Economic Survey 2023-24 highlights: India’s GDP growth at 6.5-7% in FY25; CEA says households not in distress

Union Finance Minister Nirmala Sitharaman will be presenting the Union Budget 2024-25 on July 23, 2024. It will be a record seventh consecutive Budget presentation for Ms. Sitharaman.

Previously, Morarji Desai presented the Union Budget for six times consecutively. Interestingly, Morarji Desai presented budgets for record 10 times followed by former Finance Minister P. Chidambaram 9 times.

The former Prime Minister Manmohan Singh presented five consecutive budgets in a row between 1991 and 1995. Pranab Mukherjee also presented budgets for five times consecutively out of his 8 presentations.

Stock markets closed lower on July 22 with benchmark Sensex dropping 102 points due to selling in index heavyweight Reliance Industries and Kotak Bank on muted earnings and caution ahead of the Union Budget.

Falling for the second day in a row, the 30-share BSE Sensex dropped by 102.57 points or 0.13% to settle at 80,502.08. The barometer fell by 504 points or 0.62% to hit an intra-day low of 80,100.65 but recovered most of the losses as Infosys and HDFC Bank advanced. - PTI

Indian airlines need to be strengthened in order to ensure long-haul international air connectivity, the Economic Survey 2024 said.

The emphasis on supporting Indian carriers, it said, was required to plug the leak caused by a large proportion of Indian long-haul international traffic travelling through connectivity hubs in the Middle East and Southeast Asia.

1. For India to take a leadership position in aviation, focus is required on improving the efficiency and viability of airlines

2. A large proportion of Indian international traffic for the long haul goes through connectivity hubs in the Middle East and Southeast Asia. There is also need to provide adequate long-haul connectivity from India by strengthening Indian airlines.

The Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce, according to the Economic Survey for 2023-24.

The Survey also laid emphasis on the private sector’s role to create employment in the country saying “In more than one respect, the action lies with the private sector. In terms of financial performance, the corporate sector has never had it so good.” It noted that results of a sample of over 33,000 companies show that, in the three years between FY20 and FY23, the profit before taxes of the Indian corporate sector nearly quadrupled.

The pre-budget Economic Survey called for urgent reforms in India’s agricultural sector, warning that the structural issues could impede the country’s overall economic growth trajectory.

Chief Economic Advisor V. Anantha Nageswaran called for a pan-India dialogue on the agriculture sector. “Indian agriculture is not in a crisis now but requires a serious structural transformation because climate change and water criticality loom large in the times to come,” the Survey stated.

The CEA advocated for a reassessment of existing policies, despite current government subsidies and support measures for farmers.

India’s micro, small and medium enterprises (MSMEs) continue to face “extensive regulation” and compliance requirements, apart from major bottlenecks in access to affordable and timely funding being one of the “core concerns”, the Economic Survey said on July 22. 

Asserting that further reduction in the compliance burden for MSMEs will considerably improve their growth prospects, the Survey for 2023-24 tabled in Parliament recommended “progressively easing the compliance requirements with a single-window mechanism for clearances, digitisation of processes and equipping MSMEs to handle these processes with ease”.

On the rising formalisation of the workforce, the CEA noted a significant increase in the EPFO enrolments. “It is heartening to see that some of the staffing companies have recorded an average growth rate of 13.2% in the last 10 years because these workers come with full benefit,” he said.

Over 13,000 DPIIT-recognised startups in AI, IoT, robotics and nanotech and the number of patents filed per year has gone up by 17x between FY15 and FY24, the CEA said.

Addressing the media, the CEA said that we also need to focus on the manufacturing and SME sector. To create an SME or Mittlestand in German, most important thing we can do from the government perspective is deregulation — threshold-based incentives must have sunset clauses and much of action is required at the State and Local Government levels, the CEA said.

He added that when it comes to skilling, most of our entrepreneurs understand business and customers very well. “Most of the small enterprises have very limited management bandwidth, so if we can reduce the compliance burden on them we also release the bandwidth for them to focus on growing their business and also focusing on their human resource endowment as well,” he said adding that it will likely solve the problem of India’s lop-sided distribution of enterprises.

