July 22, 2024
Policymakers have played a crucial role in ensuring economic and financial stability, and the economy has continued to expand despite global volatility
Public investment has been pivotal in sustaining capital formation, and the private sector has also begun to invest significantly since FY22
The headline inflation rate is under control, though some specific food items remain elevated, and the trade deficit in FY24 was lower compared to FY23
India's real GDP grew by 8.2 % in FY24, exceeding the 8 % mark in three out of four quarters
The Indian economy has remained robust and stable, demonstrating resilience in the face of geopolitical challenges, according to the Economic Survey 2023-24 presented by Finance Minister Nirmala Sitharaman in Parliament. The 476-page Economic Survey highlights India’s solidified post-COVID recovery and notes the critical role of policymakers in ensuring economic and financial stability amidst global volatility.
The Economic Survey, prepared by the Economic Division of the Department of Economic Affairs under the Ministry of Finance, provides an in-depth look at the economic indicators for 2023-24. It also offers projections and guidance for the current fiscal year. Historically, the Survey gives a glimpse into the tone and direction of the Budget, which will be presented the following day.
Given the challenging global environment, the Survey emphasises the necessity of substantial domestic efforts to sustain recovery. It reads, “For the recovery to be sustained, there has to be heavy lifting on the domestic front because the environment has become challenging to reach agreements on key global issues such as trade, investment, and climate.”
Public investment has been crucial in sustaining capital formation, with the private sector beginning to invest significantly since FY22. The Survey states, “Public investment has sustained capital formation in the last several years even as the private sector shed its balance sheet blues and began investing in FY22. It must receive the public sector baton and sustain the economic investment momentum. The signs are encouraging.”
The survey indicates that the headline inflation rate is under control, though some specific food items remain elevated. The trade deficit in FY24 was lower than in FY23, with the current account deficit around 0.7% of GDP. Foreign exchange reserves remain ample.
National income data shows a vigorous expansion in non-financial private-sector capital formation in FY22 and FY23 after a decline in FY21. Despite a decrease in investment in machinery and equipment during FY20 and FY21, there was a strong rebound. Early corporate sector data for FY24 suggest that capital formation in the private sector continued to expand, albeit at a slower rate.
According to the April World Economic Outlook, global economic growth has been 3.2 % in 2023. Diverging growth patterns have emerged among countries, primarily due to domestic structural issues, uneven exposure to geopolitical conflicts, and the impact of monetary policy tightening. Despite a gamut of external challenges, India’s economy carried forward the momentum it built in FY23 into FY24, with real GDP growing by 8.2 % in FY24, exceeding 8 % in three out of four quarters of FY24. The Government’s focus on maintaining macroeconomic stability ensured minimal impact from external challenges.
The thrust on capex and sustained momentum in private investment have boosted capital formation growth. Gross Fixed Capital Formation increased by 9 % in real terms in 2023-24. Healthy corporate and bank balance sheets will further strengthen private investment. Positive residential real estate market trends indicate a significant increase in household sector capital formation increase. Administrative and monetary policy responses have deftly managed inflationary pressures from global troubles, supply chain disruptions, and monsoon variability. Consequently, retail inflation, after averaging 6.7 % in FY23, declined to 5.4% in FY24.
The general government’s fiscal balances have improved progressively despite expansionary public investment. Tax compliance gains driven by procedural reforms, expenditure restraint, and increasing digitisation have helped India achieve this balance. Subdued global demand for goods has pressured the external balance. Still, robust services exports have largely counterbalanced this, resulting in a CAD of 0.7 % of GDP in FY24, an improvement from the 2.0% of GDP deficit in FY23.
The Indian economy has recovered and expanded orderly post-pandemic, with real GDP in FY24 being 20 % higher than its level in FY20, a feat achieved by very few significant economies. Prospects for continued strong growth in FY25 and beyond look promising, subject to geopolitical, financial market, and climatic risks.
During FY22 and FY23, the COVID-19 pandemic, geopolitical tensions, and supply disruptions contributed to rising inflationary pressures globally. In India, consumer goods and services faced price hikes due to international conflicts and adverse weather conditions impacting food costs. However, in FY24, the Central Government’s timely policy interventions and the Reserve Bank of India’s price stability measures helped maintain retail inflation at 5.4 % – the lowest level since the pandemic.
Core consumer durables inflation decreased in FY24 due to an improved supply of crucial input materials. This decline follows a period of increasing consumer durables inflation from FY20 to FY23.
