By R Gopalan and MC Singhi
The Government placed the Economic Survey 2024-25 in Parliament today. It has rightly conceded that the overall economic growth has moved closer to the decadal average growth of 6-6.5% and likely to remain range bound in 6.3 to 6.8 band. It talks about the global uncertainties and for domestic resilience to help increase growth. It sees recovery in rural demand with private consumption expenditure reaching 61.2% of GDP, highest in the decade. Rural demand, in anticipation of robust agricultural growth and higher MSP, is expected to remain buoyant in facilitating a sustained recovery.
Survey recognizes that in the industrial sector ‘growth moderates but shows positive expectations’. However, with lead sectors for investment and capacity expansion showing sluggishness, buoyant expectation has limited chance of getting fructified. Yes, the capacity utilization in Q1 of 2024-25 is better, so is business expectation and export orders, along with a better PMI for services, but there is sketchy road map for rightward shifting of the growth curve.
We are yet to see signs of internal accruals of corporates getting into capital formation. Survey mentions second generation reforms covering factor markets and unleashing of domestic drivers of growth through enhancing economic freedom and with minimum regulatory controls to increase efficiency. It acknowledges that these reforms are more important for MSMEs which have more compliance related concerns. The fact that the capital of micro enterprises has been destroyed in the pandemic and that its rectification is missing has not been addressed. In general, it advocates infrastructure expenditure to incentivise private investment.
This is a continuing process post covid, but private investors are still shaky. Understanding their mindset is still an issue. Besides investment, the other two issues which have been agitating the common person are inflation and unemployment. On inflation, while the survey acknowledges higher food inflation and steps required to manage it, the survey fails to recognise new pressure points from oils and fats. It also does not talk of growth inflation trade off and impact of global easing of monetary policy with a sticky stand of RBI. The policy options have in fact not been evaluated.
On employment, between 2017-18 and 2023-24 (the latest PLFS), more jobs have been created than the incremental job seekers. The issue on nature and quality of jobs remains. PLFS 2023-24 indicates that less than 25% of workers are with Government, Public & Private Corporate sector and cooperatives. More than three fourths of workers are in informal sector, primarily in agriculture and other low technology sectors or sectors with hardly any specific skills or education.
In agriculture, workers have increased from 44% in 2017-17 to 46% in 2023-24. Thus, the structure of employment is biased in favour of low technology. Manufacturing, notwithstanding the new initiatives of skill development and apprenticeship, employs only 11%of work force. The structure of employment needs a change, but will this change take the lead followed by a structural shift in GDP or the structural shift has to force labour reallocation, is an important question, which is not addressed. The issue how this change could be facilitated is also not discussed.
The issues that would come in the path of our medium-term growth are well covered. The trust factor is emphasized, while the depth of the institutions for strong and swift punishment to violators is glossed over. A new perspective on increased renewable energy capacity in the world versus increased coal power capacity in China is a good addition.