Economic Survey of India 2023-24: Report Highlights

The Economic Survey of India 2023-24 was presented by the Minister of Finance Nirmala Sitharaman ahead of the Union Budget 2024-25, which will be announced July 23, 2024. Sitharaman declared that the Indian economy is on a “strong wicket and stable footing” and has stayed resilient amid geopolitical challenges.

On July 22, 2024, which saw the beginning of the Monsoon session of the Indian parliament, India’s finance minister Nirmala Sitharaman tabled the Economic Survey 2023-24. As is become traditional, the Survey report highlights the impact of government efforts to streamline regulations and create a business-friendly environment in the country.

Why does the Economic Survey matter?

The Economic Survey report is prepared by the Economic Division of the Department of Economic Affairs under the Ministry of Finance. It is supervised by the Chief Economic Adviser.

The document provides insights into the state of the Indian economy and provides data on various indicators along with an outlook for the ongoing fiscal. It consists of two parts: the first part covers economic developments, challenges, and an overall review of the economy, while the second part focuses on the previous financial year.

Key findings of the Economic Survey 2023-24

India’s GDP growth projection

India’s economy is projected to grow by 6.5 to 7 percent in the financial year ending March 2025, according to the 2023-24 Economic Survey report. This is below the Reserve Bank of India’s (RBI) forecast of 7.2 percent and last year’s GDP growth of 8.2 percent.

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Chief Economic Adviser V. Anantha Nageswaran expressed confidence in achieving the 7 percent growth target set in the Economic Survey 2023-24, presented on July 22. While acknowledging the attainability of this target, he noted several risk factors, including unpredictable weather patterns, financial market uncertainties in developed economies, and geopolitical complexities. Despite these challenges, the government remains hopeful about reaching the growth target.

Inflation trends

The Economic Survey 2023-24 reports that inflationary pressures in India have been effectively managed through administrative and monetary policies, reducing retail inflation from 6.7 percent in FY 2022-23 to 5.4 percent in FY 2023-24. Core inflation for goods and services has reached multi-year lows. Core inflation is measured by excluding food and energy items from CPI headline inflation.

India is performing better than various developed and emerging economies in relation to its inflation target. In 2023, India’s inflation rate was within its target range of 2 to 6 percent. Core services inflation eased to a nine-year low in FY24; at the same time, core goods inflation also declined to a four-year low.

However, it is worth noting that food inflation in the country increased from 6.6 percent in FY23 to 7.5 percent in FY24. The report notes that this increase is due to extreme weather conditions and crop damage. The RBI and the IMF expect further decrease in inflation, if the country experiences a normal monsoon and there are no external shocks.

To improve the precision and relevance of economic data, the Ministry of Statistics and Programme Implementation (MoSPI) has begun updating the base year for the Consumer Price Index (CPI) from 2012 to 2024.

Assuming a normal monsoon and no further external or policy shocks, the RBI expects headline inflation to be 4.5 percent in FY25 and 4.1 percent in FY26. IMF has projected an inflation rate of 4.6 percent in 2024 and 4.2 percent in 2025 for India.

India’s fiscal health

The Economic Survey 2023-24 report highlights a decrease in India’s fiscal deficit from 6.4 percent in FY23 to 5.6 percent in FY24. This reduction was driven by robust growth in direct and indirect tax revenues, thanks to resilient economic activity and improved tax compliance. Additionally, higher-than-expected non-tax revenue from RBI dividends boosted revenue receipts.

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On fiscal balances, the Survey noted that “tax compliance gains from procedural reforms, expenditure restraint, and rising digitization” have offset the impact of “expansionary public investment.”

External balance sheet and global context

Regarding the current account deficit, the Economic Survey 2023-24 reported it at 0.7 percent of GDP in FY24, significantly improving from 2 percent in FY23. While global demand for goods has been weak, strong services exports have largely balanced the external trade balance.

Foreign exchange reserves are ample. Public investment has sustained capital formation in the last several years even as the private sector shed its balance sheet blues and began investing in FY22. Now, it has to receive the baton from the public sector and sustain the investment momentum in the economy. The signs are encouraging.

