Economic Survey 2023- Key Takeaways

Context:

Recently, the government tabled the Economic Survey 2022-23. The Survey laid out the outlook for India’s growth, inflation and unemployment in the coming years.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. What is the Economic Survey?
2. What are the main takeaways this year?
3. What does it mean for India’s economy?
4. What is the reference to 2003?

What is the Economic Survey?

• The Survey provides a detailed report of the national economy for the year along with forecasts. It touches upon everything from agriculture to unemployment to infrastructure.
• It is prepared by the Economic Division of the Department of Economic Affairs (DEA).
• The comments or policy solutions contained in the Survey are not binding on the government.

What are the main takeaways this year?

GDP growth:

• The Survey said India’s growth estimate for FY23 is higher than for almost all major economies.
• “Despite strong global headwinds and tighter domestic monetary policy, if India is still expected to grow between 6.5 and 7.0 per cent, and that too without the advantage of a base effect, it is a reflection of India’s underlying economic resilience; of its ability to recoup, renew and re-energise the growth drivers of the economy,” said the Survey.

Inflation:

• The RBI has projected headline inflation at 6.8% in FY23, outside its comfort zone of 2% to 6%.
• High inflation is seen as one big factor holding back demand among consumers.
• However, the Survey sounded optimistic about the inflation levels and trajectory, saying “it is not high enough to deter private consumption and also not so low as to weaken the inducement to invest.”

Unemployment:

• The Survey said “employment levels have risen in the current financial year”, and that “job creation appears to have moved into a higher orbit with the initial surge in exports, a strong release of the “pent-up” demand, and a swift rollout of the capex.”
• It pointed to the Periodic Labour Force Survey (PLFS), which showed that urban unemployment rate for people aged 15 years and above declined from 9.8% in the quarter ending September 2021 to 7.2% one year later.
• The Survey also underlined that the fall in unemployment rate is accompanied by an improvement in the labour force participation rate.

Outlook for 2023-24

• The Survey projected a baseline GDP growth of 6.5% in real terms in FY24.
• However, it detailed some downside risks.
  • For instance, low demand for Indian exports, thanks to poor global growth, may widen India’s trade deficit and make the rupee depreciate. Similarly, sustained monetary tightening (higher interest rates) may drag down economic activity in FY24.

What does it mean for India’s economy?

• The focus of this year’s Survey is that India’s economy has overcome the impact of Covid and is finally set to see strong and sustained growth in the upcoming years.
• According to CEA V Anantha Nageswaran, the period from 2014 to 2022 under the BJP government saw significant structural and governance reforms that improved the economy’s efficiency.
• These reforms did not immediately produce desired results due to banks clearing their non-performing assets and businesses reducing their debt, and were further impacted by the Covid pandemic and the Ukraine war.
• However, as these shocks subside, the Survey predicts that the Indian economy will grow at its full potential, similar to the growth experienced after 2003, making its outlook better than before the pandemic.

What is the reference to 2003?

• The Survey argued that the situation in 2023 is similar to how the economy was poised in 2003.
• It said the period between 2014 and 2022 is analogous to 1998-2002, when despite transformative reforms by the government (also led by the BJP), the Indian economy lagged growth returns.
• This was due to temporary shocks such as the US sanctions after India’s nuclear test, two successive droughts, the collapse of the tech boom, etc.
• But once these shocks faded, the structural reforms paid growth dividends from 2003. The Survey claims the same story is set to repeat from 2023.

How likely is this?

• Before the Covid pandemic, India’s potential growth rate, the rate at which it can grow without causing inflation, had dropped to just 6%. In the 2003-2008 period, it was 8% and 7% between 2009 and 2015, with no expectation of rising above 6% in the near future.
• In contrast to the 2003-2008 period when the global economy was thriving, the current situation is the opposite.
• Unemployment rates in India do not accurately reflect the distress in the labor market as the labor force participation rate is low. Additionally, over the past two decades, India’s growth has become increasingly capital-intensive, which is likely to worsen with the increasing automation of routine jobs.
• Widespread joblessness results in lower incomes and consumer demand, which discourages private sector investments and slows down economic growth.
• India, as the world’s most populous country with a growing youth population and the largest number of poor and malnourished children, requires faster growth than many developed countries to improve its low per capita income. Even though a 6% growth rate should be attainable, it may not generate enough jobs to meet the demands of a growing population. A growth rate of 4% in India can feel like a recession.

-Source:  Indian Express