Opinion | Economic Survey 2024 Signals Resilient Growth, Despite All Odds

The tradition of the Economic Survey in India has become a staple fixture for analysts, commentators, and citizens alike, typically published a day before the Union Budget or two days earlier when there was a separate railway budget. While it is not a constitutional requirement, the Economic Survey began as an executive decision, establishing a precedent. Initiated in 1950-51 as a 'white paper' within budget papers, the survey has grown in scope over the years. Initially relying solely on secondary data due to the scarcity of readily available figures and analysts, the survey became a primary data source for those outside the government. Historically, these documents were often dense and repetitive, with minimal changes year-to-year apart from updated figures. The 1990s saw significant economic shifts, reflected in the survey's expansion and the introduction of more variables. Though its primary purpose is to report on the past year's economic performance, it has also ventured into suggesting future reforms, despite a lack of correlation with budget outcomes.

How The Surveys Have Evolved

Although primarily authored by the Chief Economic Advisor (CEA), the Survey became an anonymous Department of Economic Affairs (DEA) document, giving CEAs the freedom to inject their own viewpoints and interpretations. This shift led to the Survey becoming more opinionated, with some CEAs using it as a platform to advocate for their perspectives on economic issues, sometimes diverging from the traditional template.

However, 2021-22 onwards, the Economic Surveys have reverted their focus on economic performance. This classic template focuses more on hard facts and less on opinions, offering a comprehensive overview of the economy's performance over the last year. They have more analysis than opinions. This year too, the Economic Survey has followed the same template. There are 13 chapters in total.  

The Economic Survey 2023-24 highlights the resilience of India's economy. The real GDP growth rate reached 8.2% in FY24, sustaining over 7% growth for three consecutive years. Further, the survey has projected FY25 real GDP growth at 6.5% to 7%.

The economic growth was driven by stable consumption and improving investment demand. Gross Value Added (GVA) grew by 7.%, reflecting broad-based sectoral growth. Notably, net taxes at constant prices surged by 19.%, underpinned by strong tax growth and subsidy rationalisation.

Manufacturing And Services

Manufacturing GVA rebounded with a 9.9% increase, benefiting from reduced input prices and stable domestic demand. Services sector growth was bolstered by double-digit increases in GST collections and e-way bills. Private Final Consumption Expenditure (PFCE) grew by 4.%, supported by strong urban and gradually recovering rural demand. Gross Fixed Capital Formation (GFCF) emerged as a crucial growth driver, with private capital expenditure significantly rising. However, consumption is still an issue. The survey could have focussed more on it.

As far as macroeconomic stability is concerned, the survey has made four important points. First, India's fiscal consolidation efforts stand out in a global landscape marked by widening fiscal deficits and rising debt burdens, and this shows its commitment to macroeconomic stability. The Union Government's fiscal deficit contracted from 6.4% of GDP in FY23 to 5.6% in FY24, based on provisional actuals from the Controller General of Accounts (CGA). This consolidation was driven by a 14.5% year-on-year increase in revenue receipts, propelled by strong growth in direct taxes (15.8%) and indirect taxes (10.6%), supported by resilient economic activity and improved tax compliance. Non-tax revenues also exceeded expectations, buoyed by higher dividends from the Reserve Bank of India (RBI).

Second, a detailed decomposition of the fiscal deficit reveals a significant reduction in the revenue deficit, indicating a larger share of the deficit being attributed to capital outlays. This shift suggests an enhancement in the productivity of borrowed resources, with a greater focus on investment-oriented fiscal policy. For instance, the capital expenditure for FY24 stood at ₹9.5 lakh crore, marking a 28.2% year-on-year increase and more than doubling the level of FY20. This capital expenditure was broadly based, with significant allocations to sectors such as road transport, highways, railways, defence services, and telecommunications, aimed at addressing logistical bottlenecks and expanding productive capacities.

Reduced Fiscal Deficit

Third, on the state level, fiscal health has also shown marked improvement. Preliminary unaudited estimates for 23 states indicate a gross fiscal deficit of 2.8% of GDP in FY24, down from the budgeted 3.1%. States have focused on capital expenditure, evidenced by a 2.6% increase in capex as a percentage of GDP. This prudent fiscal management has been accompanied by a reduction in outstanding liabilities, which declined to 27.1% of GDP from 30.2% in FY21.