Agriculture carries a huge potential for driving growth if only we can make sure that the incentives are aligned and allied services in agriculture are also encouraged and land consolidation also happens in a big way. More than 85% of the land is only about two hectares or less and the average land holding size has been coming down since the 1970s. This is an action area for State Governments because mechanisation and technology adoption are not economical under less than four hectares, the CEA said.

He added that land consolidation is necessary for boosting the average yields in many crops in India which are at least about 20-40% below global levels, like tomato, onion, cotton, etc. “If we can bridge this gap we not only ensure domestic food security but also can become a very important exporter in the food area which would also give us strategic advances,” he said.

Chief Economic Advisor V. Anantha Nageswaran emphasised the crucial and positive role that artificial intelligence (AI) can play for the Indian demography and labour force during a press conference on the Economic Survey 2023-24. 

He noted that within the next decade, India is poised to become the world’s third-largest economy and will benefit significantly from its demographic dividend. 

However, Mr. Nageswaran also acknowledged potential challenges posed by AI, particularly for India’s Business Process Outsourcing (BPO) sector. 

He stated, “The short-term challenge of generative AI could slow BPO sector growth, affecting customer services. It is possible that the jobs related to BPO will be under threat whereas AI may actually turn out to be a booster.” 

Furthermore, Mr. Nageswaran also pointed out that the emergence of AI might reduce annual productivity growth by approximately 0.3 percentage points in the coming years. This indicates a potential short-term dip in productivity as industries adapt to new technologies. 

Despite these challenges, Mr. Nageswaran added that the long-term potential of AI is promising. The broader adoption of AI could lead to significant improvements in critical areas such as healthcare and education, thereby enhancing human capital.

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The CEA said pragmatism has to be the policy mantra. “We are facing a very challenging global environment combined with climate change narrative... we need to make sure that we pursue all possible approaches without any doctrinaire orientation or ideological orientation,” he said. He added that it is no long longer about the big-ticket reforms that dominate the front pages but about the grunt work. “It is about the nuts and bolts and plumbing of governance that we need to get right in order to drive the growth forward, which is the theme of Chapter 5 of the Economic Survey,” he said. 

The ways in which we can ensure that growth continues at a pace by which we can have a fair shot at our aspiration of Viksit Bharath, the CEA said, are — generating productive employment, addressing skill-gap challenge, tapping into the full potential of the agricultural sector, easing regulatory requirements and financing bottlenecks for MSMEs, managing India’s green transitions, navigating Chinese conundrum, deepening the corporate bond market, tackling inequality and improving the quality of health in India’s young population.

The CEA said there has been a notable transformation in India’s employment landscape. “Factories which have more than 100 workers are seeing their workforce rise faster, it is a very good sign of formalisation of the Indian manufacturing sector, according to the Annual Survey of Industries data,” he said.

The CEA said India’s external debt ratio is lower than many other countries. “Given that India has a very low external debt ratio, a weak currency doesn’t hurt. If India had a very large dollar exposure, a weak currency would be problematic because what you gain on the trade side you might lose on the external liabilities side but that is not the case with India,” he said.

Chief Economic Advisor V. Anantha Nageswaran said India is ranked 8th in business services exports and 2nd in world telecommunication, computer and information services exports and overall India has a 4.3% share. In terms of share of global value chain-related trade, India’s GVC contribution has gone up by over 12.5 percentage points in the last 20 years.

The CEA said that the PLI schemes have garnered ₹1.28 lakh crore of investment. “PLI schemes are gathering momentum and the results are evident in several product areas such as electronic, pharma...,” he said.

The food grain production of 329 million tonnes is a slight decline compared to the previous year because of the erratic monsoon but the sector is expected to perform better, the CEA said. “We need to encourage crop diversification with our MSP policies going forward,” he said.

The Chief Economic Advisor said that the household savings in physical assets have improved. “Households are not in distress, they are investing in financial assets that have done very well... Financial assets of households are not marked to market so households are doing quite well in the aggregate,” he said.

Chief Economic Advisor V. Anantha Nageswaran said there is momentum in the economy. “We are now one quarter in the new financial year and even high-frequency” indicators are telling that the economy is carrying on the momentum that we saw until the end of March 2024 when we grew at 8.4%,” he said.

The average growth rate in the last three years up to March 2024 has been around 8%. The real GDP is 20% above the pre-pandemic levels as stated in the Economic Survey, he said.

