Economic Survey 2023-24

Table of contents

Economic survey: Basics

An economic survey is prepared by the Economic Division of the Department of Economic Affairs, the Ministry of Finance, under the guidance of the Chief Economic Advisor.
Union Finance Minister tables it in both houses of Parliament.
It is a report on the economy in the preceding year, highlighting policy initiatives and economic trends and providing an outlook for the coming year.
It was first presented in 1950-51. Before 1964, it was presented along with the budget.

State of the economy: steady as she goes

Global Economic Growth

The global economy registered a growth of 3.2 % in 2023, marginally lower than in 2022 but greater than the World Economic Outlook’s projection of 2.8 %.
Easing global inflation:

India’s GDP

India’s real GDP grew by 8.2 percent in FY24, posting growth of over 7 percent for a third consecutive year, driven by stable consumption demand and steadily improving investment demand.

On the supply side, gross value added (GVA) at 2011-12 prices grew by 7.2 per cent in FY24.
The Economic Survey has estimated a real GDP growth of 6.5%-7% in 2024-25.
Growth in 2024-25 is expected to be supported by strong domestic investment demand, improved agricultural performance, and increased merchandise and services exports.
Concerns: Geopolitical risks, supply-chain distortions, higher commodity prices, increased protectionism, inflationary pressures.
In FY24, the shares of the agriculture, industry, and services sectors in overall GVA at current prices were 17.7 per cent, 27.6 per cent, and 54.7 per cent, respectively.
GVA in the agriculture sector continued to grow, albeit slower.
In the industrial sector, manufacturing GVA grew by 9.9 per cent in FY24.
For the first time in 13 years, S&P Global Ratings upgraded India’s sovereign credit rating outlook from ‘stable’ to ‘positive’ in May 2024, citing robust economic growth, sound economic fundamentals, and improved government spending composition.

Inflation

Retail inflation in 2023-24 was 5.4%, the lowest since the Covid-19 pandemic. Food inflation increased from 6.6% in 2022-23 to 7.5% in 2023-24, driven by higher food inflation caused by the Russia-Ukraine war and domestic weather conditions.
Core inflation (which excludes food and energy prices) moderated in 2023-24, driven by services such as housing rental inflation.
According to the Reserve Bank of India, retail inflation is estimated at 4.5% in 2024-25.
Long-term price stability measures are suggested: expansion in the cultivation of pulses, development of modern storage facilities for vegetables, and effective monitoring of the build-up of prices from the farm gate to the final consumer.

Fiscal deficit

The central government’s fiscal deficit has reduced from 6.4% (2022-23) to 5.6% of GDP in 2023-24.
It is expected to further reduce to 4.5% of GDP or lower by 2025-26.
Reasons behind improvement: Strong growth in direct and indirect tax collections, higher-than-budgeted non-tax revenue, and restrained revenue expenditure with a larger share of capital outlay.
Buoyancy in revenues continues in FY24: Revenue receipts of the union government consisting of tax revenue (net to centre) and non-tax revenue (NTR) increased YoY by 14.5 per cent in FY24 (PA), with robust growth in both tax and non-tax revenues.
The efficiency of tax collection has increased over time, reflected in the cost of collection of direct taxes declining from 0.66 per cent of gross collections in FY20 to 0.51 per cent in FY23.

Debt

Government debt-to-GDP ratio increased slightly in 2023-24 due to increasing interest rates and lower-than-budgeted nominal GDP growth.
However, it is expected to decline due to monetary policy easing, an increase in WPI inflation, and continued fiscal consolidation.

Agriculture and allied activities

Annual average growth rate of 4.2% over the last five years. Growth rate of 1.4% in 2023-24, as against a growth rate of 4.7% in 2022-23.
Reasons: Dealyed and poor monsoons leading to lower foodgrain production.
The survey has observed lower crop yields in India caused by fragmented land holdings, low farm investment, lack of farm mechanisation, and insufficient access to quality inputs.
Allied sectors: Between 2014- 15 and 2022-23, the share of livestock in agriculture gross value added increased from 24.3% to 30.4%, while the share of fisheries increased from 4.4% to 7.3%, respectively.

Industry

Growth rate of 9.5% in 2023-24 and GVA (at constant prices) in 2023-24 is 25% higher than pre-COVID level in 2019-20.
Reasons: Greater credit offtake, focus on capital formation, and a supportive policy framework.
Issues: Import dependence in the coal, capital goods, and chemicals sectors; declining advantages in the textile and food product sectors; lack of R&D and skilling.

Service sector

The services sector constituted 55% of India’s economy in 2023-24.
Challenges: Lack of workers with relevant digital skills, difficulties accessing finance for small and medium enterprises, tentative global economic outlook, and commodity price uncertainties.

