Economic Survey of India: What to cheer, what to worry about

The Economic Survey of India has been released – and with it much to cheer for and some challenges.

The Economic Survey 2022-23, tabled by finance minister Nirmala Sitharaman in Parliament, said India’s economy is pegged to slow to 6.5 per cent in the fiscal year beginning in April but will remain the world’s fastest-growing major economy.

Meanwhile, inflation and the current account deficit are things to keep a close eye on.

Let’s take a closer look at what the survey, which kicks off the Budget Session of Parliament, said:

What to cheer

The survey detailing the state of the economy said India, like the rest of the world, faced an extraordinary set of challenges in tightening financial conditions and supply chain disruptions from a prolonged war in Europe.

However, it “withstood them better than most economies”.

“Economy has nearly recouped what was lost, renewed what had paused, and re-energised what had slowed during the pandemic and since the conflict in Europe,” the survey read.

As per Mint, the survey predicted that India will witness gross domestic product (GDP) growth of 6 to 6.8 per cent in 2023-2024

That figure was at 7 per cent in 2022-2023 and 8.7 per cent in 2021-2022.

The survey projected a 6.5 per cent base GDP growth in real terms in the 2023-2024 Financial Year – an estimate similar to those produced by the World Bank, International Monetary Fund (IMF), and Asian Development Bank (ADB), as per Mint.

As per Indian Express, the survey said that the upside to India’s growth outlook arises from

• Limited health and economic fallout for the rest of the world from the current surge in COVID-19 infections in China and, therefore, continued normalisation of supply chains
• Inflationary impulses from the reopening of China’s economy turning out to be neither significant nor persistent
• Recessionary tendencies in major AEs triggering a cessation of monetary tightening and a return of capital flows to India amidst a stable domestic inflation rate below six per cent
• This leading to an improvement in animal spirits and providing further impetus to private sector investment.

The survey also stated that India is the world’s third-largest economy in terms of purchasing power parity (PPP) and fifth-largest in terms of the exchange rate.

Pegging nominal growth at 11 per cent for 2023-24, the survey said the growth in the financial year beginning 1 April will remain strong relative to most global economies, led by sustained private consumption, a pick-up in lending by banks, and improved capital spending by corporations.

Chief Economic Advisor V Anantha Nageswaran on Monday released the Economic Survey of India. PTI

The optimistic growth forecasts stem from a number of positives like the rebound of private consumption giving a boost to production activity, higher capital expenditure, and near-universal vaccination coverage enabling people to spend on contact-based services such as restaurants, hotels, shopping malls and cinemas.

The return of migrant workers to cities to work on construction sites leading to a significant decline in housing market inventory is also a factor for the optimistic growth projection, it said.

As per Mint, housing prices have begun to hold steady and existing inventory reduced due to demand.

The survey also described the ‘great potential’ of the aviation industry on account of increased demand from the middle class, more disposable income, and India’s demographic dividend.

It pointed out that air travel has rebounded after restrictions were lifted and praised the UDAN scheme as being one of the factors helping strengthen the industry.

The strengthening of the balance sheets of corporates, well-capitalised public sector banks ready to increase the credit supply and the credit growth to micro, small, and medium enterprises (MSME) sector have also helped.

As per Current Affairs, the survey said that though Foreign Direct Investment (FDI) in manufacturing moderated in the first half of FY23, inflows remained well-above levels before the pre-pandemic.

This is due to structural reforms and measures improving the ease of doing business – which makes India one of the most attractive FDI destinations in the world,  the survey said.

The survey also pointed to the Indian pharma industry’s ‘prominent role’ around the world. It said cumulative FDI in the pharma sector crossed the $20 billion mark by September 2022.

In the mobile phone segment, India has become the second-largest mobile phone manufacturer globally, with the production of handsets going up from 6 crore units in FY15 to 29 crore units in FY21

The survey said the growth is expected to be brisk in FY24 as a vigorous credit disbursal, and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sector.

Further support for economic growth will come from the expansion of public digital platforms and measures such as PM GatiShakti, the National Logistics Policy, and the production-linked incentive schemes to boost manufacturing output.

The survey said there has been an improvement in employment conditions in India due to stronger consumption but a pick-up in private investment is essential to creating more jobs.

Cause for concern

While it indicated that inflation may not be too worrisome, borrowing costs are likely to remain ‘higher for longer’ as entrenched inflation may prolong the tightening cycle.

India’s inflation management has been particularly noteworthy and can be contrasted with advanced economies that are still grappling with sticky inflation rates, as per Current Affairs.

The survey said that though India’s recovery from the pandemic was relatively quick, growth will be supported by solid domestic demand and pick-up in capital investment, the challenge to the rupee remains as the US Fed is likely to  further interest rates.

“While commodity prices have retreated from record highs, they are still above pre-conflict levels. Strong domestic demand amidst high commodity prices will raise India’s total import bill and contribute to unfavourable developments in the current account balance. These may be exacerbated by plateauing export growth on account of slackening global demand. Should the current account deficit widen further, the currency may come under depreciation pressure,” it said, as per Indian Express.

“India has sufficient forex reserves to finance CAD and intervene in forex market to manage rupee volatility,” it stated further according to Outlook.

The challenge to the rupee remains as the US Fed is likely to  further interest rates. PTI

India’s CAD was 4.4 per cent of GDP in July-September period, higher than 2.2 per cent a quarter ago and 1.3 per cent a year ago, as rising commodity prices and a weak rupee increased the trade gap.

On exports, it said the growth moderated in the second half of current fiscal. Slowing world growth, shrinking global trade led to loss of export stimulus in the second half of the current year.

India’s economy has rebounded since the COVID-19 pandemic, but the Russia-Ukraine conflict has triggered inflationary pressures and prompted central banks, including India’s, to reverse the ultra-loose monetary policy they adopted during the pandemic.

The survey stated that the inflation projection by RBI at 6.8 per cent for current fiscal (FY23) is above the central bank’s tolerance limit but the pace of price increase is not high enough to deter private consumption or low enough to weaken investment.

With inputs from agencies

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