Several countries attempting net-zero at the same time is going to be a major issue in terms of resource availability, etc. When Japan and China were making their transition from lower-income to higher-income countries didn’t have to worry about geopolitical fragmentation, global trade and climate change. Globalisation was at its peak. We have to now chart our path to Viksit Bharath amidst these challenges. That is why domestic growth becomes very very important, the CEA said at the press briefing.

Chief Economic Advisor V. Anantha Nageswaran said no economic approach will be excluded. “We need manufacturing, we need services, we need agriculture, we need the public and private sectors to act together, we need Union and State Governments to act together because given the way the global conditions are evolving we don’t have the luxury of picking and choosing specific approaches in our path towards Viksit Bharath and that is the overall theme of the survey.

The Economic Survey tries to identify the areas and actions that we need to take such that four important challenges — introduction of AI, need to balance energy security and energy transition, the imperatives of employment and skiing — can be addressed as best as possible, the CEC said.

In the previous three years, the deviation of inflation from the target of 4% is a lowest in India and the headline inflation rate is coming well below the band and should come below 5% in the current financial year, the Chief Economic Advisor said.

Chief Economic Advisor V. Anantha Nageswaran is addressing the media after the presentation of the Economic Survey 2023-24 in the Parliament.

Remittances to India — the second largest source of external financing after service exports — are projected to grow at 3.7% to $124 billion in 2024 and at 4% to reach $129 billion in 2025, the Economic Survey said. India’s primary source of remittances is oil-exporting countries.

According to the World Bank, India has the largest emigrant population and is the top remittance recipient country. In 2023, remittances to India had hit $120 billion.

“The outlook for remittance in India for 2024 is strong, with the expectation that remittance growth will moderate to 3.7%, taking... levels to $124 billion in 2024,” the Economic Survey tabled in Parliament by Finance Minister Nirmala Sitharaman said.

The initiatives of the government for cleaner fuel such as coal gasification mission and exploring coal to hydrogen need to be promoted to reduce emission and increase environmental sustainability, the Economic Survey said.

While phasing in renewables to the extent possible is crucial, in the short to medium term, the focus should also be on actively adopting clean coal technologies.

With the arrival of ultra super-critical technologies for coal-fired power plants, it would be possible to bring down emissions and achieve higher efficiency, the Economic Survey 2023-24 tabled in Parliament said.

“In exploring the landscape for ensuring energy security, it has become evident that risks are not merely obstacles but also harbingers of opportunities. While uncertainties loom, they present avenues for innovation, adaptation, and growth for India. While phasing in renewables to the extent possible is imperative, in the short to medium term, the focus should also be on actively adopting clean coal technologies,” it said.

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“Capital markets are becoming more prominent in India’s growth story, with an expanding share in capital formation and investment landscape on the back of technology, innovation and digitisation,” according to the Economic Survey 2023-24 tabled in Parliament on July 22. Further, Indian markets are resilient to global geopolitical and economic shocks.

Read more here

A higher level of private sector financing and resource mobilisation from new sources will be crucial for India to build quality infrastructure, according to the Economic Survey 2023-24.

According to the survey, facilitating this would not only require policy and institutional support from the central government, but state and local governments will have to play an equally important role.

The survey noted that there is a need to improve data capture and reporting mechanisms for investments in infrastructure across instruments and sectors as well as its composition across different projects at a granular level.

Existing databases fall short on assessing the demand for infrastructure and tracking the utilisation of facilities built in the sub-sectors, the pre-Budget document said.

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The Economic Survey has projected a positive outlook for the real estate sector with housing demand set to rise on rapid urbanisation, but described legacy stalled projects as a “challenge”.

“Real estate and ownership of dwellings have accounted for over 7% of the overall GVA (gross value added) in the past decade, highlighting their integral role in the economy,” the survey said.

“The outlook for the real estate sector is encouraging. With increasing urbanisation, the housing industry is poised for a significant transformation,” the survey document said.

The government has decided to allocate 5% of Universal Services Obligation Fund (USOF) for research and development of telecommunications technology, said the Economic Survey 2023-24 tabled in Parliament.

At present, the government has a corpus of around ₹80,000 crore collected under USOF which has now been renamed as Digital Bharat Nidhi.

“Telecommunication technology development requires significantly large and patient capital for R&D and commercialisation. To address this, the government has decided that an allocation of 5% of annual collections from Universal Services Obligation Fund would be made available for funding R&D in the telecom sector,” the survey said.

