Economic Survey: What it says on trade, private sector investment and more

The Economic Survey 2024 touched on private sector investment, noting visible green shoots but urging caution. Here's why

Union Finance Minister Nirmala Sitharaman presented the Economic Survey in Parliament today, painting an optimistic picture of the Indian economy, buoyed by strong gross domestic product (GDP) growth. The survey’s presentation was delayed due to the general elections held in April 2024.

Looking ahead to FY25, the survey highlighted the positive forecast of normal rainfall by the India Meteorological Department and the favourable spread of the southwest monsoon that can enhance agricultural performance and revive rural demand.

The survey noted, “Structural reforms such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) have also matured and are delivering envisaged results. Considering these factors, the Survey conservatively projects a real GDP growth of 6.5–7 per cent.”

 

Reflecting on the previous year’s performance, the Indian economy grew by 8.2 per cent in FY24, driven by momentum in the manufacturing and construction sectors. Looking forward, the government anticipates a boost from increased trade. The survey said, “While merchandise exports are likely to increase with improving growth prospects in advanced economies, services exports are also likely to witness a further uptick.”

Geopolitical risks threaten economic stability

Despite the positive outlook, the survey also acknowledged potential challenges. Geopolitical risks remain a significant concern. It warned, “Any escalation of geopolitical conflicts in 2024 may lead to supply dislocations, higher commodity prices, reviving inflationary pressures, and stalling monetary policy easing with potential repercussions for capital flows. This can also influence the Reserve Bank of India (RBI)’s monetary policy stance.”

Caution in private sector investment
 

The survey also touched on private sector investment, noting visible green shoots but urging caution. Over the past four years, the government has driven capital expenditure, with the private sector trailing. The survey observed, “Improved balance sheets will help the private sector cater to strong investment demand. However, a note of caution is warranted here. Private capital formation, after good growth in the last three years, may turn slightly more cautious due to fears of cheaper imports from countries with excess capacity.”

Employment impacted by economic shocks

On the employment side, it added that “shocks and not structural forces have influenced employment.”
 

“India suffered two big economic shocks in quick succession. Bad debts in the banking system and high corporate indebtedness were one. It took the first term of the present government and more to bring it under control. The Covid pandemic was the second shock and quickly followed the first one. So, it is difficult to conclude that the Indian economy’s ability to create employment is structurally impaired. Nonetheless, going forward, the task is cut out,” it said.
 

“The advent of Artificial Intelligence casts a huge pall of uncertainty as to its impact on workers across all skill levels – low, semi and high,” coupled with global challenges due to wars and geopolitical tensions have been worrying. And, overcoming these requires a grand alliance of union and state governments and the private sector, it added.

 

Private sector key to job growth

Transferring the baton of employment, it stated that “employment generation is the real bottom line for the private sector,” stating that the private sector has to now chip in to pull up the employment numbers.
 

“While the boom in telecommunications and the rise of the internet facilitated business process outsourcing, the next wave of technological evolution might bring the curtains down on it. In this milieu, the corporate sector has a responsibility, as much to itself as to society, to think harder about ways AI will augment labour rather than displace workers. Hiring in the information technology (IT) sector has slowed significantly in the last two years. We do not have a full picture of overall corporate hiring in the country on a regular basis. In any case, deploying capital-intensive and energy-intensive AI is probably one of the last things a growing, lower-middle-income economy needs,” the Economic Survey mentioned.
 

It further said that “a corporate sector that helps shape the design of higher education with inputs to curriculum, evaluation standards, and faculty will pave the way for high-quality higher education that market competition brings, replacing regulatory oversight.” The ‘real corporate social responsibility’ is for the corporate sector to “sustain the good times”, added the survey.

Banking profits and concerns

Just as corporate profits are booming, the net interest margin of Indian banks has risen to a multi-year high, which the survey indicated is a good thing. “Profitable banks lend more,” it said.
 

It also recognises the dark areas and adds, “The banking industry must aim to lengthen the gap between two non-performing assets (NPA) cycles. It should also resist the temptation to pursue short-term profits at the expense of the customer. Product mis-selling is too rampant to be dismissed as an aberration of a few overenthusiastic sales personnel. The same can be said of the insurance industry as well. Prompt and reasonable settlement of insurance claims and a lower rejection rate are necessary to increase insurance penetration. Acknowledgment of misselling and misrepresentation and compensating for consequential losses is a good business practice enjoined upon stockbroking, fund management, banking, and insurance firms.”

 

Corporate hiring and health concerns

However the Economic Survey made a categorical statement, “Corporates benefit from the higher demand generated by employment and income growth. Thus pushing them to hire, hire, and hire.”
 

“Social media, screen time, sedentary habits, and unhealthy food are a lethal mix that can undermine public health and productivity and diminish India’s economic potential,” it said.

Agricultural support

On the agriculture side, the survey said that the “sector is one area ripe for and in need of such a pan-India dialogue. Agriculture and farmers matter for a nation. Most countries understand that. India is no exception.”
 

“India subsidises their water, electricity, and fertilisers. The former two are provided virtually free. Their incomes are not taxed. The government offers them a minimum support price (MSP) for 23 selected commodities. Monthly cash support is offered to farmers through the PM-KISAN scheme. Indian governments – national and sub-national – write off their loans,” it said, adding that “governments in India spend enough resources to look after the farmers well. Yet, a case can be made that they can be served better with some re-orientation of existing and new policies."

Potential revival of the farm sector
 

The Chief Economic Adviser (CEA) raised the question if the farm sector can be the saviour of the economy. 

Taking the discourse further, the survey said, “A return to roots, as it were, in terms of farming practices and policy-making, can generate higher value addition from agriculture, boost farmers’ income, create opportunities for food processing and exports, and make the farm sector both fashionable and productive for India’s urban youth. When resolved, the problem areas mentioned above that the current policy configuration has created over the years can become sources of India’s strength and a model for the rest of the world - developing and developed.”
 

Further, it said that “letting go is part of good governance” and thus “it would be a missed opportunity - as there have been many in the past - not to strengthen a system to steer the country through a future that has become immeasurably uncertain. After nearly eight decades of relative peace at the global level, the world is moving towards a larger and wider conflict with longer-term effects. The Indian state can free up its capacity and enhance its capability to focus on areas where it has to by letting go of its grip in areas where it does not have to.”

Reviving agriculture for growth
 

The Survey also recognised and admitted that “the Licensing, Inspection, and Compliance requirements that all levels of the government continue to impose on businesses is an onerous burden.”

Though, “Relative to history, the burden has lightened. Relative to where it ought to be, it is still a lot heavier. The burden is felt more acutely by those least equipped to bear it – small and medium enterprises.”

It added that this burden holds back the sector from growing, saying, “It holds them back, leashes their aspirations, and, in the process, holds the country back. On the face of it, it does not seem to matter because the economic growth rates are good, and there are visible signs of progress. But, we will never know the counterfactual: ‘What it might have been’.”