The Knowledge and Learning Enterprise team is offering the readers a curated version of the Economic Survey (2024) of India, presented as a prelude to Budget 2024.The preface of the Economic Survey penned by the CEA is captioned “Steering the country through compacts and consensus”. In the opening para it mentions that the economy continues to expand . While highlighting that in FY24 the economy grew by 8.2% in real terms, further emphasizing that:The Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges. High economic growth in FY24 came on the heels of growth rates of 9.7% and 7.0%, respectively, in the previous two financial years. The headline inflation rate is largely under control, although the inflation rate of some specific food items is elevated. The trade deficit was lower in FY24 than in FY23, and the current account deficit for the year is around 0.7% of GDP. Foreign exchange reserves are ample. Thereafter, dwelling on Foreign Direct Investment it states that as per RBI data on India’s Balance of Payments shows us that the investment interest of external investors, measured in terms of dollar inflows of new capital, was USD45.8 billion in FY24 compared to USD 47.6 billion in FY23. This slight decline is in line with global trends.
On employment generation, it states that the Periodic Labour Force Survey provides quarterly data on urban employment indicators and annually for the entire country, including rural India. A surge in agriculture employment is partly explained by reverse migration and the entry of women into the labour force in rural India. The total number of factory jobs grew annually by 3.6% between 2013-14 and 2021-22.
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.
Comparing the growth strategy of India and China , the Economic Survey states that : The global backdrop for India’s march towards Viksit Bharat in 2047 could not be more different from what it was during the rise of China between 1980 and 2015. Then, globalisation was at the cusp of its long expansion. Geopolitics was largely calm with the end of the Cold War, and Western powers welcomed and even encouraged the rise of China and its integration into the world economy. Concerns over climate change and global warming were not so pervasive or grave then as they are now. Fourth, 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. These will create barriers and hurdles to sustained high growth rates for India in the coming years and decades. Overcoming these requires a grand alliance of union and state governments and the private sector.
It further reiterates that job creation happens mainly in the private sector. Second, many (not all) of the issues that influence economic growth, job creation and productivity and the actions to be taken therein are in the domain of state governments. So, in other words, India needs a tripartite compact, more than ever before, to deliver on the higher and rising aspirations of Indians and complete the journey to Viksit Bharat by 2047, between the government, the private sector and academia. This compact is to reboot the mission to skill and equip Indians to catch up with and get ahead of technological evolution. To succeed in the mission, governments must unshackle the industry and academic institutions to play their respective roles in that mammoth task.
Policymakers – elected or appointed – have to rise to the challenge as well. There has to be conversation, cooperation, collaboration, and coordination across ministries, states, and between the union and states. Few people outside the government – living or dead – can understand the complexity of governing and transforming a nation of India’s (population) size, (geographical) spread and social and cultural diversity within a democratic framework. The political class, with its ears to the ground and the civil service, with its exposure to districts, states and central Ministries, have a better shot at (at least) a partial understanding of this complexity. They intuitively know there is no place for exclusive approaches and binary choices, which are the staple of sterile discussions and discourses. Examples are urban vs. rural, growth vs. equity or development, and manufacturing vs. services. They intuitively know that India needs multiple development pathways. That is a good thing. But it is easier said than done. It has not been done before. Not on this scale. Not in the time frame and not amidst a turbulent global environment. Forging and sustaining consensus between governments, businesses and the social sectors are necessary to succeed in this endeavour.
The agriculture 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. So, 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.
Earlier development models featured economies migrating from farm beginnings to industrialisation to value-added services in their development journey. Technological advancements and geopolitics are challenging this conventional wisdom. Trade protectionism, resource-hoarding, excess capacity and dumping, onshoring production and the advent of AI are narrowing the scope for countries to squeeze out growth from manufacturing and services. That is forcing us to turn conventional wisdom on its head. 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.
Another area where policy intentions have yet to manifest in desired outcomes is with respect to small, medium, and large enterprises. Earlier, several products were reserved for small- scale industries. That was phased out as it benefitted neither the small-scale industries nor the overall economy. Recent concerted efforts at formalising them are making progress. Progress is relatively slower on access to finance. Buyers and creditors are shedding old mindsets and practices too slowly for these enterprises to feel the effect. However, these enterprises need maximum relief from the compliance burdens they face. Laws, rules and regulations stretch their finances, abilities and bandwidth, perhaps robbing them of the will to grow.
Other priorities, such as energy transition and mobility, may pale compared to the complexity of getting the farm sector policies right. Still, they have one thing in common with it. They require getting many things across several ministries and states aligned.
Energy transition and mobility issues require attention in the following areas:
– resource dependence on hostile nations;
– technological challenges such as intermittency of power generation, ensuring grid stability amidst surges and drop in generation from renewable energy sources and battery storage
– recognition of the opportunity cost of tying up land in a land-scarce country;
-fiscal implications that involve both additional expenditures for subsidising renewable energy generation and for e-mobility solutions, loss of tax and freight revenue currently accruing from the sale and transportation of fossil fuels;
-impairment to bank balance sheets from the so-called ‘stranded assets’ and
-examination of the merits of alternative mobility solutions such as public transportation models and more.
The Economic Survey preface by the CEA concludes by stating that :
While contemplating the challenges that lie ahead, one should not be daunted because the social and economic transformation of democratic India is a remarkable success story. We have come a long way. The economy has grown from around USD288 billion in FY93 to USD3.6 trillion in FY23. India has generated more growth per dollar of debt than other comparable nations. Abject poverty has all but been eliminated. Human development indicators have improved, and more Indians, especially women, are getting educated. For all its flaws and warts, the system has delivered accountability through the democratic process and public discourse, where the occasional and rarer mature commentary proves effective.The tripartite compact that this country needs to become a developed nation amidst emerging unprecedented global challenges is for governments to trust and let go, for the private sector to reciprocate the trust with long-term thinking and fair conduct and for the public to take responsibility for their finances and their physical and mental health. The Economic Survey 2023-24 covers many of the issues discussed above in its several chapters, apart from informing readers of government policies and their performance, their impacts, innovations, developments and success stories worth emulating.
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