Understanding India from the Economic Survey 2023-24

The Chief Economic Advisor, V Anantha Nageswaran, in his second Economic Survey 2023-24 presentation, steered clear of presenting overly optimistic forecasts for the Indian economy

India’s economy has shown resilience amid a global slowdown, with the Economic Survey projecting a conservative growth outlook of 6.5-7 percent for FY25. While the survey calls upon the private sector to create jobs and boost investments, it also emphasises the need for the government to “let go” or more deregulation.

The Chief Economic Advisor, V Anantha Nageswaran, in his second Economic Survey 2023-24 presentation, steered clear of presenting overly optimistic forecasts for the Indian economy. He used the survey as an opportunity to highlight the wins for India, including increasing participation of women in the workforce, reduced out-of-pocket expenses in healthcare, increased enrolment in schools, etc., even as he emphasised the need for building climate resilience, for the private sector to step up investment and to work to minimise the presence of the government.

Here are some highlights from the survey on India’s macro economy, capital expenditure, state finances, jobs, welfare, education and health.

Macro economy-Steady growth

India has remained on course to meet fiscal consolidation goals despite the global trend of widening fiscal deficit. India’s favourable fiscal performance in 2023 emerged as the cornerstone of India’s macroeconomic stability. The fiscal deficit of the Union Government is down from 6.4 percent of GDP in FY23 to 5.6 percent of GDP in FY24. Increased robustness in tax revenues plus higher than budgeted non-tax revenues in the form of dividends from RBI has buffeted revenue receipts. Sustained improvements in India’s fiscal metrics are beginning to have an impact on India’s credit ratings. For the first time in 13 years, S&P Global upgraded India’s credit rating outlook from stable to positive in May 2024.

Capital Expenditure- Government takes the lead

Consistent focus on capital expenditure has lifted the productive potential of the economy.

The capex for FY24 stood at Rs9.5 lakh crore, an increase of 28.2 percent from a year earlier and 2.8 times the level of FY20. Focus on capex has been broad-based across sectors such as road transport, highways, transport, railways, and defence services. However, much of the capex has been driven by the government, and the private sector’s share has not kept pace. Between FY19 and FY23, the share of private non-financial corporations in overall GFCF (gross fixed capital formation) increased by only 0.8 percentage points from 34.1 percent to 34.9 percent.

State Finances- Fiscal prudence

State governments have continued to improve their finances in FY24. A study by the Comptroller and Auditor General of India on estimates of finances for 23 states show that gross fiscal deficit of these 23 states was 8.6 percent lower than the budgeted Rs 9.1 lakh crore. Implying that fiscal deficit as a percent of GDP for these states came in at 2.8 percent as against a budgeted 3.1 percent. The quality of spending by state governments has improved too, with states focusing on capex as well.

Redefining Welfare

India’s social welfare approach has shifted from an input-based approach to outcome-based empowerment. Several schemes,, such as free gas connections, PM Ujjwala Yojana,and building toilets,c., have improved capabilities and enhanced opportunities for the underprivileged.

Jobs: Rural Women show the way

According to the Periodic Labour Force Survey, the all-India unemployment rate has been declining since the pandemic. This has been accompanied by a rise in the labour force participation rate and worker-to-population ratio. Female labour force participation has been rising for six years- from 23.3 percent in 2017-18 to 37 percent in 2022-23, driven by the rising participation of rural women.

How India borrows

Growth in credit to agriculture and allied activities was in double digits during FY 24. Agricultural credit had increased nearly 1.5 times from 13.3 lakh cr in FY 21 to Rs 20.7 lakh cr in FY 24. The survey notes that the Kisan Credit card scheme has been pivotal in providing timely credit to farmers. It also highlighted that bank credit disbursal to the services sector remained resilient despite a slowdown in credit growth to NBFCs. Personal loans and NBFCs have the largest share of credit disbursed by banks. Within personal loans, home loan growth remained range-bound during FY24. Credit disbursal for home loans increased from Rs 19.9 lakh crore in March 2023 to Rs 27.2 lakh crore in March 2024.

Microfinance-The Indian Way

Globally, the Indian microfinance sector is the second largest after China in terms of number of borrowing customers in India. The Indian microfinance coverage is more than 50 percent of households and 10 per cent of the Indian population. Microfinance is mostly a women-focused activity, with women constituting 98% of the total clients of the lenders.

Inflation

The RBI and IMF have projected that consumer price inflation will align towards the inflation target in FY26, assuming a normal monsoon and no further policy shocks. The RBI expects headline inflation to be 4.5 percent in FY25 and 4.1 percent in FY26. The short-term inflation outlook for India is benign. However, domestic consumption of edible oils has been increasing faster than production, increasing import dependence. To reverse the pattern and stabilise domestic prices, it is important to focus on increasing the production of major oilseeds and exploring the potential of non-conventional oils such as rice bran oil and corn oil. India’s persistent deficit in pulses needs to be tackled; efforts are needed to expand the area under pulses.