The report also highlights that global output appears to be more resilient in 2023-24 than in 2022-23, with shrinking inflationary pressures and a recovering trade environment. Yet, an increased likelihood of geopolitical disturbances and conflicts cannot be ignored.

Global output is now somewhat more resilient than in 2022, inflationary pressures are shrinking, and trade is set to recover, should there be no further geo-political shocks or flare-ups. However, the chances of geopolitical disturbances and conflicts have only gone up in recent times.

Economic performance and outlook

The Survey highlighted that India’s real GDP in FY24 was 20 percent higher than in FY20, a notable achievement among major economies, and suggested strong potential for continued robust growth in FY 2024-25 and beyond. The Survey expressed optimism for FY 2024-25, anticipating broad-based and inclusive growth for the country’s economy. It claims that in FY25 India’s economic growth will see reductions in unemployment and multidimensional poverty, and increased labor force participation.

Employment scenario

The Economic Survey 2023-24 estimates India’s workforce at nearly 565 million, with over 45 percent engaged in agriculture, 11.4 percent in manufacturing, 28.9 percent in services, and 13.0 percent in construction. The services sector remains a major job creator, while the construction sector’s importance has increased due to government infrastructure initiatives.

However, construction jobs are often informal and low-paid, highlighting the need for better employment opportunities for those transitioning from the agriculture sector.

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The report notes that employment in the domestic manufacturing sector, previously stagnant due to bad loans, has shown signs of recovery from 2021-22. Labor market indicators in India have improved over the past six years, with the unemployment rate dropping to 3.2 percent in 2022-23. Increasing youth and female workforce participation offers opportunities to leverage demographic and gender dividends. Net payroll additions under the Employees’ Provident Fund Organization (EPFO) have more than doubled in the past five years, indicating healthy growth in formal employment.

The Survey emphasizes that the Indian economy needs to create 7.85 million non-farm jobs annually until 2030. While skilling initiatives have made progress, only 4.4 percent of the young workforce is formally skilled, indicating room for improvement. Regulatory reforms, such as state-level laws on land use and women’s employment, are identified as opportunities for job creation.

To meet the employment demands of a growing population, the Survey states the need to generate 7.85 million non-farm jobs annually. Furthermore, it asserts the importance of balancing technology deployment and labor, with agro-processing and the care economy identified as key sectors for sustainable job creation.

The AI conundrum

The Economic Survey 2023-24 stipulates that artificial intelligence (AI) is the biggest future work disruptor, presenting both risks and opportunities for India’s young population. It notes that the BPO (business process outsourcing) sector faces a decline in employment due to GenAI chatbots.

The Survey, however, stresses adapting AI and steering technology towards collective welfare.

With artificial intelligence taking roots in several spheres of economic activity, job markets must adapt while steering the technological choices towards collective welfare is key.

Corporate sector participation in employment generation

The Economic Survey 2023-24 notes that the Indian corporate sector has seen significant profit increases, with pre-tax profits nearly quadrupling and corporate profits-to-GDP ratio reaching a 15-year high in FY24. The Survey findings suggest that it is in the interest of companies to step up hiring and compensation, given their improved financial performance.

Maintaining interest of foreign investors

The Survey report highlights that non-financial private-sector capital formation grew significantly in FY22 and FY23 after a decline in FY21, with machinery and equipment investment rebounding after drops in FY20 and FY21. Early data for FY24 indicate continued but slower growth in private sector capital formation. The report emphasizes the need to maintain overseas investor interest.

Compliance burden on businesses

The Survey acknowledges that “the Licensing, Inspection, and Compliance requirements imposed by all government levels remain a heavy burden on businesses.”

While “the burden has lightened compared to the past, it is still too heavy, especially for small and medium enterprises.”

This burden hinders the growth of these sectors, “restraining their aspirations and, in turn, holding the country back. Despite good economic growth rates and visible progress, we cannot know the full potential we might have achieved without these constraints.”