The Reserve Bank of India (RBI) raised the repo rate by 250 basis points from May 2022 in response to inflationary pressures. This policy action reduced core inflation by approximately four percentage points between April 2022 and June 2024.
Food inflation has been a significant issue globally over the past two years. India’s agriculture sector faced extreme weather events, depleted reservoirs, and crop damage, impacting farm output and raising food prices. Food inflation was 6.6 % in FY23 and 7.5 % in FY24.
In FY24, most States and Union Territories witnessed decreased inflation rates, with 29 out of 36 recording rates below 6 %, aligning with the overall decline in the all-India average retail inflation compared to FY23. States with elevated food prices tend to experience higher rural inflation due to the greater weightage of food items in the rural consumption basket. Furthermore, inter-state variation in inflation is more pronounced in rural areas than in urban areas.
India’s banking and financial sectors showcased strong performance in FY24, with broad-based and double-digit bank credit growth. Gross and net non-performing assets (NPAs) reached multi-year lows, reflecting the government’s commitment to a stable banking sector.
Primary capital markets facilitated capital formation of INR 10.9 lakh crore in FY24, approximately 29% of the gross fixed capital formation by private and public corporates in FY23.
The Indian stock market’s market capitalisation surged significantly, with India’s market capitalisation to GDP ratio being the fifth largest globally.
The financial inclusion strategy focuses on a target-based approach, market development, infrastructure strengthening, innovation, technology, last-mile delivery, consumer protection, and financial literacy. Emphasis is placed on using accounts for direct benefit transfers and promoting digital payments through RuPay cards and UPI.
The RBI projects inflation to fall to 4.5% in FY25 and 4.1% in FY26, assuming normal monsoon and no external or policy shocks. The IMF forecasts inflation for India at 4.6% in 2024 and 4.2% in 2025. The World Bank predicts declining global commodity prices in 2024 and 2025, which may reduce domestic inflation in India.
Achieving long-term price stability requires a clear, forward-looking vision. Assessing progress in developing modern storage and processing facilities for fruits and vegetables is crucial to managing seasonal price spikes. Strengthening price monitoring mechanisms, market intelligence, and focused efforts to increase domestic production of essential food items like pulses and edible oils, which India heavily imports, will shape the medium—to long-term inflation outlook.
India’s external sector remained strong despite geopolitical headwinds and persistent inflation. The country improved its rank from 44th in 2018 to 38th in 2023 out of 139 countries in the Logistics Performance Index. Export diversification is indicated by India’s addition of more export destinations. The current account deficit narrowed to 0.7% in FY24 due to moderation in merchandise imports and rising services exports. Services exports grew by 4.9% to US$ 341.1 billion in FY24, driven by IT/software services and ‘other’ business services. India remained the top remittance recipient globally, reaching US$ 120 billion in 2023. Positive net inflows in foreign portfolio investment in FY24 were supported by strong economic growth, a stable business environment, and increased investor confidence. Forex reserves are sufficient to cover over ten months of projected imports for FY25 and cover 98% of external debt as of March 2024. The external debt remains sustainable, with an external debt-to-GDP ratio of 18.7% at the end of March 2024. However, slowing global GDP growth and rising trade protectionism pose significant risks, necessitating a focus on removing barriers and boosting export competitiveness.
The medium-term growth outlook will unfold amidst global trends such as increased geo-economic fragmentation, a global push for self-reliance, looming climate change, the rise of technology as a strategic differentiator, and limited policy space for countries worldwide. The government emphasises bottom-up reforms and strengthening governance to ensure sustainable and inclusive growth, focusing on key policy areas including job and skill creation, maximising agriculture sector potential, addressing MSME bottlenecks, managing the green transition, navigating relations with China, deepening the corporate bond market, tackling inequality, and improving health quality for the young population. The growth strategy for Amrit Kaal includes boosting private investment, expanding India’s Mittelstand (MSMEs), recognising agriculture as a growth engine and removing policy impediments, securing financing for the green transition, bridging the education-employment gap, and building state capacity and capability.
The Indian economy can sustain growth at 7%+ if structural reforms of the last decade are built upon, requiring a collaborative effort between the Union Government, State Governments, and the private sector.