Trade- Exports and Imports rise

The adverse trade environment is expected to ease somewhat this year and next, boosting goods trade in FY25. India’s overall exports have been growing on a secular basis since FY17 for almost three years. However, FY20 saw an economic slowdown aggravated by the pandemic. A similar trend has been observed in overall imports. Overall imports increased to $898 billion in FY23 compared to $760.1 billion in FY22.

Health of India

According to health ministry estimates, the total cost of the treatment would have been 1.5-2 times higher if the beneficiary had availed the same treatment on their own outside the ambit of Ayushman Bharat. The scheme has saved more than Rs1.25 lakh crore of out-of-pocket expenses for poor and deprived families as of 12the January 2024. Overall, the share of primary healthcare expenditure has increased from 51.3 percent of gross health expenditure (GHE) in FY15 to 55.9 percent of GHE in FY20. The share of primary and secondary GHE rose from 73.2 percent in FY15 to 85.5 percent in FY20. The share of primary and secondary care in private health expenditure has declined from 83 percent to 73.7 percent during the same period. Government-financed health insurance schemes and medical reimbursements made to government employees have increased significantly from 5.7 percent in FY15 to 9.4 percent in FY20.

State of education

About 49 percent of schools have access to the internet, 47.7 percent of schools have computers, 74.3 percent of schools have medical check-ups in a year and 91.7 percent of schools have electricity. Total enrolment in higher education has increased to nearly 4.33 crore in FY22 from 4.14 crore in FY21 and 3.42 cr in FY15, an increase of 26.5 percent since FY15. The rise in enrolment in higher education has been driven by underprivileged sections such as SC, ST and OBC, with a faster growth in female enrolment across sections. Female enrolment in higher education increased to 2.07 crore in FY22 from 1.57 crore in FY15, a 31.6 percent increase since FY15. CEA cites the model of an NGO, Lend A Hand India, to operationalise vocational education across the learning ladder. The LAHI model includes civil society’s collaboration with the governments to introduce vocational education as a core curriculum component, establish labs etc.

How India works

India’s workforce is estimated to have been nearly 56.5 crore in FY23 using WPR from PLFS and MoHFW’s population projections. According to PLFS, more than 45 percent of the workforce is employed in agriculture, 11.4 percent in manufacturing, 28.9 percent in services, and 13 percent is in construction. The predominance of agriculture in the providing employment to nearly half of the population, especially females, is both a challenge and an opportunity.

In terms of the employment status of workers, 57.3 percent of the total workforce is self-employed, and 18.3 percent is working as unpaid workers in household enterprises. Casual labour comprises 21.8 percent of the total workforce, and regular wage/salaried workers are 20.9 per cent of the total workforce. Gender-wise, the female workforce is shifting to self-employment, while the male workforce’s share has been stable. This is evident in the sharp rise in female LFPR in the past six years, driven by rural women joining agriculture and related activities.

According to PLFS, youth (age 15-29 years) unemployment rate has declined from 17.8 percent in 2017-18 to 10 percent in 2022-23, while other indicators have also improved over time. The rise in youth employment is also reflected in the formal employment figures, as per Employees’ Provident Fund Organisation (EPFO) data. The annual new EPF subscribers aged 18-28 years have been following an upward trajectory after witnessing a decline during the COVID-19 pandemic. Nearly two-thirds of the new subscribers in the EPFO payroll have been from the 18-28 year band. Thus, youth employment has been rising in tandem with the youth population.

In terms of the number of establishments, the organised manufacturing landscape is dominated by smaller factories. In 2021-22, factories employing less than 100 people constituted 79.2 percent of all factories while contributing only 22.1 percent of the total people employed and 20.9 percent of workers. This has been improving over time as there is a visible trend towards a rise in larger factories. Compared to a broadly constant number of smaller factories, the number of factories employing more than 100 workers saw 11.8 percent growth from FY18 to FY22. Thus, in terms of total persons engaged, employment has been rising in bigger factories (employing more than 100 workers) than in smaller ones, suggesting a scaling up of manufacturing units. This is a positive development in terms of quality of employment, as wages per worker tend to rise with the employment size of factories, the survey states.

In terms of the sectoral share of factory employment (total persons engaged), the food products industry (11.1 percent) remained the largest employer, followed by textiles, primary metals, wearing apparel and motor vehicles, trailers, and semi-trailers. However, in terms of growth in employment in the last five years, the rising heft of computers and electronics, rubber and plastic products, and chemicals indicates that Indian manufacturing is moving up the value chain and have emerged as sunrise sectors for manufacturing employment generation.

Where India works

State-wise, the top six states in terms of the number of factories, were also the greatest factory employment creators. More than 40 percent of factory employment was in Tamil Nadu, Gujarat, and Maharashtra. In contrast, the highest employment growth between FY18 and FY22 was seen in states with a higher share of young population, including Chhattisgarh, Haryana and Uttar Pradesh.