Strategy to meet India’s energy needs

The Economic Survey 2023-24 highlights the need for India to diversify its energy sources, as the country’s energy demand is expected to increase by 2 to 2.5 times by 2047 to sustain its economic growth and development goals.

The transition to a low-carbon energy system in India faces several challenges, including:

• Technology: Many essential technologies like hydrogen-fueled steel production and carbon capture for steel and aluminum are not yet commercially available.
• Raw materials: Securing the necessary materials for new technologies.
• Finance: Access to affordable funding for energy projects.
• Land availability: India has the lowest land availability per capita among G20 countries, complicating the expansion of renewable energy projects.

NITI Aayog’s India Energy Security Scenarios 2047 estimates that India will need to invest US$250 billion annually until 2047 to prepare its energy systems for net-zero pathways.

The Survey cautions against shifting India’s high import dependency from petroleum to solar panels and critical minerals, which have complex supply chains and are currently subject to geopolitical issues. It suggests that while renewable energy should be expanded as much as possible, clean coal technologies should also be adopted in the short to medium term.

The Survey report also recommends integrating renewable energy with nuclear power, biofuels, and green hydrogen to address the risks associated with large-scale renewable energy adoption, such as intermittency, grid integration, backup power generation, and storage.

Healthcare: Rise in mental health issues

The Economic Survey 2023-24 extensively covers the socio-economic repercussions of mental health issues for the first time. The findings highlight a significant increase in mental health issues among Indians and advocate for a comprehensive, community-based approach to address this problem.

Based on data from the National Mental Health Survey (NMHS) 2015-16, the report notes that 10.6 percent of adults in India suffer from mental disorders, with treatment gaps ranging from 70 percent to 92 percent for different conditions. Mental health problems significantly impact quality of life and lead to substantial economic losses through absenteeism, reduced productivity, and increased healthcare costs.

The Survey report calls for a paradigm shift towards a bottom-up, whole-of-community strategy to tackle mental health challenges.

Improving R&D ecosystem

The Survey highlights India’s progress in industrial R&D, shown by its rise on the Global Innovation Index (GII) to rank 40th in 2023 and a jump in patent filings. Patents granted increased from 5,978 in 2014-15 to 103,057 in 2023-24, and registered designs rising from 7,147 to 30,672.

On the human resource side, total Ph.D. enrolment in India increased to 81.2 percent in FY22 (213,000) from FY15 (117,000). The Gross Expenditure on R&D (GERD) in the country has consistently increased, more than doubling from INR 601.96 billion in FY11 to INR 1.27 trillion in FY21.

The Anusandhan National Research Foundation (ANRF) bill, passed in 2023, is budgeted at INR 500 billion (US$ 5.9 billion) for the period 2023-28. The ANRF will act as an apex body to provide high level strategic direction for scientific research, forging collaborations between stakeholders in industry, academia, governments, and research bodies.

Other points of note:

• India’s start-up ecosystem is booming, with over 45 percent hailing from Tier 2 and 3 cities.
• Officially recognized start-ups (that is, registered with the Department for Promotion of Industry and Internal Trade) grew in number from 300 in 2016 to more than 125,000 by March 2024. Over 13,000 recognized start-ups are in the fields of AI, IoT, robotics, and nanotechnology.
• Start-ups filed over 12,000 patent applications between 2016 and March 2024.
• 135 Alternative Investment Funds (AIFs) have invested INR 180 billion (US$2.1 billion) in start-ups as of FY24. The Bharat Startup Knowledge Access Registry fosters ecosystem collaboration.

Conclusion

The growth strategy to propel India’s vision for 2047 (“Amrit Kaal”), where it becomes a developed economy, necessitates a boost in private investment, MSME expansion, leveraging agricultural growth, securing green transition financing, bridging the education-employment gap, and strengthening state capacity. The government does not want India to slip into the middle-income trap currently witnessed in several countries at similar stages of development.

The Economic Survey 2023-24 forecasts that India can maintain over 7 percent growth in the medium term through recent structural reforms, but this necessitates collaboration between the central government, state governments, and the private sector.

(US$1 = INR 83.66).

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