The Indian economy has broadly caught up with pre-COVID growth trends, averting any permanent scarring, and is likely to grow by 6.5% to 7% this year with prospects of clocking 7%-plus growth in coming years, as per the Economic Survey for 2023-24 that also drew attention to the need to address inequality and unemployment as a policy priority.
Chief Economic Adviser (CEA) V. Anantha Nageswaran, the lead author of the Survey put together by the Economics Division in the Department of Economic Affairs, made a pitch for the Central and State governments to let go of their myriad regulatory powers to ease the burden on businesses. He also prodded the corporate sector, ‘swimming in excess profits’, to take responsibility of generating productive jobs in its own ‘enlightened self-interest’.
Read: Economic Survey 2023-24 updates
Noting that IT sector hiring has slowed significantly in the last two years, the CEA urged Indian industry to think harder about how AI can augment labour rather than displace workers and wrote: “Deploying capital-intensive and energy-intensive AI is probably one of the last things a growing, lower-middle-income economy needs.”
Skilling initiatives
The authors of the Survey, tabled by Finance Minister Nirmala Sitharaman in Parliament on Monday, mooted steps to tackle inequality, improve the young population’s health in the short to medium term, and bridging the education-employment gap over time. They also sought a reboot of India’s skilling initiatives to help industry find people with the ‘right attitude and skills’.
Also Read: Economic Survey 2023-24 full document
Corporates benefit from the higher demand generated by employment and income growth, while the financial sector benefits from channelling household savings for investment purposes, but “short-termism” can weaken these linkages, the CEA sought to convey to industry.
“For India’s working-age population to be gainfully employed, they need skills and good health. Social media, screen time, sedentary habits, and unhealthy food are a lethal mix that can undermine public health and productivity and diminish India’s economic potential. The private sector’s contribution to this toxic mix of habits is substantial, and that is myopic,” he asserted.
Arguing that structural reforms such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code have matured and are delivering envisaged results, the Survey’s authors said such supply side reforms must now make way for “next-gen reforms that are bottom-up in nature to yield strong, sustainable, balanced and inclusive growth”.
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“What has got us here will not get us to where we want to be,” Mr. Nageswaran said, explaining that India’s per capita income GDP has risen seven times since 1990 to $2,500, but the journey to raise it to $10,000 and make India a developed nation by 2047 needs a different approach.
Six-pronged strategy
“Open minds are a good place to start… Our knowledge and attitudes have to continually evolve…” reads the preface to the Survey’s six-pronged strategy prescription that gives primacy to boosting private sector investments “organically and steadily, delivering endogenous growth in jobs and a fair share of income for workers”.
Financing the green transition, removing hindrances for micro, small and medium enterprises (MSMEs), tapping the potential of agriculture to be a growth engine by removing policy impediments and “intelligent farmer-friendly policies”, also figure in the Survey’s wish list.
“Enhancing state capacity” is critical for this strategy to work, as is forging and sustaining consensus between governments, businesses and the social sectors, the CEA said, putting the onus on the political class and the civil service to do more as well. They are best placed to understand the complexity of transforming a nation like India, he said.
“They intuitively know there is no place for exclusive approaches and binary choices, which are the staple of sterile discussions and discourses... They intuitively know that India needs multiple development pathways... But it is easier said than done,” he commented, adding this has not been done before on the scale India needs it, especially amidst a turbulent global environment.
A much-awaited reform of the law dealing with acquisition of land, necessary to build larger factories and infrastructure projects, finds no mention though various chapters in the Survey refer to concerns about delays in land acquisition hampering infrastructure sectors. However, it flags the need to deregulate land use norms for factories and consolidate farmland holdings to boost crop yields.
Investment worries
In the immediate term, while improved balance sheets are expected to help India’s private sector pursue strong investment demand, the Survey’s authors cautioned that private capital formation may turn “slightly more cautious” because of fears of cheaper imports from countries that have excess capacity, in an indirect reference to China.
Mr. Nageswaran, in his preface to the Survey, also averred that attracting foreign direct investment (FDI) flows, which declined in 2023-24, will be a challenge in coming years on account of various factors including higher interest rates and developed countries’ push to encourage domestic investments through considerable subsidies.
Moreover, despite India’s “impressive strides” in the last decade, the CEA stressed that uncertainties and interpretations related to transfer pricing, taxes, import duties and non-tax policies remain to be addressed. “Geopolitical uncertainties, which are on the rise, will likely exert a bigger influence on capital flows, notwithstanding other reasons for preferring to invest in India,” he noted.
The economy can grow at over 7% on a sustained basis in the medium term by building on the past decade’s reforms, but this would need a “tripartite compact” between the Centre, States and the private sector, the Survey’s authors posited.