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India needs to seize the opportunity provided by the tourism sector that represents a relatively low-hanging fruit for job creation amid a challenging environment in services and manufacturing industries due to the rise of AI, protectionism and supply concerns, the Economic Survey said.

India’s tourism industry showed positive signs of revival post-pandemic and witnessed over 92 lakh foreign tourist arrivals in 2023, implying a YoY increase of 43.5%, while the hospitality industry has risen to meet the increasing number of tourists’ needs by creating the highest amount of new supply in 2023 with the addition of 14,000 rooms, it noted.

Citing the World Economic Forum’s (WEF) Travel and Tourism Development Index (TTDI) 2024 Report, the Economic Survey 2023-24 emphasised the need for improvements in tourist services and infrastructure and the development of a skilled workforce.

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The short-term inflation outlook for India is benign, and the expectation of a normal monsoon and moderating global prices of key imported items give credence to the projections made by the RBI and IMF, the Economic Survey said.

However, to ensure long-term policy stability, the Survey 2023-24 suggested making focused efforts to increase the production of major oilseeds, expanding the area under pulses, and assess the progress in developing modern storage facilities for specific crops.

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The Survey notes that India has made significant progress on climate action in terms of an increase in its renewable energy capacity and improvement in energy efficiency. As of 31 May 2024, the share of non-fossil sources in the installed electricity generation capacity has reached 45.4%. It also notes that India has reduced the emission intensity of its GDP from 2005 levels by 33% in 2019.

It notes that India’s energy needs are expected to grow 2-2.5 times by 2047, and that “the pace of energy transition would need to factor in alternative demands on the resources for improving resilience to climate change and for sustained social and economic development.”

It also listed the government’s plans to raise funds to increase investment in renewables. 

The Survey noted that Covid-19 pandemic, geopolitical tensions and supply disruptions contributed to rising inflationary pressures globally, including in India, in FY22 and FY23. 

It also credited the Centre’s policy interventions and the RBI’s price stability measures to maintain the retail inflation at 5.4% in FY24, the lowest since the pandemic.

It noted that retail inflation decreased in FY24 due to a fall in core inflation -- both goods and services. Core consumer durables inflation in FY24 declined due to an improved supply of key input materials to industries.

It noted that food prices are under pressure due to adverse weather conditions.

It noted that “the medium to long-term inflation outlook will be shaped by the strengthening of price monitoring mechanisms and market intelligence as well as focused efforts to increase the domestic production of essential food items like pulses and edible oils, for which Indian imports depend on.”

The Economic Survey notes that India’s external sector remained strong despite geopolitical headwinds and inflationary pressures. 

It notes that India’s rank in the World Bank’s Logistics Performance Index improved to 38th in 2023 from 44th in 2018. It also notes that India has diversified export destinations and increased service exports. India also improved its current account deficit, which narrowed 0.7% in FY24.

It also noted that the country witnessed positive net foreign portfolio investment inflows in FY24 and the external debt to GDP ratio stood at 18.7% at the end of March 2024.

“Challenges such as slowing global GDP growth (i.e, fall in global demand) and an all-time rise in trade protectionism (i.e, weakening globalisation) can pose a significant downside risk. In this context, both the government and the private sector must focus on removing barriers and implementing steps to boost India’s export competitiveness,” it noted.

The Survey has noted that increased foreign direct investment inflows from China can help increase India’s global supply chain participation and push exports.

The Survey said as India looks to deepen its involvement in global value chains (GVCs), it needs to look at the successes and strategies of East Asian economies.

The production linked incentive scheme (PLI) for the automobile and auto component sectors has attracted a proposed investment of ₹67,690 crore, the Economic Survey noted.

The Survey noted that India’s banking and financial sectors “displayed a stellar performance in FY24.” It notes that bank credit has grown significantly, NPAs and GNPAs have come down and there is an improvement in bank asset quality, says that these “highlight the government’s commitment to a healthy and stable banking sector.”

It also noted that the primary capital markets facilitated capital formation of ₹10.9 lakh crore during FY24 and the market capitalisation of the Indian stock market witnessed a surge. It noted that the use of direct benefit transfer, and promoting digital payments using RuPay cards, UPI etc, would help in financial inclusion.

