Finance Minister of India, Nirmala Sitharaman, recently presented the Economic Survey 2023-24 in Parliament. Here are the key highlights of the Survey:
GLOBAL ECONOMIC SCENARIO
- Despite ongoing geopolitical tensions and increased volatility in global financial markets, global economic growth remained fairly moderate in 2024.
- The global economy grew by 3.3% in 2023. The International Monetary Fund (IMF) has projected growth of 3.2% and 3.3% for 2024 and 2025, respectively.
- While the overall global outlook remains steady, growth varies across different regions in 2024.
- A notable trend was the slowdown in global manufacturing, especially in Europe and parts of Asia, due to supply chain disruptions and weak external demand. In contrast, the services sector performed better, supporting growth in many economies.
STATE OF THE INDIAN ECONOMY
1. Growth Projections:
As per the first advance estimates, the real gross domestic product (GDP) growth for FY25 (Financial Year 2024-25) is estimated to be 6.4% which is close to the decadal average.
- The real GDP grew by 6.7% and 5.4% in the first and second quarters of FY25, leading to a growth of 6.0% in H1FY25 (first half of the current fiscal i.e. April – September 2024).
On the supply side, real gross value added (GVA) is also estimated to grow by 6.4%.
2. Sectoral Growth:
The agriculture sector is expected to rebound to a growth of 3.8% in FY25.
The industrial sector is estimated to grow by 6.2% in FY25, supported by strong growth rates in construction activities and electricity, gas, water supply and other utility services.
Growth in the services sector is expected to remain robust at 7.2%, driven by healthy activity in financial, real estate, public administration, defence, and other services.
- The service sector’s contribution to total GVA has risen from 50.6% in FY14 to 55.3% in FY25 (First Advance Estimates).
In H1FY25, the agriculture, industrial, and service sectors recorded a growth of 3.5%, 6%, and 7.1% respectively.
3. Capex:
- Capital Expenditure (capex), as a percentage of the government’s total expenditures, has seen an unprecedented expansion in the last four years, from FY21 to FY24.
- In the first quarter of FY25, it remained subdued due to general elections. However, it has rebounded post-election, leading to a growth of 8.2% during July – November 2024.
4. Inflation:
- The retail headline inflation, as measured by the change in the Consumer Price Index (CPI), has softened from 5.4% in FY24 to 4.9% in April – December 2024.
- Food inflation, as measured by the Consumer Food Price Index (CFPI), has increased from 7.5% in FY24 to 8.4% in April – December 2024, primarily driven by a few food items such as vegetables and pulses.
- RBI and the IMF project that India’s consumer price inflation will gradually align with the target of around 4% in FY26.
5. External Sectors:
India’s merchandise exports grew by 1.6% YoY (year-on-year) in April – December 2024. Whereas, merchandise imports rose by 5.2% leading to the widening of India’s merchandise trade deficit.
However, the services trade surplus has lent balance to the overall merchandise trade deficit.
- India’s robust services exports have propelled the country to secure the seventh-largest share (4.3%) in global services exports in 2023.
In addition to the services trade surplus, remittances from abroad led to a healthy net inflow of private transfers.
These two factors combined to ensure that India’s current account deficit (CAD) remains relatively contained at 1.2% of GDP in Q2 FY25.
The Capital Account on the other hand remains healthy on account of robust foreign direct investment (FDI) inflows. The FDI inflows registered a growth of 17.9% YoY, reaching USD 55.6 billion (Apr-Nov FY25).
As a result of stable capital flows, India’s foreign exchange reserves increased from USD 616.7 billion at the end of January 2024 to USD 640.3 billion as of the end of December 2024.
India’s forex reserves are sufficient to cover 10 months of imports and approximately 90% of the country’s external debt, thereby safeguarding against external vulnerabilities.
6. Financial Sector:
- The banking and financial sector remains stable on account of declining asset impairments, robust capital buffers, and strong operational performance.
- As per the RBI’s Financial Stability Report (FSR), December 2024, the gross non-performing assets (NPAs) in the banking system have declined to a 12-year low of 2.6% of gross loans and advances.
- The capital-to-risk-weighted assets ratio (CRAR) for Schedule Commercial Banks (SCBs) stands at 16.7% as of September 2024, well above the norm.
7. Social Sector:
- In the total health expenditure of the country between FY15 and FY22, the share of government health expenditure has increased from 29.0% to 48.0%.
- During the same period, the share of out-of-pocket expenditure in total health expenditure declines from 62.6% to 39.4%.
- The Gini coefficient, a measure of income inequality has declined in both rural and urban areas. For rural areas, it declined to 0.237 in 2023-24 from 0.266 in 2022-23, and for urban areas, it fell to 0.284 in 2023-24 from 0.314 in 2022-23.
8. Employment Trends:
- As per the 2023-24 annual Periodic Labour Force Survey (PLFS) report, the unemployment rate for individuals aged 15 years and above has steadily declined from 6% in 2017-18 to 3.2% in 2023-24.
- The labour force participation rate (LFPR) and the worker-to-population ratio (WPR) have also increased.
- Around 26% of India’s population is aged 10-24, positioning it as one of the youngest nations globally with a unique demographic opportunity.
- The net payroll additions under the Employees’ Provident Fund Organisation (EPFO) have more than doubled in the past six years (from 61 lakh in FY19 to 131 lakh in FY24), signalling healthy growth in formal employment.
9. Labour in the AI Era:
- The Survey also mentions that for India, a services-driven economy with a youthful and adaptable workforce, the adoption of AI offers the potential to support economic growth and improve labour market outcomes.
- Thus, prioritising education and skill development will be crucial to equipping workers with the competencies needed to thrive in an AI-augmented landscape.
- The Economic Survey calls upon for collaborative effort between government, private sector, and academia to minimise the adverse societal effects of AI-driven transformation in the labour sector.
OUTLOOK AND WAY FORWARD
- The global economy is set for steady growth in 2024, though regional trends vary, with near-term expansion slightly below the trend level.
- Inflation is easing worldwide, but geopolitical risks, including Middle East tensions and the Russia-Ukraine conflict, could trigger renewed price pressures.
- On the domestic front, investment activity is expected to pick up, supported by higher public capex and improving business expectations.
- Food inflation is expected to ease in Q4 FY25 with seasonal declines in vegetable prices and Kharif harvest arrivals, while a strong Rabi output may help contain prices in H1 FY26.
- However, adverse weather events and rising global agricultural commodity prices remain potential risks to food inflation.
- While the fundamentals of the domestic economy remain robust, there are many upsides and downsides to growth.
- On balance of these considerations, the Economic Survey expect the real GDP growth in FY26 to be between 6.3% and 6.8%.
ABOUT ECONOMIC SURVEY
What is an Economic Survey?
- The Economic Survey is an annual document that examines the state of the Indian economy for the previous year and provides an outlook for the next fiscal year. It gives an overview of the Indian economy, including its performance, current status, and growth prospects.
- It also discusses the challenges faced by the economy and offers policy recommendations for addressing these challenges. This information can be used to understand the past year’s economic performance and make informed decisions for the future.
Preparation & Presentation
- The Economic Survey of India is prepared by the Chief Economic Advisor (CEA) of India and their team within the Economic Division of the Department of Economic Affairs (DEA) in the Union Finance Ministry. The final draft is approved by the Finance Minister.
- This year’s Economic Survey was prepared by the Chief Economic Advisor of India, V. Anantha Nageswaran, along with his team.
- The Finance Minister presents the Economic Survey in both houses of Parliament, usually a day before the Union Budget.