Fourth, revenue growth at the state level has been robust, with tax revenues showing strong performance. This is reflected in the increased mobilisation of states' own tax revenue, which, for some states, constitutes over 8% of their Gross State Domestic Product (GSDP). The Union Government's progressive transfer system further aids states with lower per capita GSDP, enabling them to maintain higher public spending relative to their economic size, thereby addressing regional imbalances.

Quotas For Locals

Beyond numbers, the survey has unequivocally highlighted the detrimental impact of state policies mandating employment reservations for local residents, such as the Haryana State Employment of Local Candidates Act, 2020. These regulations, which prioritise local candidates for jobs, are flagged for distorting labour market dynamics and stifling economic growth. The survey presents data showing that states with such policies experience a 10-15% decline in investment and a 5-8% reduction in job creation, compared to those without such mandates. This regulatory unpredictability deters businesses, leading to a 12% decrease in new enterprises and a 7% drop in productivity. Thus, such parochial policies not only hinder overall economic progress but also erode the competitive edge of states, fostering an insular and protectionist approach to employment. This is important in light of recent attempts by the Karnataka government to introduce the Karnataka State Employment of Local Industries Factories Establishment Act Bill, 2024.

The survey has also comprehensively delved into employment numbers. Over the past six years, India's labour market has transformed significantly, with the unemployment rate plummeting to 3.2% in 2022-23, according to the Periodic Labour Force Survey. Youth and female workforce participation is on the rise, offering a golden chance to harness demographic and gender dividends. The organised manufacturing sector is back on its feet, with factory employment steadily climbing, and net payroll additions under EPFO have more than doubled in the past five years, signalling robust growth in formal employment. As artificial intelligence reshapes economic activities, the job market must adapt, ensuring technological progress benefits all. Key sectors like agro-processing and the care economy show promise for generating sustainable quality jobs, especially for women. However, a glaring gap remains in skill development, with only 4.4% of the young workforce formally skilled. Immediate regulatory reforms targeting land use, restrictions on women's employment, and the promotion of apprenticeships are low-hanging fruits for boosting employment. India stands at a crossroads: seize these opportunities now, or risk squandering a once-in-a-lifetime demographic dividend.

Energy Transition

One should also read the chapter on trade-offs of energy transitions. As highlighted by the survey, India's annual per capita carbon emissions stand at approximately one-third of the global average, despite its rapid economic growth. With the vision of achieving 'Viksit Bharat' by 2047 and Net Zero carbon emissions by 2070, India is committed to balancing robust economic growth with environmental sustainability. Access to stable and reasonably priced energy is crucial for driving ambitious economic targets while adhering to a low-carbon pathway. However, the transition to cleaner energy is challenged by the need for advanced battery storage technologies and critical minerals, primarily funded through domestic resources.

India's energy transition is further complicated by its reliance on fossil fuels, which made up 84% of the primary energy mix in 2022-23. Despite an increase in non-fossil power capacity to 45.4% as of May 2024, renewable energy sources face issues like intermittency and significant land and water use. For example, 1 MW of solar PV requires 1-1.5 hectares of land, a substantial challenge given India's low land availability per capita. Critical minerals necessary for renewable technologies are highly concentrated in a few countries, heightening supply chain vulnerabilities.

Financial requirements for India's low-carbon transition are immense. Meeting NDC targets by 2030 is estimated to cost around $2.5 trillion. Despite significant progress in renewable energy capacity domestically, international financial flows remain inadequate and often come in the form of loans rather than grants, exacerbating economic burdens. India's climate actions are largely self-financed, but achieving ambitious targets will require better access to affordable finance and international cooperation in R&D for technologies like green hydrogen, CCUS, and advanced energy storage systems. The world, especially the developed countries, is not doing enough.

Thus, reading the survey would be a worthwhile exercise for anyone who is interested in the Indian economy. Further, since Nirmala Sitharaman took office as finance minister, surveys have consistently aligned with the government's overarching objectives, unlike the opinionated nature of previous surveys. While they might not reveal the specific details of the budget, they unequivocally share the same agenda. This alignment is especially pronounced in economic surveys being authored by Anantha Nageswaran and his team.

(Bibek Debroy is Chairman, Economic Advisory Council to the Prime Minister (EAC-PM), and Aditya Sinha is OSD, Research, EAC-PM.)

Disclaimer: These are the personal opinions of the author