Economic Survey 2023: Here are the key takeaways

The Survey provides a detailed report of the national economy for the year along with forecasts. It touches upon everything from agriculture to unemployment to infrastructure. It is prepared by the Economic Division of the Department of Economic Affairs (DEA).

The Survey states that India’s growth estimate for FY23 is higher than for almost all major economies.

The comments or policy solutions contained in the Survey are not binding on the government.

What are the main takeaways this year?

GDP growth: The Survey said India’s growth estimate for FY23 is higher than for almost all major economies.

“Despite strong global headwinds and tighter domestic monetary policy, if India is still expected to grow between 6.5 and 7.0 per cent, and that too without the advantage of a base effect, it is a reflection of India’s underlying economic resilience; of its ability to recoup, renew and re-energise the growth drivers of the economy,” said the Survey.

The Survey sounded optimistic about the inflation levels and trajectory.

Inflation: The RBI has projected headline inflation at 6.8% in FY23, outside its comfort zone of 2% to 6%. High inflation is seen as one big factor holding back demand among consumers. However, the Survey sounded optimistic about the inflation levels and trajectory, saying “it is not high enough to deter private consumption and also not so low as to weaken the inducement to invest.”

Unemployment: The Survey said “employment levels have risen in the current financial year”, and that “job creation appears to have moved into a higher orbit with the initial surge in exports, a strong release of the “pent-up” demand, and a swift rollout of the capex.”

It pointed to the Periodic Labour Force Survey (PLFS), which showed that urban unemployment rate for people aged 15 years and above declined from 9.8% in the quarter ending September 2021 to 7.2% one year later.

The Survey underlines that fall in unemployment rate is accompanied by an improvement in the labour force participation rate.

The Survey also underlined that the fall in unemployment rate is accompanied by an improvement in the labour force participation rate.

Outlook for 2023-24

The Survey projected a baseline GDP growth of 6.5% in real terms in FY24.

However, it detailed some downside risks. For instance, low demand for Indian exports, thanks to poor global growth, may widen India’s trade deficit and make the rupee depreciate. Similarly, sustained monetary tightening (higher interest rates) may drag down economic activity in FY24.

What does it mean for India’s economy?

The central thrust of this year’s Survey is that India’s economy has recovered from the Covid disruption and, at long last, is poised to see sustained robust growth in the rest of the decade.

CEA V Anantha Nageswaran said the phase between 2014 and 2022 — when the BJP has been in power — has witnessed “wide-ranging structural and governance reforms that strengthened the economy’s fundamentals by enhancing its overall efficiency”.

He clarified that these reforms had not yielded the desired results because banks were getting rid of their non-performing assets (NPAs) and business firms were deleveraging. Shocks such as the Covid pandemic and the Ukraine war made matters worse.

“As the health and economic shocks of the pandemic and the spike in commodity prices in 2022 wear off, the Indian economy is thus well placed to grow at its potential in the coming decade, similar to the growth experience of the economy after 2003. This is the primary reason for expecting India’s growth outlook to be better than it was in the pre-pandemic years,” said the Survey.

What is the reference to 2003?

The Survey argued that the situation in 2023 is similar to how the economy was poised in 2003.

It said the period between 2014 and 2022 is analogous to 1998-2002, when despite transformative reforms by the government (also led by the BJP), the Indian economy lagged growth returns. This was due to temporary shocks such as the US sanctions after India’s nuclear test, two successive droughts, the collapse of the tech boom, etc. But once these shocks faded, the structural reforms paid growth dividends from 2003. The Survey claims the same story is set to repeat from 2023.

How likely is this?

The first thing to note is that even before Covid, India’s potential growth rate — that rate at which it can grow without inflation becoming a problem — had fallen to just 6%. In the 2003-2008 period it was 8%. Between 2009 and 2015, it was 7%. In the next few years, it is unlikely to rise much above 6%. Secondly, during the 2003-2008 phase, the global economy was booming — exactly opposite of the situation now.

Thirdly, in India, unemployment rates underestimate the alarming stress in the labour market, because labour force participation rate (or the proportion of people demanding jobs) is itself quite low. Moreover, over the past two decades, India’s growth has become increasingly capital-intensive (using relatively less labour). This trend is likely to worsen as automation eats into routine jobs.

Widespread joblessness translates to lower incomes and lower consumer demand. That, in turn, dissuades private sector investments and eventually acts as a drag on economic growth.

India is the world’s most populous country with a growing youth bulge. It has the world’s largest pool of poor people and the largest pool of malnourished children. Given the low levels of per capita income, it requires much faster growth than many developed countries. A growth rate of 4% in India can feel like a recession and even though a 6% growth should be achievable, it may not create enough jobs to satisfy a growing population.