India has adopted a mission-mode approach to address climate change. A report by the International Finance Corporation recognises India’s efforts to achieve committed climate actions, highlighting that it is the only G20 nation in line with 2-degree centigrade warming. Significant progress in climate action includes a substantial increase in renewable energy capacity, with non-fossil sources making up 45.4% of installed electricity generation capacity as of May 31, 2024. The emission intensity of GDP was reduced by 33% from 2005 levels by 2019. Energy demand is expected to grow 2 to 2.5 times by 2047 to support economic and developmental goals, necessitating a balance between resource demands for climate resilience and socio-economic development. Expanding renewable energy and clean fuels will increase land and water use, requiring extensive land use and battery storage technologies dependent on critical minerals from geographically concentrated sources. The government has improved energy efficiency to support clean energy transitions and security, issuing sovereign green bonds totalling INR 36,000 crore in 2023. The Mission LiFE aims to create a mass movement for sustainable living based on conservation and moderation, supporting voluntary environmental actions like the Green Credit Programme (GCP) to reward green initiatives.
India has spearheaded several global climate change mitigation efforts, including the International Solar Alliance (ISA), One World, One Sun, One Grid (OSOWOG), Coalition for Disaster Resilient Infrastructure (CDRI), Infrastructure for Resilient Island States (IRIS), and the Leadership Group for Industry Transition (LeadIT).
India’s economy is advancing with a reformed approach to welfare, focusing on empowerment, universal access to necessities, efficiency, cost-effectiveness, and enhanced participation from the private sector and civil society.
The transformation driven by the National Education Policy (NEP) 2020 emphasises foundational literacy and numeracy for children by the third standard. The ‘Poshan bhi Padhai bhi’ program aims to establish a universal, high-quality preschool network at Anganwadi Centres.
The Ayushman Bharat Scheme has issued over 34.7 crore Ayushman Bharat cards, covering 7.37 crore hospital admissions and saving more than INR 1.25 lakh crore in out-of-pocket expenses for poor and deprived families. Addressing mental health is crucial for productivity and healthcare costs, with concerns over the impact of excessive smartphone and internet use on childhood development.
The DAY-NRLM Program covers over 89 million women through 8.3 million Self Help Groups, promoting women’s empowerment, reducing social evils, increasing village participation, and improving access to government schemes. The self-help movement has expanded outreach, with social capital benefiting from professional marketing and management support. The demand for MGNREGS is only sometimes an accurate indicator of rural distress but is often linked to state institutional capacity and differences in minimum wages.
Effective governance and unity of purpose are essential for successful social program implementation. Improving ground-level channels is necessary to enhance spending efficiency and outcomes.
The unemployment rate decreased to 3.2% in 2022-23, with a significant rise in youth and female workforce participation, offering opportunities for demographic and gender dividends.
Net payroll additions under EPFO have more than doubled over the past five years, indicating robust growth in formal employment.
Integrating artificial intelligence into economic activities requires balancing technological deployment with labour considerations. Employers should ensure technology benefits collective welfare while supporting labour.
Agro-processing and the care economy are critical for generating and sustaining quality employment.
Initiatives to enhance employment, encourage self-employment, promote worker welfare, and increase participation in government skill development programs underscore the ‘Skill India’ initiative. Regulatory constraints related to land use, building codes, sector restrictions, and women’s employment hours hinder employment growth. Removing these constraints is expected to boost employment and improve women’s labour force participation.
The agriculture sector has seen an average annual growth rate of 4.18% at constant prices over the last five years, with a provisional growth rate of 1.4% for 2023-24. Allied sectors like livestock and fisheries show robust growth, with the livestock sector having a CAGR of 7.38% and the fisheries sector a CAGR of 8.9% from 2014-15 to 2022-23.
The government focuses on providing timely, cost-effective, and adequate credit, reducing the share of non-institutional credit from 90% in 1950 to 23.40% in 2021-22.
Programs like Per Drop More Crop (PDMC) and the National Mission on Sustainable Agriculture (NMSA) promote efficient input and sustainable production methods. They have covered 90 lakh hectares under micro irrigation and encourage alternative and organic fefertilisersDigital and Technological Advancements:
The Digital Agriculture Mission (2021–2025) modernises agriculture using AI, remote sensing, and drones. The e-National Agriculture Market (e-NAM) facilitates better price discovery and supports smart agriculture technologies.
The government supports cooperatives and farmer-producer organisations (FPOs), with 8,195 FPOs registered under the new FPO scheme by February 2024.
Launched to boost investments in agriculture, the AIF mobilised INR 73,194 Crore by July 2024. The Agriculture Marketing Infrastructure (AMI) program improved storage infrastructure, with 48,357 projects sanctioned and INR 4,570 Crore released as subsidies by April 2024.
Programs like the Pradhan Mantri Kisan Sampada Yojana (PMKSY), the Production Linked Incentive Scheme for the Food Processing Industry (PLISFPI), and the Prime Minister’s Formalisation of Micro Food Processing Enterprises (PMFME) Scheme aim to boost the sector. Free food grains were provided to 81.35 crore beneficiaries under PMGKAY for an additional five years.
