forecast by the India Meteorological Department and the satisfactory spread of the southwest monsoon thus far are likely to improve agriculture sector performance and support the revival of rural demand. However, the monsoon season still has some ways to go, it said.

Structural reforms such as the goods and services tax (GST) and the Insolvency and Bankruptcy Code (IBC) have also matured and are delivering envisaged results.

On the issue of employment, which is the Narendra Modi government’s Achilles’ heel, the Survey quoted the annual Periodic Labour Force Survey (PLFS). According to PLFS, “the all-India annual unemployment rate (persons aged 15 years and above, as per usual status) has been declining since the pandemic. This has been accompanied by a rise in the labour force participation rate and worker-to-population ratio. Even by the relatively strict standards of current weekly status, employment has recovered from the pandemic in urban and rural areas. From the gender perspective, the female labour force participation rate has been rising for six years, i.e., from 23.3 per cent in 2017-18 to 37 per cent in 2022-23, driven mainly by the rising participation of rural women”.

Despite global supply chain disruptions and adverse weather conditions, domestic inflationary pressures moderated in the last fiscal, the Survey noted.

Supported by optimism surrounding India’s growth story, progressive policy reform, economic stability, fiscal prudence and attractive investment avenues, India witnessed robust FPI inflows in 2023-24 that helped fund the current account deficit (CAD) and aided the Reserve Bank of India (RBI) in building adequate forex reserves, the survey said. CAD declined to 0.7 per cent of the GDP during 2023-24, an improvement from the deficit of 2 per cent in 2022-23.

The focus of capital expenditure has been broad-based, it said. “Spending in sectors such as road transport and highways, railways, defence services, and telecommunications delivers higher and longer impetuses to growth by addressing logistical bottlenecks and expanding productive capacities. Government capex has also begun to crowd in private investment... Additionally, the government continues to disburse grants-in-aid for the creation of capital assets to the states, thereby incentivising them to increase their productive spending.”

However, it complained about inadequate response from private players. “It is important to note that while it remains the government’s responsibility to facilitate the development of infrastructure and address logistical challenges, it is incumbent upon the private sector to take forward the momentum in capital formation on its own and in partnership with the government. Between FY19 and FY23, the share of private non-financial corporations in overall GFCF (gross fixed capital formation) increased only by 0.8 percentage points from 34.1 per cent to 34.9 per cent.”

The central government has followed a path of fiscal consolidation, while continuing to protect the vulnerable sections and investing in the productive capacity of the economy, the Survey said. “Successive budgets moderated the growth in revenue expenditure.”