The Economic Survey 2023-24 on Monday sounded caution on the Indian economy in a world that is staring at “a future that is immeasurably uncertain”. It made a conservative growth forecast of 6.5-7% for the current fiscal, with risks evenly balanced, and envisages 7%-plus growth in the medium term.
The growth prediction for 2024-25 is lower than 7.2% seen by the Reserve Bank of India (RBI) and Fitch, and warier than the International Monetary Fund’s latest forecast of 7%.
Offering a reality check, the survey suggested a few radical policy shifts, including wooing of foreign direct investment (FDI) from China and putting a stop to privileging capital over labour.
While commending the post-pandemic “emergence of the Indian retail investor”, the survey warned against risk-prone market practices disguised as financial innovations and contended that a low-per-capita-income country like India could ill-afford these.
Stating that the domestic corporate sector “has never had it so good”, with its pre-tax profits quardupling between FY20 and FY23, it called upon the firms to invest more, and step up hiring and worker compensation. “Employment generation is the real bottom line for the private sector,” it said, striking a philosophical tone.
The survey asked for extending “maximum relief” for small and medium industries from the compliance burden they continue to face, and lamented their lower access to credit.
While the Narendra Modi regime is marked for a more-than-subtle tilt towards centralisation, the survey underscored the need to “steer the country through compacts and consensus”. It argued that, “a grand alliance of Union and state governments, and the private sector” would be required to overcome the hurdles to sustained high growth.
In a candid preface to the survey, chief economic adviser V Anantha Nageswaran drew attention to the stark difference between now, as India seeks to finally win its spurs, and during the years (1980-2015) when China’s economy was on a steady ascendancy. While volatile geopolitics and rabid protectionism muddle the global economy now, China benefitted from a period when “globalisation was at the cusp of its long expansion”.
The survey also sought to foretell as to how the advent of artificial intelligence (AI) could “cast a huge pall of uncertainty” on workers across all skill levels, and stymie India’s efforts to growth rate high over the coming years and decades.
Over the last few years, the private corporate sector has got support from the government in various forms – tax reliefs, production subsidies and elevated public capex meant to stimulate a new capex cycle. The CEA offered a nuanced analysis of the sector’s performance vis-a-vis such stimulus, and noted that private sector GFCF (gross fixed capital formation) in machinery and equipment, and IPR products has grown cumulatively by only 35% in the four years to FY23. He, however, added that GFCF by the private sector grew faster (51%) than the general government’s (42%) in FY22-23.
“Businesses have an obligation to themselves to strike the right balance between deployment of capital and deployment of labour. In their fascination for AI and fear of erosion of competitiveness, businesses have to bear in mind their responsibility for employment generation and the consequent impact on social stability,” Nageswaran wrote. “In more than one respect, the action lies with the private sector,” he iterated.
The commentary that run through the survey on jobs serves to acknowledge the employment problem. While setting a tall target to create 7.85 million non-farm jobs annually till 2030, it pointed out that net reduction in employment in the unincorporated enterprises between FY16 and FY23 could be just 1.65 million, versus 5.4 million suggested by recently published annual survey. “It is difficult to conclude that the Indian economy’s ability to create employment is structurally impaired. Nonetheless, going forward, the task is cut out,” it said, without unveiling clear-cut plan to boost jobs.
According to the survey, the surge in agriculture employment is partly explained by reverse migration and the entry of women into the labour force in rural India. “The total number of factory jobs grew annually by 3.6% between 2013-14 and 2021-22 (or from 11 million to 13.6 million). Somewhat more satisfyingly, they grew faster at 4% in factories employing more than a hundred workers than in smaller factories (those with less than a hundred workers). The annual growth rate was 1.2% in the latter set of factories,” it said.
The survey, tabled in Parliament setting the stage for Tuesday’s Union Budget 2024-25, quoted a recent Economist magazine article predicting “a slow demise of India’s services exports over the next decade”, and said in “in this milieu, the corporate sector has a responsibility, as much to itself as it is to society, to think harder about ways AI will augment labour rather than displace workers”.
Advocating a change in approach to China when it comes to economic ties, the survey said the best way to get deeper into global supply chains is through attracting Chinese FDI. This would help the country benefit from China plus one approach which Europe and others are following. “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.”
The survey listed out benign current account deficit of 0.7% of GDP in FY24 and account’s surplus in the last quarter of the year among the sanguine features of the economy. India being a net borrower from the external world, needs foreign savings in considerable measure to finance fixed asset creation. The reliance on foreign capital is even more important for the country now, as domestic savings have plunged headlong.