Aligning production patterns with agro-climatic characteristics and natural resources, ensuring agriculture policies are consistent with climate imperatives and water security, scaling up investment in technology, production methods, marketing infrastructure, and reducing post-harvest losses. The government encourages the use of e-NAM, promotes FPOs, and allows cooperatives to participate in agri-marketing, incentivising states to improve market infrastructure.
India’s economic growth of 8.2 % in FY24 was supported by an industrial growth rate of 9.5 %. Manufacturing and construction nearly reached double-digit growth within the four industrial subsectors, while mining and quarrying and electricity and water supply also experienced significant growth in FY24.
The sector has seen an average annual growth rate of 5.2% in the last decade, with significant growth drivers including chemicals, wood products and furniture, transport equipment, pharmaceuticals, and machinery.
India became a net exporter of finished steel over the past decade, achieving the highest levels of production and consumption during FY24.
Production accelerated over the past five years, reducing import dependence. In FY24, India produced 997.2 million tonnes, imported 261 million tonnes, and consumed 1233.86 million.
The market is valued at US$ 50 billion and is the third largest by volume globally. Its diverse product range includes generic drugs, active pharmaceutical ingredients, bulk drugs, over-the-counter medications, vaccines, biologics, and biosimilars.
India is the second-largest clothing manufacturer and one of the top five exporting nations. In FY24, the export of textiles and apparel (including handicrafts) increased by 1%, reaching INR 2.97 lakh Crore.
Since 2014, India’s electronics manufacturing sector has experienced significant growth, achieving a 3.7% global market share in FY22. Domestic production reached INR 8.22 lakh crore, while exports stood at INR 1.9 lakh crore in FY23. The government has implemented several initiatives to improve the ease of doing business, reduce compliance burdens, and alleviate logistical and infrastructural bottlenecks. Production-Linked Incentive (PLI) schemes have attracted significant investments, boosting production, sales, exports, and job creation, especially in the white goods sector. Under the Aatmanirbhar Bharat initiative, over INR 1.28 lakh crore has been invested as of May 2024, resulting in production and sales worth INR 10.8 lakh crore and generating direct and indirect employment for over 8.5 lakh individuals under the PLI scheme.
The Union Budget 2023-24 allocated INR 9,000 crore to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which has approved 91.76 lakh guarantees amounting to INR 6.78 lakh crore since its inception. Government interventions such as the notification of Patent Rules 2024, the Anusandhan National Research Foundation (ANRF) Bill 2023, and the Bharat Startup Knowledge Access Registry have significantly boosted innovation and the startup culture. The number of patents granted increased seventeen-fold from 5,978 in 2014-15 to 103,057 in 2023-24, with over 45% of recognised startups emerging from Tier 2 and Tier 3 cities. By the end of March 2024, the number of DPIIT-recognized startups had increased to over 1.25 lakh.
The MSME sector faces challenges in supply chain management, market access, and formalisation. Solutions include developing MSME projects, ensuring adequate financing, facilitating employment-intensive segments, easing compliance requirements with a single-window mechanism, and grassroots-level facilitation for market access. Collaboration among the government, industry, and academia is essential for workforce upskilling. Standard industry requirements include iincentivisingR&D and innovation, improving workforce skills, and fostering collaboration between industry and academia with an emphasis on vocational education.
Statistical upgrades include an updated index of industrial production and state-level variants to understand emerging geographical production patterns.
The services sector continues to contribute to India’s growth, accounting for about 55% of the economy in FY24 and growing by an estimated 7.6% in the same year. The Services Purchasing Managers’ Index (PMI) has been above 50 since August 2021, indicating continuous expansion for 35 months; the PMI reached 1.2 in March 2024, marking significant sales and business activity expansion in nearly 14 years.
India’s services exports accounted for 4.4% of the world’s commercial services exports in 2022. Post-pandemic services exports maintained steady momentum, representing 44% of India’s total exports in FY24. Outstanding services sector credit stood at INR 45.9 lakh crore in March 2024, with a Year-on-Year (YoY) growth of 22.9%.
Passenger traffic in Indian Railways increased by 5.2% in FY24 compared to the previous year. Revenue-earning freight saw a 5.3% increase in FY24 from a year earlier. The aviation sector experienced a 15% YoY increase in total air passengers handled at Indian airports in FY24.
