Building blocks

Survey shows the way for sustained growth

The Economic Survey, prepared by Chief Economic Advisor V Anantha Nageswaran and his team of economists at the finance ministry, has a clear message. The Indian economy has recovered strongly from the pandemic but sustaining growth to attain Viksit Bharat’s goal will require sustained interventions and dealing with several emerging economic and policy challenges. India has achieved higher growth in the post-pandemic period without compromising on financial stability. All eyes will now be on Union Finance Minister Nirmala Sitharaman, who will present the first Budget of the third Narendra Modi government on Tuesday. This is expected to provide a medium-term road map of the Indian economy, among other things.

In terms of growth performance, India’s gross domestic product (GDP) in 2023-24 (FY24) was about 20 per cent higher than the pre-Covid level in FY20. This translated into a compound annual growth rate of 4.6 per cent since FY20, accounting for the contraction of 5.8 per cent during the pandemic year. The Survey notes that India’s current GDP was close to the pre-pandemic path in the fourth quarter of FY24. It expects the Indian economy to grow at 6.5-7 per cent this financial year, lower than the Reserve Bank of India’s (RBI’s) projection of 7.2 per cent. The fiscal position has also improved significantly from the pandemic year. The Union government’s fiscal deficit declined to 5.6 per cent of GDP in FY24 compared to 6.4 per cent in the previous year. While growth in tax collection and a higher than expected transfer from the RBI will provide comfort in managing the fiscal position this financial year, the elevated level of public debt remains a concern and will need policy attention.

Growth in the post-pandemic period has been driven significantly by government capital expenditure (capex). Government capex in FY24 went up by 28.2 per cent over the previous year, and was nearly thrice the level recorded in FY20. However, the Survey rightly highlighted, it is now for the private sector to take the momentum forward with the government. Although there are initial signs of recovery in private-sector investment, the trend will need to be sustained. As the Survey underscored, future growth will depend on a variety of factors such as geo-economic fragmentation and an increasing trust deficit between countries. For instance, about 3,000 trade restrictions are reported to have been introduced in 2023. Additionally, emerging technologies as a differentiator and integrating climate strategy into policy planning will have implications for growth and development.

Among the key areas that will need policy focus in the short to medium term include generating productive employment, bridging the skill gap, easing bottlenecks affecting small and medium businesses, tackling inequality, and managing the green transition. However, it’s worth noting that some of these issues are well known but the problem is India has not been able to adequately address them, which has affected growth and development outcomes over time. The Survey also highlighted strategies for the long term such as removing impediments in the agriculture sector, boosting private investment, and building state capacity. The beginning of a new term of the government is the best time to adjust medium- to long-term growth strategies. It remains to be seen how the government responds to these suggestions. The Survey has also raised some important questions in the context of China, which must be debated to inform policymaking.