Infrastructure

Three-fold increase in 2023-24 as compared to 2019-20.
Lack of desired private participation in infrastructure projects due to lumpy capital investment and long payback period, project structuring issues involving risk estimation, allocation, and mitigation, delay in land acquisition, and lack of an independent regulator for infrastructure sectors.
PMAY-U: More than 1.18 crore houses were sanctioned, and more than 84 lakh were completed.
AMRUT Mission: 5,999 projects worth ₹83,327 crore were awarded, and 5,304 projects worth ₹51,434 crore were completed.
Swatch Bharat Mission-Urban: Constructed 63.07 lakh individual household latrine units. 6.37 lakh community and public toilets.
Jal Jeevan Mission: Tap water connection has been provided to more than 14.89 crore rural households.
AIRAWAT, an AI Supercom- puter, secured 75th position in the top 500 global supercomputing list declared at the International Supercomputing Conference 2023 in Germany

Road sector

The average pace of NH construction increased by ~3 times between FY14 and FY24.
Toll digitisation reduced waiting time at toll plazas by nearly 16 times during 2014-24.

Railways

Capital expenditure on railways increased by 77% between FY20 and FY24).
Significant investment in new lines, gauge conversion and doubling.

Water transport

India’s rank in Logistics Performance Index improved from 44 in 2014 to 22 in 2023
Under Sagarmala, 262 projects worth ₹1.4 lakh crore stand completed.

Civil Aviation

New terminal buildings at 21 airports in FY24
Increase in passenger handling capacity by 62 million passengers per annum.

Energy

India targets 50% of cumulative power installed capacity from non-fossil fuel energy sources by 2030.
190.57 GW of renewable energy (RE) capacity will be installed by the end of March 2024.

Employment

The Survey noted that Indian labour market indicators have improved in the last six years, with unemployment declining to 3.2% in 2022-23.
The Indian economy must generate nearly 78.5 lakh jobs annually until 2030 in the non-farm sector.

Artificial intelligence has the potential to boost productivity and disrupt employment in certain sectors.

Monetary Management and Financial Intermediation

Monetary Policy: Consistent Repo rate at 6.5% in FY24.
Credit Growth: Rs 164.3 LCr with growth of 20.2% by March 2024 (in Scheduled Commercial Banks).
Non-performing assets (NPA): Gross NPA (GNPA) ratio declined to 2.8% in March 2024, a 12-year low.
Capital Markets: Capital formation of Rs 10.9 lakh crore, approximately 29% of private and public corporates’ gross fixed capital formation in FY23.

External Sector

Growth by 4.9% to USD 341.1 billion in FY24.
India remains the top global remittance recipient, totalling USD 120 billion in 2023.
India’s external debt to GDP ratio stood at 18.7% as of March 2024.
India’s rank in the World Bank Logistics Index improved to 38^th in 2023 from 44^th in 2014.

In 2023-24, India’s current account deficit reduced to USD 23.2 billion (0.7% of GDP) from USD 67 billion (2% of GDP) in 2022-23. Current account surplus in Q4 of FY24 led to a moderation in CAD in FY24.
Reasons behind improvement: Decreased merchandise trade deficit, increased net services exports (software exports, travel, and business services), and increased remittances.
Future risks: Fall in demand from major trading partners, rising trade costs, volatility in commodity prices, and changes in trade policies.
India witnessed the most significant increase in foreign exchange reserves holdings in FY24.
Highest level of FPI inflows witnessed in FY24 after FY15.

Medium-Term Outlook

Climate change and energy transition

Non-fossil fuel sources account for 45% of India’s total electricity generation capacity.
The government has raised Rs 36,000 crore via sovereign green bonds in 2023.
The Survey noted that India faces a dual challenge of meeting its energy demands while reducing carbon emissions.

Prelims Bits

The International Monetary Fund publishes the World Economic Outlook. UNCTAD released World Investment Report 2024.
Geopolitical Risk Index was developed by Dario Caldara and Matteo Iacoviello of Federal Reserve Bank of New York as a measure of adverse geopolitical events based on a tally of newspaper articles covering geopolitical tensions since 1900.

Global Supply Chain Pressure Index (GSCPI)

The GSCPI by the Federal Reserve Bank of New York measures global supply chain pressures, which can be used to gauge the importance of supply constraints about economic outcomes.
It utilises data from the Baltic Dry Index (BDI), Harpex index, and airfreight cost indices from the U.S. Bureau of Labor Statistics.
The GSCPI uses supply chain-related components from Purchasing Managers’ Index (PMI) surveys.

Permanent output

Permanent output loss refers to a downward shift in the observed variable due to the loss in output capacity. Simply put, it refers to the contraction of economic activity.
The Indian economy is catching up to the levels projected by the pre-pandemic trends, thereby averting any permanent losses in demand/output.
Reasons: Counter-cyclical fiscal policy focussed on capital expenditure, multiple process reforms and deployment of public digital infrastructure.

