The Economic Survey normally paints a picture of the economy over the past fiscal, even as it seeks to forecast the outlook for the coming year. This year’s assessment has been eagerly awaited, as the forthcoming budget will be the last for a full year by the incumbent government, and projects a mood of confidence and optimism in the run up to the elections in 2024. The Survey asserts that recovery from the pandemic has been “complete” as the country remains the fastest growing major economy in the world.
The Survey expects growth in real terms to moderate from 7 per cent in 2022-23 to 6.5 per cent in 2023-24. The International Monetary Fund has buttressed the survey’s upbeat outlook by pegging India’s growth at 6.1 per cent in 2023 as compared to the global estimate of 2.9 per cent. It has gone on to forecast 6.8 per cent for FY 2025.
Economic Surveys do not always reflect initiatives taken in the budget, but do indicate the thinking of policymakers while formulating the government’s annual accounting exercise. This time the Survey has given a clear hint that the capex drive of the last two budgets may be continued this time as well. It says the capex push was a strategic initiative aimed at crowding-in private investment into the economic landscape. In this context, it points to the trend of rising private sector projects. It also highlights the robust credit growth to MSMEs which has been estimated at more than 30 per cent in the period from April to November 2022.
The Survey sounds a note of caution on the impact of global headwinds on the economy. It says the external environment has been characterised by monetary tightening because of multi-decade highs in inflation numbers. This led to slowing down of economic growth in advanced countries, which are facing the spillovers of disruption of supply chains and uncertainties caused by geopolitical conflicts such as that in Ukraine. This in turn is expected to dampen trade growth and contribute to the current plateauing of India’s export growth.
The Survey warns this could further widen the country’s current account deficit (CAD). It notes that CAD widened to 4.4 per cent of gross domestic product (GDP) in the July-September 2022 quarter from 2.2 per cent of GDP in the first quarter. Yet it is confident that foreign exchange reserves are sufficient to deal with a widening CAD and intervene in the forex market to deal with rupee volatility. It cautions that robust domestic demand may push up imports adding to the effect of slowing exports. A widening of the CAD could also put pressure on the rupee. At the same time, the silver lining of global developments is lower oil prices.
It maintains that another risk to outlook for India is the continued monetary tightening exercises. It comments that while the pace of rate hikes has slowed, entrenched inflation may prolong the tightening cycle. However, it is confident that the external situation will be “manageable”.
In line with its confident tenor, the Survey highlights the upsides to the growth outlook, which include the limited impact of China’s Covid surges recently that will ensure normalising of global supply chains. Second, it argues that the inflationary impulses from China’s reopening will not be persistent. Third, and perhaps most significant, it underlines that the recessionary tendencies in advanced economies will prompt a return of capital flows to this country, given its below 6 per cent inflation rate. Finally, it feels this will give an impetus to animal spirits and a boost to private investment in the economy.
Touching upon the crucial issue of jobs, the Survey rightly notes that growth is inclusive when it creates employment. It quotes the Periodic Labour Force Survey to say that the unemployment rate has improved from 9.8 in the July-September 2021 quarter to 7.2 per cent in the corresponding period of 2022.
It points to growing private consumption, higher public capital expenditure, strengthening of corporate balance sheets, increasing credit growth to small business, and the return of migrant workers to cities as factors that have driven growth in the current fiscal.
The Survey has given a clear indication that the budget proposals this year are likely to continue the same policy approach as the previous two budgets, keeping a focus on capex and infrastructure, as well as employment creation. However, the positive outlook also indicates that other segments, such the long-suffering middle class, may be given some incentives. The budget will certainly try to spread cheer, going by the Survey.
(To receive our E-paper on WhatsApp daily, please click here. To receive it on Telegram, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)