Economic Survey 2022-23: What does it say about inflation and employment

Economic Survey said that RBI's inflation projections for FY23 are neither too low nor too high

The management of inflation in India has been "particularly noteworthy", in contrast with advanced economies, the Economic Survey 2022-23 released Tuesday said. It said that in 2023-24 (FY24), the inflation challenge is expected to be "less stiff" than it was in FY23.

"Due to the anticipated slowdown in advanced economies, inflation risks coming from global commodity prices are likely to be lower in FY24 than in FY23. However, in terms of overall risks to the benign baseline view on inflation, upside risks to India's projected rates may outweigh the downside risks," it said.

It also said that the Reserve Bank of India's (RBI's) projection of retail inflation at 6.8 per cent in the current fiscal is neither too high to deter private consumption nor so low as to weaken inducement to invest.

However, entrenched inflation may prolong the tightening cycle, so borrowing costs may stay "higher for longer", it said.

"In such a scenario, the global economy may be characterised by low growth in FY24," it said.

However, the scenario of subdued global growth presents two silver linings, low oil prices and better than projected CAD (Current Account Deficit).

"Overall external situation will remain manageable," it added.

Among the events that lead to high inflation is the re-emergence of Covid-19 in China, which can trigger supply chain disruptions.

"On the other hand, if China returns to normalcy from Covid-19, there can be a surge in commodity demand - thus reversing the recent slump in commodity prices," it said.

Also, a soft landing in the US economy might keep up the US demand for oil. It can also have an impact on India's imported inflation, the document said.

According to the Reserve Bank of India (RBI), India's retail inflation will grow by 5 per cent in the first quarter of FY24 and at 5.4 per cent in the next quarter.

Retail inflation fell to a year-low level of 5.72 per cent in December, while wholesale inflation was at a 22-month low of 4.95 per cent.

On Employment

According to the Survey, the share of self-employed people increased in India, and that of regular wage/salaried workers declined in FY21 compared to FY20. It was driven by the trend in both rural and urban areas. The share of casual labour declined slightly, driven by rural areas.

Moreover, more than 75 per cent of rural female workers in India are employed in the agricultural sector.

"This implies a need to upskill and create employment for women in agriculture-related sectors such as food processing. Here, the self-help groups (SHGs) can play a crucial role in shaping rural women's potential into concrete developmental outcomes of financial inclusion, livelihood diversification, and skill development," it said.

The survey also said that the share of workers engaged in agriculture rose marginally from 45.6 per cent in FY20 to 46.5 per cent in FY21. On the other hand, the share of manufacturing declined from 11.2 per cent to 10.9 per cent. The share of construction increased from 11.6 per cent to 12.1 per cent, and the share of trade, hotels and restaurants declined from 13.2 per cent to 12.2 per cent over the same period.

"This could be attributable to the impact of Covid-19 on manufacturing and services employment while agricultural growth remained strong during the period," the survey said.

The labour force participation rate (LFPR) and worker population ratio in Population Labour Force Survey (PLFS) 2020-21 have improved for both males and females in rural and urban areas compared to PLFS 2019-20 and 2018-19.

"As India marches ahead, the ground lost as regards social sector improvements due to the pandemic has largely been recouped, powered by prompt policymaking and efficient implementation interwoven with technology. Going forward with the vision of 'Minimum Government; Maximum Governance', it said that further developments will hold the key to attaining more equitable economic growth," it said.