Financial Sector Assessment Program (FSAP) for India

FSAP is the quinquennial (every five years) exercise jointly conducted by the IMF and the World Bank in countries with ‘systemically important’ financial sectors.
It involves a comprehensive and in-depth analysis of a country’s financial industry to assess financial stability and sector development.
India underwent its first FSAP exercise in 2011-12. The third FSAP exercise is underway for 2023-24.

Financial System Stress Indicator (FSSI)

In the 26^th issue of its Financial Stability Report (FSR), the RBI attempted to compile a comprehensive indicator called the FSSI to monitor the aggregate stress level in the Indian financial system.
Aims to (a) help identify periods of stress, (b) assess intensity and duration of stress in the financial system, and (c) gauge the ability of financial markets & intermediaries to withstand shocks and imbalances.

Global Capability Centre (GCC)

Offshoring was started in India by Texas Instruments, which established its office in Bengaluru in 1985.
These were called ‘captive centres’ earlier and have now come to be addressed as GICs (global in-house centres) or GCCs. India now houses over 1,600 GCCs.

Mittelstand

Mittelstand commonly refers to a group of stable business enterprises in Germany, Austria and Switzerland that have proved successful in enduring economic change and turbulence.
It is usually defined as a statistical category of small and medium-sized enterprises with annual revenues of up to 50 million euros and a maximum of 500 employees.

Karmayogi Competency Model

The Karmayogi Competency Model is a public human resource management framework developed by the Capacity Building Commission of India.
Elements: Self-awareness of strengths and weaknesses, collaboration and inclusion of diverse voices towards a shared goal, transparency and compliance, knowledge of systems and processes, and citizen-centricity and the motivation to transform citizens’ lives through one’s work.

Amrit Gyaan Kosh

Developed by the Capacity Building Commission of India.
Amrit Gyaan Kosh is a dedicated knowledge bank for civil servants which houses teachable case studies, policy simulations, and interactive and immersive learning resources.

Other important bits

Friend-shoring: Rerouting supply chains to countries perceived as politically and economically safe or low-risk to avoid disruption to business flow.
Nearshoring: Company relocating business operations to a nearby country, often with a shared border.
Reshoring is when a business transfers operations back to its home country.
Forward participation of a country refers to producing and shipping raw materials and intermediate inputs (for example, yarn) for further processing and exporting by other countries (fabric).
In contrast, backward participation refers to using imported intermediate inputs (e.g., imported fabrics) to produce goods that are exported (e.g., apparel).
The Revenue buoyancy of a tax system measures the total response of tax revenue to changes in national income and to discretionary changes in tax policies over time.
Macroeconomic vulnerability index is constructed by combining India’s fiscal deficit, CAD and inflation. It was introduced in Mid-Year Economic Analysis 2014-2015, released by Ministry of Finance.
Trade Receivables Discounting System (TReDS): TReDS is a digital platform that discounts MSMEs’ trade receivables through banks and NBFCs to meet liquidity and working capital requirements.
Open Credit Enablement Network (OCEN) is a decentralised open credit network that codifies the flow of credit between borrowers, lenders, and credit distributors under a common set of standards. It is expected to boost credit flow to the MSME sector.
Insurance penetration refers to the ratio of the insurance premiums written in a particular year to GDP.
Insurance density refers to the ratio of insurance premium to population, i.e., insurance premium per capita, and is measured in US dollars.
Bima Sugam is an online portal that facilitates insurance buying, offers portability facilities, allows users to change insurance agents, and allows users to settle life, motor, and health claims directly with insurers.
Bima Vahak is a women-centric insurance distribution channel.
Bima Vistaar is a social safety net accessible through the Bima Sugam platform.

China Plus One strategy

Recently, MNCs have been looking to ‘de-risk’ themselves from China, traditionally the ‘world’s factory’.
This shift is primarily due to disruptions caused by COVID-19, growing tensions between the US and China, and rising costs of doing business in China.
This approach involves supply chain decisions to decrease their risk exposure to China.
For example, over 90 per cent of manufacturers in North America surveyed by the Boston Consulting Group in 2023 moved some or all of their production to other countries like Mexico, Thailand, and Vietnam, suggesting a move away from China.
Nations like Mexico, Vietnam, Taiwan, and Korea directly benefitted from the US’s trade diversion from China. However, these nations also displayed a concomitant rise in Chinese FDI.

Relevance for India

The large Indian consumer market makes it attractive for companies to set up operations there.
The Government’s PLI scheme, including tax breaks and subsidies, significantly attracts companies, especially smartphone manufacturers. For example, Foxconn has started production of Apple mobile phones in Karnataka and Tamil Nadu.
India’s electronic exports to the US have transitioned from a trade deficit of USD 0.6 billion in FY17 to a trade surplus of USD 8.7 billion in FY24.
India can focus on FDI from China to boost India’s exports to the US. It is more effective for Chinese companies to invest in India and export their products to these markets rather than import from China, add minimal value, and re-export them.