The Economic Survey for 2023-24 offers a pragmatic view of India’s economic challenges and growth prospects. Despite an impressive GDP growth rate exceeding 8% in FY 2023-24, the survey projects a more modest GDP growth rate of 6.5% to 7% for FY 2024-25. Here are the critical challenges identified by the survey and the recommended strategies to address them.
Survey’s Analysis
Global Economic Conditions:
The outlook for foreign direct investment (FDI) growth is currently not very promising. High-interest rates in developed nations have increased the cost of funding and the opportunity cost of investing in developing countries like India. Additionally, India’s competition with developed countries’ industrial policies, which include substantial subsidies to promote domestic investment, and ongoing geopolitical uncertainties further complicate the situation.
Dependence on China:
The Chief Economic Advisor (CEA) highlighted India’s continued reliance on China for imports, particularly in the renewable energy sector. He pointed out that China still dominates the low-skills manufacturing sector that India aims to capture.
Technological Evolution and AI:
The survey notes the significant impact of the telecommunications and Internet-facilitated business process outsourcing (BPO) boom. However, it warns that the next wave of technological advancements, particularly in artificial intelligence, could disrupt this sector.
Private Investment Slump:
Despite the government’s corporate tax cuts in September 2019 intended to spur capital formation, the corporate sector has not significantly increased investments. From FY20 to FY23, the Indian corporate sector’s profit before taxes nearly quadrupled, but hiring and compensation growth did not keep pace, the CEA noted.
Employment Challenge:
To accommodate the growing workforce, the Indian economy needs to create approximately 78.5 lakh jobs annually in the non-farm sector until 2030.
Data Deficiency:
A persistent issue is the lack of high-quality and timely data, particularly concerning employment. The CEA acknowledged that the absence of accurate data on the number of formal and informal jobs created hampers a thorough analysis of the labor market.
Lifestyle Factors:
The survey also highlights lifestyle-related issues, noting that social media, increased screen time, sedentary habits, and unhealthy diets are negatively impacting public health and productivity, thereby diminishing India’s economic potential.
Recommendations
Private Sector Job Creation:
A key objective of the Modi government’s economic policy has been to reduce government involvement in the economy and encourage the private sector to take a leading role. The survey reiterates this approach, urging the corporate sector to take job creation seriously, especially given their significant profits.
Promoting Healthy Lifestyles:
The survey suggests that Indian businesses should embrace and promote traditional Indian lifestyles, foods, and recipes that have proven to support healthy living. These practices not only make commercial sense but also have the potential to attract a global market.
Agriculture as a Growth Driver:
Contrary to traditional economic theories suggesting a shift from agriculture to manufacturing and services, the survey proposes focusing on agriculture for economic growth. The CEA argues that trade protectionism, resource hoarding, overcapacity, and AI advancements are limiting growth opportunities in manufacturing and services. Instead, enhancing agricultural value addition, boosting farmer incomes, and creating food processing and export opportunities can make the farm sector appealing and productive for urban youth.
Removing Regulatory Barriers:
The survey emphasizes the need to alleviate the regulatory burden on businesses, particularly for Medium, Small, and Micro Enterprises (MSMEs). While there has been some progress, much more needs to be done to streamline licensing, inspection, and compliance requirements.
Building State Capacity:
Rather than pursuing major reforms, the survey advocates for building state capacity to sustain and accelerate economic progress. This involves focusing on the detailed and often unglamorous work necessary to implement policies effectively.
By addressing these key challenges and implementing the recommended strategies, India can navigate the complexities of the current global and domestic economic landscape and achieve sustainable growth.