Economic Survey 2023: Expectations on consumption driving business investment

The survey recognises that India’s growth is dependent on commodity price inflation, global economic growth, and flow of global capital.
Image used for representational purpose only. (Express Illustration)
Image used for representational purpose only. (Express Illustration)

Economic Survey is expected to be the window to economic thinking and performance of our economy. In contrast to the 2020 survey, the current survey presents a realistic view of expected growth during the next seven years and sets out the challenges that we face. It does justice to our success in building digital and road infrastructure. 

Growth Prospects and Driver of Growth 

The Survey expects India to grow by 6.5% (Page 40) in the medium term, implying that it would take 11 years for the Indian economy to double in size – the average per capita would grow slower than that. It does mention that we can grow between 7-8% if we continue to pursue the current reform strategy. The reform framework on page 28 identifies the following drivers for “enhancing productive potential of the economy and its people”:

1. Creating public goods, a result of increasing capital expenditure by the central government. 
2. Trust-based governance, reflected in increasing GST collection. 
3. Agriculture Productivity, brought in by agricultural reforms. 
4. Private Sector Participation, including foreign direct investment.

The survey also recognises that India’s growth is dependent on commodity price inflation, global economic growth, and flow of global capital. It expects growth in private consumption and investment to be the key drivers, i.e., consumption driving business investment. While it states that India was being held by excessive credit growth of the last decade, it argues that bank and non-bank credit will drive growth this time too. It assumes that the financial system and our businesses will be more careful this time. However, it does not have any specific reference to the role of growth in household earnings and savings in making resources available for consumption and investment and, thereby, sustaining credit-led growth. 


A question that we need to ask is: have the banks raised adequate amount of equity to take risk of credit-led consumption and investment growth strategy? We do know that the deposit growth rate has been sluggish and not many banks have raised equity capital during the last couple of years.

The survey team does seem to realise that we do have an uphill task, as it has titled the chapter as “India’s Medium-term Growth Outlook: With Optimism and Hope”. I would qualify it to say, “growth outlook with cautious optimum”, as the RBI’s survey of urban households estimates the consumer confidence level at 83.5, which is in the pessimism region and the expectations about future are below the Sep-2019 level.

Inflation and Interest Rates 

On managing inflation, India has done well, and the Survey recognises that and credits the RBI for managing the monetary policy and the inflation. It suggests that inflation “is not high enough to deter private consumption and also not so low as to weaken the inducement to invest”. I am hoping that the statement implies the following: 

We are willing to live with higher inflation – a natural phenomenon in a growing economy like India – and we would not artificially suppress interest rates that cause distortion in resource allocation, inflate asset prices and result in increasing inequity. A growth economy where the real earnings and profitability are growing can deal with higher interest rates without any concern. 

Manufacturing Growth and the role of Production-Linked Incentive (PLI) Scheme 

The survey highlights the importance of manufacturing in driving growth and the role PLI is expected to play. We do need manufacturing to grow so that we can reduce dependence on agriculture and low value-adding services for improving the quality of our growth. I would have liked to see a deeper discussion on the effectiveness of the current scheme. A gross investment of INR 47,500 may not be enough to achieve the required employment and the GVA growth objectives. 

I would have also liked to see a detailed discussion on resource mobilization strategy for the government, as the government will have to continue investing in creating public goods. 

If I were to suggest a change in our economic objectives, I would like to replace the idea of ‘ease of living” with lowering the “cost of living” and improving the “quality of life” for people. As for economic strategy, I would like to replace “agriculture productivity” with “productivity and value-creation through innovation” across sectors.  

(Prof Anil K Sood)

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