The data dissemination system in India is quite robust with almost near real time information being provided with a maximum of one month lag. This being the case, what one looks for in the Economic Survey, are two things: an analysis of the state of economy and projections for the future.
On the side of projections, the Survey provides a forecast for real GDP growth at between 6-6.8% with a baseline number of 6.5%. This number is comforting because firstly it is a range being provided which is realistic and second, it is still above 6% though less than 7% which is the projection for FY23. Interestingly, the IMF retained its forecast at 6.1% just a day back. There are no other objective numbers provided in the Survey but one can assume that the Budget will consider this number seriously when it takes a call on nominal GDP growth. The Survey talks of 11% growth here.
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The takeaways in terms of analysis and views are probably more engaging. First, the Survey believes that India is literally out of the woods. This means that the reverses suffered on account of Covid and the lockdown are now behind us and things are back to normal from hereon. It can also be interpreted to mean that the all-out support provided by the government through budgets and other policies in the last few years can be rolled back. The free food scheme has already been withdrawn while being merged with the PDS under FSB.
Second, the Survey does see higher capex by the government in the last few years bearing fruit in terms of crowding in private investment. This is encouraging though the picture so far is that it is not broad based and restricted more to the infra related sectors. Besides, the gross fixed capital formation rate remains sticky in the range of 27-28%. When it comes to consumer goods industries there are not too many investments being made, which is a concern as it comes in the way of the future consumption story. In fact, CMIE data on new investment announcements (not actual but just intentions) shows the same with some intermediates like chemicals also showing such intentions.
Third, the interesting revelation is that agriculture has been a frontrunner for quite some time now with 4.6% growth being recorded in the last 6 years. Hence, while the focus seems to be normally on industry and services to propel the economy, it is the farm sector that has played the pivot. This has been achieved through several policies of the government like MSP, crop diversification, credit flows, PM Kisan etc.
Fourth, contrary to what many people feel, the Survey highlights that the NREGA programme has helped the beneficiaries create assets. This is revealing as it is normally assumed that the money spent here is more of a cash transfer from the government. The Survey points out that assets like farm sheds, wells, farm ponds etc. have been created which help to improve productivity of the farmers. In fact, diversification into horticulture has been possible partly due to this programme.
Fifth, while talking of the fiscal scene the point made is that the government has been working with the fiscal glide path in mind all the time. It has worked on making money work better by spending it where required the most like for the vulnerable sections as well as capex.
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Here, it makes a point that there is need to incentivise states to meet their capex targets. This could open discussion to being more flexible with the fiscal targets for states as the fear of breaching them have made most of them go slow on capex.
Sixth, on inflation, the document is positive with the implicit deflator to be between 4.2-5%. One of the assumptions made here is that even if the China recovery factor is taken into account, the Survey believes that it will not move the needle much. This is where there can be a contrary opinion as it has been seen that when China starts growing the pace is fast and it goes along with commodity prices overheating. Therefore, things can go awry here and the chances are quite even.
Seventh, with the Indian economy still being the fastest growing one, the demand for imports will continue to increase thus putting pressure on the current account deficit. This, is turn, can pressurise the rupee. Hence, the view is that the CAD will remain elevated (though no specific number has been provided) private forecasts talk of the ratio coming down to around 2.5% in FY24.
Eighth, as an extension, the Survey talks of the recession in the West, leading to interest rates plateauing off which means that as they stabilise or even come down, the investment flows will turn around and India can benefit from such capital flows. An increase here will be a mitigant for the current account deficit and can support the rupee.
Ninth, the commentary on the financial sector is positive and this includes not just banks which went through the NPA challenge and the NBFCs with the meltdown a few years back. Hence, the Survey believes the system is well equipped to finance future growth in the medium term.
Last, on the side of industry the report is sanguine about the progress. The PLI and ECLGS have been argued as being major game changers for large and small industry which will bear results in the years to come. Therefore, the Survey is more than satisfied with the progress made by the economy in the last 5-6 years and is now in a position of strength with no Covid related baggage being carried. Quite clearly in this age of gloom in the West, India is better positioned to grow along a fast track path with no known obstacles along the way.
The author is chief economist, Bank of Baroda and author of: Lockdown or economic destruction?
Views are personal