“India’s financial sector must brace for likely vulnerabilities originating globally or locally while undergoing critical transformation. The Government and regulators have to be agile and flexible to intervene with policy and regulatory levers, as required,” it said.

The Survey notes that the agriculture sector requires a pan-India dialogue. It notes that the government supports farmers in multiple ways, from providing subsidises for water, electricity and fertilisers; not taxing farmer incomes; and providing MSP for 23 commodities; a monthly cash support and even periodically writing off farmers’ loans.

“So, governments in India spend enough resources to look after the farmers well. Yet, a case can be made that they can be served better with some re-orientation of existing and new policies,” it says.

“The payoff will be immense if we untie the knots that bedevil farm sector policies. More than anything else, it will restore faith in the self-confidence and ability ofthe state to steer the nation to a better future, apart from delivering socio-economic benefits,” it adds.

The Survey notes “corporate sector has never had it so good”. It notes that the profit before taxes of the Indian corporate sector nearly quadrupled and the corporate profits-to-GDP ratio rose to a 15-year high in FY24. But, it notes that India Inc. can do more by increasing investments or employment generation.

“It is in the enlightened self-interest of the Indian corporate sector, swimming in excess profits, to take its responsibility to create jobs seriously. Of course, it must find people with the right attitude and skills,” it notes.

It notes that the geopolitical environment between the last Economic survey (published in January 2023) and the current survey is different. It noted that the environment that helped China rise is different from the current situation -- it notes globalisation was on the rise and that the West encouraged “welcomed and even encouraged the rise of China and its integration into the world economy.“ It also says the concerns over climate change and global warming were not as significant then compared to now. It also talks about the advent of Artificial Intelligence and its impact on workers. “These will create barriers and hurdles to sustained high growth rates for India in the coming years and decades. Overcoming these requires a grand alliance of union and state governments and the private sector,” it says.

The Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges, the Economic Survey says. It notes that the Indian economy has consolidated its post-Covid recovery as policymakers ensured economic and financial stability. 

However, it notes, that “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.”

FM tables the Economic Survey in the Rajya Sabha

Finance Minister Nirmala Sitharaman tabled the Economic Survey 2023-24 and Economic Survey 2023-24 statistical appendix in Lok Sabha. She will present the survey later in the day.

The Budget is not just a revenue and expenditure statement of the government. It has to be understood as representing the policy and the politics of the incumbent government, writes G. Vijay is a faculty member, School of Economics, University of Hyderabad.

The Union Budget as litmus test of a rethink or stasis

The Budget will be keenly watched for how it reflects the ground realities in India and which found expression in the general election 2024

Ahead of the Economic survey, let’s take a look at how the Indian economy is doing.

The Economic Survey document will give insights into the state of the economy and various indicators of 2023-24 (April-March) and some outlook for the current year.

It is prepared by the Economic Division of the Department of Economic Affairs in the Ministry of Finance and formulated under the supervision of the Chief Economic Adviser. It may also give some idea about the tone and texture of the Union Budget.

Originally, it was a part of the Budget document, but it was separated and presented before the Union Budget in the 1960s. 

Look for the document’s theme. For example, in 2022, the central theme was ‘Agile Approach’, and it focused on India’s economic response to the COVID-19 pandemic. In 2023, it was ‘Recovery Complete’, focusing on the economy’s recovery from the pandemic-induced contraction, the Russian-Ukraine conflict and the post-pandemic growth path.

ANI

Union Finance Minister Nirmala Sitharaman will be tabling the Economic Survey 2024-25 today, the first day of the Monsoon Session of Parliament.

The Economic Survey is an official report card on the government’s financial performance and the state of the economy during the year ending March 31. It also provides an outlook on future policy changes. It is usually released by the Ministry of Finance a day before the Union Budget is tabled.

According to the Economic Survey 2023-24 which was tabled on February 1, 2023, it asserted that not only are the pandemic-induced blues over, but the outlook for the years ahead is also rosier than in the pre-COVID years.

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Mr. Modi hit out at Opposition parties, saying that they tried to not let him speak in Parliament in the last session, adding that such tactics have no place in a democracy. He slammed the negative politics of some parties, saying they used Parliament’s time to hide their failures.

“People have given verdict, will appeal to all political parties to fight together for the country for the next five years,” Mr. Modi said.

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