The government released the Economic Survey 2022-23 on Tuesday. The Survey forecasted India’s growth, inflation, and unemployment in the coming years.
What exactly is the Economic Survey?
The Survey provides a comprehensive report on the national economy for the year, as well as forecasts. It addresses issues ranging from agriculture to unemployment to infrastructure. It is prepared by the Department of Economic Affairs’ Economic Division (DEA).
What are the key takeaways from this year?
GDP growth: According to the Survey, India’s growth forecast for FY23 is higher than that of almost all major economies.
“Despite strong global headwinds and tighter domestic monetary policy, India’s underlying economic resilience; of its ability to recoup, renew, and re-energise the economy’s growth drivers,” the Survey said.
Inflation: The RBI expects headline inflation to be 6.8% in FY23, which is above its target range of 2% to 6%. High inflation is viewed as a major factor impeding consumer demand. However, the Survey was upbeat about inflation levels and trends, stating that “it is not high enough to deter private consumption, but it is also not low enough to weaken the inducement to invest.”
Unemployment: According to the Economic Survey 2022-23, “employment levels have increased in the current fiscal year,” and “job creation appears to have moved into a higher orbit with the initial surge in exports, a strong release of “pent-up” demand, and a swift rollout of capex.”
According to the Periodic Labour Force Survey (PLFS), the urban unemployment rate for people aged 15 and up fell from 9.8% in the quarter ending September 2021 to 7.2% a year later.
The Survey projected a baseline GDP growth of 6.5% in real terms in FY24.
However, it outlined some potential drawbacks. For example, low demand for Indian exports due to weak global growth may increase India’s trade deficit and cause the rupee to depreciate. Similarly, continued monetary tightening (increased interest rates) could dampen economic activity in FY24.
What does this mean for the Indian economy?
This year’s Survey’s central thesis is that India’s economy has recovered from the Covid disruption and is now poised to experience sustained robust growth for the rest of the decade.
CEA V Anantha Nageswaran said the phase between 2014 and 2022 — when the BJP has been in power — has witnessed “wide-ranging structural and governance reforms that strengthened the economy’s fundamentals by enhancing its overall efficiency”.
He clarified that these reforms had not produced the desired results because banks were disposing of non-performing assets (NPAs) and businesses were deleveraging. Shocks like the Covid pandemic and the Ukraine war exacerbated the situation.
“As the health and economic shocks of the pandemic and the spike in commodity prices in 2022 wear off, the Indian economy is thus well placed to grow at its potential in the coming decade, similar to the growth experience of the economy after 2003. This is the primary reason for expecting India’s growth outlook to be better than it was prior to the pandemic,” according to the Survey.
What is the significance of the reference to 2003?
According to the Economic Survey 2022-23, the situation in 2023 will be similar to how the economy was in 2003.
It said the period between 2014 and 2022 is analogous to 1998-2002, when the Indian economy lagged growth returns despite transformative reforms by the government (also led by the BJP). This was due to temporary shocks such as US sanctions imposed following India’s nuclear test, two consecutive droughts, the collapse of the tech boom, and so on. However, once these shocks subsided, structural reforms began to pay growth dividends in 2003.
What are the chances of this happening?
The first point to make is that, even before Covid, India’s potential growth rate — the rate at which it can grow without worrying about inflation — had fallen to just 6%. was 8% between 2003 and 2008. It was 7% between 2009 and 2015. It is unlikely to rise much higher than 6% in the coming years. Second, the global economy was booming from 2003 to 2008, which is exactly the opposite of the current situation.
Third, because the labour force participation rate (or the proportion of people looking for work) in India is quite low, unemployment rates understate the alarming stress in the labour market. Furthermore, over the last two decades, India’s growth has become more capital-intensive (using relatively less labour).
Widespread unemployment leads to lower incomes and lower consumer demand. This, in turn, discourages private-sector investment and, as a result, slows economic growth.
India is the world’s most populous country, with a rapidly growing youth population. It has the world’s largest population of poor people as well as the largest population of malnourished children. In India, 4% growth can feel like a recession, and while 6% growth should be achievable, it may not create enough jobs to meet the needs of a growing population.