The tourism sector saw significant expansion, with India’s share of foreign exchange earnings in world tourism receipts increasing from 1.38% in 2021 to 1.58% in 2022. The residential real estate market showed double-digit growth in demand and new supply in 2023.
GCCs grew from over 1,000 centres in FY15 to more than 1,580 centres by FY23.
Technology start-ups increased from around 2,000 in 2014 to approximately 31,000 in 2023.
The Indian e-commerce industry is expected to cross US$ 350 billion by 2030.
There has been a rapid technology-driven transformation in domestic service delivery and diversification of India’s services exports.
Greater and more focused skills are needed in areas such as Blockchain, Artificial Intelligence (AI), Machine Learning, the Internet of Things (IoT), Cybersecurity, Cloud Computing, Big Data Analytics, Augmented Reality, Virtual Reality, 3D Printing, and Web and Mobile Development.
AI may moderate India’s services export growth, potentially reducing it by 0.3-0.4 percentage points annually over the next decade. The tourism sector’s significance for employment generation is also highlighted.
Government and industry collaboration to upskill the workforce is essential. The focus should be on becoming a high-value partner in cybersecurity and enterprise management.
Buoyant public sector investment has been pivotal in funding large-scale infrastructure projects in recent years.
National highway construction increased from 11.7 km per day in FY14 to approximately 34 km per day by FY24.
Capital expenditure in railways increased by 77% in the past five years, with investments in new lines, gauge conversion, and doubling.
In FY24, 21 new terminal buildings were operationalised at 21 airports, increasing passenger handling capacity by approximately 62 million annually.
India improved its rank in the World Bank Logistics Performance Index from 44th in 2014 to 22nd in 2023.
A new investment of INR 8.5 lakh crore (US$ 102.4 billion) was made between 2014 and 2023.
The UJALA scheme resulted in energy savings of 48.42 billion kWh per year, a reduction of 39.30 million tonnes of CO2 per year in GHG emissions, and annual monetary savings of INR 19,335 crore in consumer electricity bills.
945 km of metro rail/RRTS is operational, with 939 km under construction in 27 cities. Approximately 86 km was operationalised in FY24.
The Jal Jeevan Mission provided tap water connections to more than 14.89 crore rural households (76.12%).
India has 55 active space assets, including 18 communication satellites, nine navigation satellites, five scientific satellites, three meteorological satellites, and 20 Earth observation satellites.
As of June 2024, there are 8.02 lakh mobile towers and 29.37 lakh Base Transceiver Stations (BTSs), including 4.5 lakh 5G BTSs.
DigiLocker has over 26.28 crore registered users and more than 674 crore documents.
In FY24, 38 new infrastructure projects were sanctioned, and 58 were completed under the Khelo India Programme.
Higher levels of private sector financing and resource mobilisation are needed, and policy and institutional support from central, State, and Local Governments is crucial.
Existing databases cannot assess demand and track utilisation, highlighting the need for an index to track utilisation rates and identify oversupply or shortfall.
Current global strategies for climate change need to be revised and universally applicable. The Western approach substitutes means to achieve overconsumption without addressing the root cause. Technologies like AI and large-scale mining increase fossil fuel consumption, conflicting with climate change mitigation goals. Despite strides in climate action, India faces criticism for not aligning with Western solutions. Western criticism often lacks appreciation for India’s unique social and cultural fabric rich with sustainable development ideas. Adopting Western practices could be disastrous for India’s culture, economy, and societal norms.
Meat Production and Food Security
Western meat production methods pose food security risks and degrade essential natural resources. Reliance on human-edible crops for livestock creates food-feed competition, diverting cereals from direct human consumption. Traditional farming practices in developing countries offer solutions by repurposing farm waste as animal feed, lowering environmental costs and balancing the natural cycle.
The Western model of nucleated families increases land and resource demands, leading to urban sprawl. Nucleated settlements could be more efficient but have high energy costs and limited ventilation. Multi-generational households, traditional in India, promote sustainable housing with local materials, natural lighting, and cooling, benefiting both the environment and older people.
Environmental protection and sustainable development should align with nature’s cyclic temperament. India’s “Mission LiFE” initiative emphasises individual responsibility and small, consistent, pro-planet actions.
Promotes mindful consumption, a circular economy, reuse of waste products, local plant-based diets, and saving water and energy. This initiative encourages adopting sustainable practices deeply rooted in Indian culture, enabling a harmonious relationship with nature. India should adopt sustainable practices and consider others only if they suit its sustainable needs. This approach allows Indians to address their wants without harming Nature.
Source: Government of India