Ashok Lavasa

It is customary for the government of India to release its annual Economic Survey a day before presenting the Union Budget in its parliament. The first survey was presented in 1950-51 as a part of the budget. From 1964 onwards, it has been presented separately.

The budget too is not presented to the parliament the way it was in the past. The India financial year is from April to March. The budget was earlier presented on February 28 at 5pm in line with the colonial tradition of coinciding it with the convenient time in London as per Greenwich Mean Time. That practice was changed in 1999 when the time of presentation was moved to 11am, India Standard Time. Since 2017 the date of presenting the budget too was changed from February 28 to February 1 allowing enough time for the parliament and its committees to examine the demands and grants, and vote them before the commencement of the new financial year. Earlier, the approval process was completed by the end of May with government seeking the approval of the Parliament to spend about 15% of its annual outlay in the first quarter of the financial year even before the Budget received its final Presidential assent.

This year, however, the survey was presented on July 22 because a new government took office in June and presented its regular budget on July 23. The Indian system provides for the government to present an interim budget (also called a vote on account) in February in an election year, which was done in February 2024 as well.

India had a general election in April-June this year, and the budget and the survey were eagerly awaited as the survey looks back at what happened in the Indian economy during the last 12 months and also gives an idea of how the economy will do in the current year. The survey provides a snapshot of the current condition of the Indian economy and a sweep of the priorities of the government. Both inputs are valuable for those who watch the Indian elephant steadily move to being the third-largest economy in a few years.

According to the survey for FY24, inflationary pressures, driven by global issues, supply chain disruptions, and unpredictable monsoons, have been managed through strategic monetary policies. The following is highlighted:

• India demonstrated its resilience as an economy by growing over 7% for the third consecutive year, driven by stable consumption and improving investment demand.
• India’s real GDP grew by 8.2% in FY24 with agriculture growing at 4.18% annually over the past five years, industry growing at 9.5% in FY24. The services sector contributed 55% to the economy during the year.
• Retail inflation was maintained at 5.4%, the lowest since the pandemic, and is expected to decline to 4.5% in FY25 and 4.1% in FY26, assuming normal monsoon and no external shocks.
• Gross fixed capital formation increased by 9% largely due to government spending. In the infrastructure sector, for example, central and state government spending between 2019 and 2023 was 49% and 29 %, respectively, while the private sector share was only 22%.
• The banking sector registered double-digit credit growth, low non-performing assets and improved asset quality.
• Bank credit growth sustained momentum across sectors and credit offtake grew by 20.2% compared to 15% last year. The gross non-performing assets ratio was 2.8%, falling from a peak of 11.2% in FY18. However, the ratio in agriculture sector remained high at 6.5%.
• Non-bank financial company lending increased, led by personal and industry loans.
• The trade openness indicator rose to 45.9 from 37.5 in FY2005 and contributed significantly as India improved its share of global goods exports to 1.8%, a marginal increase from 1.7% average recorded during FY16-20. The share of services exports grew to 4% from an average of 3.3% during the same period. India is now the seventh largest services exporting country in the world, ranking second in export of telecommunication, computer and information services, sixth in personal, cultural and recreational services, eighth in business services, 10th in transport services and 14th in travel services.
• India’s current account deficit improved to 0.7% of GDP in FY24, down from 2.0% in FY23, despite subdued global demand for goods but counterbalanced by strong services exports.
• Net foreign direct investment (FDI) inflows declined from US$42 billion in FY23 to $26.5 billion in FY24, with gross FDI inflows moderating slightly.
• At the end of FY24, India's forex reserves could cover more than 10 months of projected imports and 98% of external debt.

Going forward the survey makes a few projections and emphasizes the following priorities for the economy:

• GDP growth in FY25 is seen at 6.5% to 7%, lower than the previous year due to global economic and political risks.
• The performance of agriculture sector remains critical for economic growth as it provides livelihood support to about 42.3% of the population but has a share of 18.2% in the country’s GDP at current prices.
• Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce. As of now, 57.3% of the total workforce is self-employed and 18.3% work as unpaid workers in household enterprises.
• The survey points out that the 10 most populous states in India impose 139 prohibitions on women from participating in factory processes like electroplating, petroleum generation and manufacturing of products such as pesticides, glass, rechargeable batteries, etc.
• India’s energy needs are projected to grow 2 to 2.5 times by 2047, with significant progress in renewable energy and emissions reduction.
• India has made noticeable progress on climate action seen in the increase in installed solar power capacity to 82.64 gigawatts in FY24. India has achieved the target of 40% installed energy generation capacity through non-fossil fuel sources nine years ahead of its United Nations Framework Convention on Climate Change commitments and has now enhanced its ambition.
• The government has notified the regulations on the carbon trading scheme called the Indian Carbon Market during FY24.
• Recognizing the climate change as a hard reality of the present times and projections pointing towards an increase in the frequency and intensity of extreme weather events, the survey mentions its concomitant outcome as the possible loss of jobs and productivity.
• Another aspect of climate change is the efforts to mitigate its impact by adopting green technologies and transitioning to greener energy alternatives. This trend is leading to businesses witnessing a strong job-creation effect driven by investments that facilitate the green transition of businesses and the application of environmental, social and governance standards.
• While artificial intelligence (AI) will continue to be the biggest disruptor, India with its vast demographic dividend and a very young population, is uniquely situated as AI poses both risk and opportunity. As generative AI is revolutionising the performance of routine cognitive tasks through chatbots, and employment estimated to decline considerably in the next ten years, gradual diffusion of AI is expected to augment productivity.
• Based on national labour force survey data, 7.7 million workers were engaged in the gig economy in 2020-21. The survey states that the gig workforce is expected to expand to 23.5 million and form 6.7% of the non-agricultural workforce or 4.1% of the total livelihood in India by FY2030.
• The care economy holds great importance for a young country like India, which has both demographic and gender dividends to reap. Highlighting the need to prepare for future care requirements of an ageing population, the survey says that defining care work is the first step towards acknowledging care as ‘work’.
• It mentions that India’s care needs are slated to expand significantly in the next 25 years, as an ageing population follows the ongoing demographic transition while the population of children stays relatively sizeable. By 2050, the share of children is estimated to decline to 18% (that is, 300 million persons), while the proportion of elderly persons would rise to 20.8% (that is, 347 million persons). Thus, compared with 507 million persons in 2022, the country would need to care for 647 million persons in 2050.
• Recognizing the disproportionate burden of care on women being consequential to the low female labour force participation rate across the world, including India, the survey also lays emphasis on ensuring equal opportunity for females by decoupling gender and unpaid care work.
• The care responsibility associated with an increasingly older population necessitates formulating a future-ready wholesome elderly care policy with the survey mentioning the care economy as a top-tier entry in India’s to-do list for becoming a developed nation by 2047. According to the Asian Development Bank report, utilising this ‘silver dividend’ of untapped work capacity of population aged 60 to 69 years is estimated to increase GDP by an average of 1.5% for Asian economies.

Like all surveys, this survey too has a few doses of impartial realism with a fair sprinkling praise for the government. What one has to watch is whether government is able to devise a growth strategy that focuses on bottom-up reforms, job and skill creation, MSME (micro, small and medium-sized enterprise) development, green transition and addressing inequality.

Ashok Lavasa is a former finance secretary of India and vice-president of private sector and public-private partnership at the Asian Development Bank.