By Dr. Gyan Pathak
Economic Survey 2022-23 is clearly optimistic on Indian economy with downside risks not getting proper focus in the analysis of the policy makers. Though it has projected India’s GDP growth at 6-6.8 per cent for 2023-24, has also cautioned that even as India’s outlook remains bright, global economic prospects are weighed down by a combination of unique set of challenges and would impart a few downside risks.GDP of India will be around US$ 3.5 trillion. In real terms, the economy is expected to grow at 7 per cent for the year ending March 2023. This follows an 8.7 per cent growth in the previous financial year.
The cause of optimism seems to be expectation of growth in domestic demand and pick-up in Capital Expenditure. Further, it expects gaining from the demographic advantage and relies on annual nominal GDP growth potential to be around 10 per cent to 12 per cent on average in the coming years. It is too optimistic at a time when several international and nation organization has projected Indian economy to decelerate to as low as 5.7 per cent of the GDP. Nevertheless, Economic Survey hopes that fiscal parameters will continue to improve. “The strong domestic consumption growth and investment revival is expected to keep industrial production humming” it says.
Among the risks are the fall of rupee, which may come under pressure again. Challenges of the depreciating rupee persists with a likelihood of further increases in policy rates by the US Fed. Thus, the assertion by the Survey that rupee is better performing than most other currencies cannot instill much hope of appreciation of rupee.
Strong domestic demand and the high prices may raise import bills which would increase pressure on foreign reserves. Moreover, there are many ifs and buts, such as even the FM Nirmala Sitharaman has said, if inflation declines in 2023-24, and if real cost of credit does not rise, then credit growth is likely to be brisk, and thereby Indian Economy’s prospect is bright.
Economic Survey believes in widening of the CAD to continue as global commodity prices remain elevated and growth momentum of the Indian economy would remain strong. Slowing demand will likely push down global commodity prices and improve India’s CAD in 2023-24, it says.
Health sector is still in a state of neglect as the data in the Economic Survey reveals. Public health expenditure, both of the central and state government’ budgeted expenditure, could reach only 2.1 per cent of GDP for 2022-23, even less than revised estimate of 2.2 per cent in 2021-22. India was to increase this to 2.5 per cent by 2025 as per National Health Policy of 2017. It shows that India would miss this target. The neglect and apathy of the government can be seen even in the actual public expenditure for the pandemic year 2020-21, which the Economy Survey has put at 1.6 per cent of the GDP.
Centre’s Capital expenditure for Road Transport and Highways in April-November 2022 stood at Rs 1.49 lakh crore, which is a rise of 102 per cent year on year basis. The Survey also hopes a sustained increase in private Capex imminent, since the balance sheets of the Corporates would strengthen along with the consequent increase in credit financing.
The Survey showcases infra push by the government. It states that 89,151 projects costing Rs 141.1 lakh crore are under different stages of implementation. However, it may be saddening to know that only 1009 projects worth Rs 5.5 lakh crore are completed.
The data shows how position of Capex have been disheartening. Nevertheless, Economic Survey hopes that capes revival is on the cards. With well-capitalised banks ready and willing to lend and corporates financially stronger and willing to borrow, the credit-investment cycle is poised for an upturn in the third decade. However, it said that pandemic interrupted the investment cycle as deleveraging was completed by the end of 2018. Core debt of private sector as share of GDP down to 87.8 per cent in June 2022 quarter, from 100.7 per cent in March 2021 quarter.
Economic Survey believes that India’s debt level is sustainable, though general government debt to GDP ratio increased from 75.7 per cent of end-march 2020 to 89.6 per cent at the end of the pandemic year 2020-21. It is estimated to decline to 84.5 per cent of GDP by March 31, 2022. The hope of sustainability seems to be misplaced, in the light of a World Bank study that says a ratio that exceeds 77 per cent for an extended period of time may result in an adverse impact on economic growth, which means would be unsustainable. Even though, the Survey says, the emphasis on capex-led growth will enable India to keep the growth-interest rate differential positive, and a positive growth-interest rate differential keeps the debt levels sustainable.
Remittances would remain a major source of forex. India is the largest recipient of remittances in the world receiving $100 billion in 2022. As far as India is concerned, remittances are the second largest major source of external financing after service exports.
“The export impulse has been waning in the first half itself … due to persistently high inflation and rising interest rates in the advanced economies. Export growth may slow further in the second half of the current financial year and remain weak beyond that, too, if the global economy falls into recession,” the Survey says.
In the backdrop of dismal industrial performance in the first half of the current fiscal year, the Survey tries to explain the phenomena by saying that there was high rainfall affecting output in certain sectors such as real estate and construction, and it also led to cooler weather and hurt power demand. Manufacturing output was hit by inventory build-up and also by uneven growth. Survey hopes its revival, as against the saddening data, led by increase in consumption and demand.
However, real hope is from agriculture and service sectors. Agriculture sector remains buoyant with 4.6 per cent annual growth during last six year, it noted. Foodgrain production touched a record 315.7 million tonnes in 2021-22. Service sector grew at 8.4 per cent year on year basis in 2020-21.
What is missing in the survey is a clear direction in which way the BJP government is dealing with the issue of generation of more jobs in the economy. For the last nine years, the government is following a policy of jobless growth and mostly, those affected by pandemic have been left to fend for themselves. It was expected that a major drive for generation of additional jobs will be launched but that expectation has not been fulfilled. (IPA Service)
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