MUMBAI: Sounding a bit cautious on the growth front, the economic survey sees the economy clipping at a lower rate of 6.5-7 per cent this fiscal year, much lower than the 7.2 per cent by the central bank. The 522-page survey, penned by the chief economic advisor V Anantha Nageswaran and tabled in Parliament, notes that economy, which grew at a surprise 8.2 percent iper cent makes the real GDP in FY24 20 percent higher than the FY20 levels. This means a CAGR of 4.6 percent from FY20, despite a 5.8 percent decline in FY21 inflicted by the pandemic.
The survey believes that the current GDP level is close to the pre-pandemic trajectory and that average annual growth during the decade ending FY20, stands at 6.6 percent which more or less reflects the long-term growth prospects of the economy.
His lower growth forecast stems from the weakening global economic scene as core inflation throughout the world remains sticky with higher services inflation which he warns, if remain sticky for long interest rates will remain high for longer.
Having said so the survey is positive on exports given the positive outlook for global trade outlook this year 2024. But there are looming threats to global trade as the increasing fragmentation along geopolitical lines and renewed thrust on protectionism may distort merchandise trade growth, impacting India’s external sector.
“Considering these factors, the survey conservatively projects a real GDP growth of 6.5–7 percent, with risks evenly balanced, cognizant of the fact that the market expectations are on the higher side,” says the survey. Global financial markets have scaled new heights, with investors betting on global economic expansion. However, any corrections in the elevated financial market valuations may have ramifications for household finances and corporate valuation, negatively impacting growth prospects, it warns
Domestic growth drivers have supported economic growth in FY24 despite uncertain global economic performance. Improved balance sheets will help the private sector cater to strong investment demand. Indirectly calling for more anti dumping measures and this more protection to the domestic players, the survey warns that, private capital formation after good growth in the last three years may turn slightly more cautious because of fears of cheaper imports from countries that have excess capacity.
While merchandise exports are likely to increase with improving growth prospects in the west services exports are also likely to witness a further uptick, it says. On the near normal rainfalls so far, the survey is hopeful of the farm sector putting up a better show which will go a long way to support the revival of rural demand.
Thus the medium term growth outlook will happen in the context of the following global trends, namely, increased geo-economic fragmentation, a global push for self-reliance, looming climate change, rise of technology as the biggest strategic differentiator and limited policy space for countries across the world, says the survey.
Going forward the government focus must turn to bottom-up reform and strengthening the plumbing of governance so that the structural reforms of the last decade yield strong, sustainable, balanced and inclusive growth.
Key areas of policy focus in the short to medium term include job and skill creation, tapping the full potential of the farm sector, addressing MSME bottlenecks, managing the nation’s green transition, deftly dealing with the Chinese conundrum, deepening the corporate bond market, tackling inequality and improving our young population’s quality of health.
Proposing a six-legged strategy to achieve higher growth, the survey says firstly there must be a deliberate focus on boosting private investment. Secondly, growth and expansion of MSMEs is a strategic priority. Thirdly, the potential of agriculture as an engine of future growth must be recognised and policy impediments removed. Fourthly, there is a need to secure the financing of green transition. Fifthly, the education-employment gap must be bridged. And finally, a focused building of state capacity and capability is required for sustaining and accelerating India’s progress. If these six measures are implemented then the economy can clip at 7 percent in the medium term. This requires a tripartite compact between the centre, the states and the private sector, concludes the survey.
