Economic Survey 2023-2024: a preview of future policy
The Economic Survey released on Monday projects growth for this fiscal year (FY25) at 6.5-7 per cent, which seems too conservative given the RBI’s forecast of 7.2 per cent. While this figure may not be significant, other than being the official projection made by the ministry, it would likely be used while making projections on GDP growth in the budget. The interim budget had assumed growth of 10.5 per cent for the year, and with the real growth rate pegged at 6.5-7 per cent, the nominal growth rate would likely remain unchanged.
What does the survey indicate? The general discourse is twofold. First, there is the belief that the economy is doing very well and although there is still a long way to go given the external circumstances, the path is clear. Second, there are several weaknesses that need to be addressed, which can accelerate the growth process. The survey is comprehensive and covers all sectors of the economy and provides a compelling outlook in this regard.
There are five issues that have come up in the survey that need to be discussed. The first is investment. While it is admitted that there has been an increase in private investment, it has been more limited to construction and growth in machinery has been on the low side. On the other hand, government spending on capex, which goes towards capital formation, has been more impressive. The solution offered is that there should be a tripartite agreement where the Centre, the states and the private sector have to work together. This sounds pragmatic.
Secondly, the challenge of employment is probably one of the most pressing issues facing the country today. There are two issues here. Firstly, there has been a trend of labour migrating back to agriculture during the pandemic and this needs to change. Construction is one of the larger employers but comprises lower skilled jobs. This matrix needs to change in favour of manufacturing. Secondly, the survey emphasises both the training and reskilling of the workforce to support growth. The latter is directly required for growth while the former is a gap that needs to be filled. The statistic that less than half of the workforce is employable is alarming and also indicates the distance that needs to be covered. In this context, the survey emphasises the inevitability and also the threat of redundant technology in the form of AI, which has the potential to make labour redundant. The third area of focus is the green transition. This is something that everyone is aware of. Businesses are also becoming more aware of climate change. But the nation must be aware of the changes taking place and ensure that the problems do not blow over.
Fourthly, the Survey raises a cautionary note when it comes to the financial sector. There have been many changes here with capital markets flourishing and attracting investor interest. This has come at the cost of savings migrating from bank deposits to risky stocks. While this is how systems work abroad, the concern is more about whether retail investors are aware of the risk they are taking on. While capital markets dominate developed economies, India remains a bank-oriented economy, with the heavy lifting done by these institutions. As the country seeks higher, sustained growth supported by private investment, there would be a need for greater inflows from banks, which could be challenged if savings migrate.
Fifth, there is a strong link that the Survey establishes between agriculture and inflation. This is interesting because inflation today is high mainly because of the food component, which in turn is linked to inherent problems in the oilseeds and pulses segments. The need to increase production has been stressed, but the real challenge is to get farmers to grow more of these crops, given the vulnerability of the monsoon that still exists.
The research has also identified a number of action points that need to be addressed in the coming years.
The writer is Chief Economist at Bank of Baroda. The views expressed are personal.
First print: Jul 23, 2024 | 12:02 PM IST