The Economic Survey 2024 may be lacking in the so-called big ideas to take the economy on a higher growth path. But it has excelled in plain-speaking, rather than painting too rosy a picture in its analysis of the economy. The gross domestic product (GDP) growth forecast for FY25 is 6.5-7% even though the Survey is “cognizant of the fact that the market expectations are on the higher side”. The caution, however, is understandable if one considers the high base of 8.2% in FY24, and the many global headwinds. With consumption anaemic, interest rates elevated, and a rural recovery elusive, it is not surprising that the Chief Economic Advisor is tempering expectations. With little visibility on demand, private sector investments have not picked up meaningfully; the combined capex of the Centre and the central public sector enterprises has remained more or less flat — as a share of GDP — in the past couple of years.
The Survey notes that while there is potential to attract foreign direct investment (FDI) in several sectors, these must be made more accessible for investments by making it easier to do business. It does well to remind the government that it must ensure there is regulatory stability, labour laws are flexible, and that there is adequate availability of skilled workers. In fact, the Survey stresses the need to improve the general ease of doing business. There is clearly a realisation that things on the ground are not as good as they should be and that focus on detail — across all levels of government and regulators — is needed. The Survey also opines that the licensing, inspection, and compliance burden is onerous and that the government must “let go of its grip” in areas where it doesn’t need to have one.
In an interesting point of view, the Survey notes that attracting more FDI inflows from China can help enhance India’s participation in the global supply chain and give exports a push, much like other East Asian economies have done. This might be better than integrating into China’s supply chain. If, as the Survey estimates, the economy needs to add 7.85 million jobs annually until 2030 in the non-farm sector, the government must consider some of these suggestions. Importantly, as the Survey notes, it is necessary to bridge the education-employment gap. The outlays for both education and skills have been stagnant over the years and need to be increased. Again, exhorting the corporate sector, which is “swimming in excess profits”, to “think harder” about how artificial intelligence can augment rather than displace workers, the Survey notes that deploying capital-intensive and energy-intensive AI is “probably one of the last things a growing, lower-middle-income economy needs”. While unemployment may have fallen after the pandemic it is also true that not enough well-paying job opportunities are being created; International Monetary Fund research showed the manufacturing space added only 15 million jobs between 1995 and 2019.
The Survey also rightly emphasises the need to support medium and small enterprises given their employment potential, saying the sector faces extensive regulation and compliance requirements and finds it hard to access affordable funding. This issue can be resolved if, as the Survey proposes, India’s inflation targeting framework excludes food since higher food prices are more often supply-induced rather than demand-driven. That would drive down interest rates, now artificially high. This would help not just micro, small and medium enterprises but also other borrowers.
