The 2024 Economic Survey packs the power of three.
Not only does it have the usual suspects of hindsight, insight and foresight with regards to the state of the economy, it also talks again and again about the tripartite pact between the private sector, states and the Centre.
In fact, it firmly believes that such an alliance is the only magical passageway capable of granting our greatest wishes of growth, jobs and high incomes.
The year is youthful, considering the enviable 8% average growth of the past four years till FY24. Real GDP in FY24 was also 20% higher than its FY20 level -- a feat a few major economies achieved. Yet, the Survey doesn't promise cheetah speeds, and instead pegs a modest 6.5-7% growth rate for FY25.
The upper band of the estimate is in line with consensus estimates. If IMF recently revised India's growth forecasts upwards to 7%, the Asian Development Bank and RBI pegged it at 7%. Perhaps, when everyone guesses in the same direction, it comes true, after all.
The lower band of 6.5%, however, isn't a pretty jingle. Chief Economic Adviser (CEA) Dr V Anantha Nageswaran channeled the Stockdale paradox, a technique to navigate challenging times, to conclude that he was neither being over-cautious nor being pessimistic, but only prudent. Like last year proved, the CEA doesn't indulge in unrealistic economic fantasies, and firmly believes that the only respectable way to deliver, is to announce targets you think that you can achieve. Then hit them with surgical precision.
That said, the Survey does offer a reason to light the sparklers, as it projects a 'steady-as-she-goes' 7% plus growth for the medium-term. Given the global macro economic and geo-political challenges, if we can manage growth around 7% and thereabouts on a sustained basis, it yields much more than a few years of illustrious growth.
But to do so, as Nageswaran declared more than twice, all hands should be on the deck. We need everything, from agriculture to manufacturing to services, and we simply don't have the luxury of picking and choosing focus areas.
Survey's key messages
On the face of it though, the Survey's chief message is two-fold.
One, the corporate sector was encouragingly told, repeatedly, that they are deathless and divine and so they must take investment risks, create jobs and help increase individual incomes.
Two, the government must stop, drop and roll afresh.
Given the Centre's focus on supply-side interventions in the past one decade, the Survey suggests a bottom-up approach for the next phase of growth. With this, the Survey, perhaps, has dropped the biggest hint of a likely shift in the Centre's recalibrated approach on how to spend over the next five years.
On growth, jobs and productivity
Tabled in the Parliament on Monday, the Survey rams home the single-most capital fact that corporate sector is the beginning of everything. The industry's next-to-nothing investment growth rate has been a pain, much like the soreness in your sciatic nerve that has your neck bone in siege. It's holding back India's growth, the dreams of the aspirational middle-class and everything else.
So Nageswaran, who seems to have drafted the Survey with intellectual sincerity, seized the opportunity to reiterate at every occasion he had, that job creation happens mainly through the private sector. Second, many of the issues that influence growth, jobs and productivity are in the domain of the state government. In other words, the Centre has done everything to bring life in living color, and it's now time for the industry and states to do their bit.
Explaining the rationale, the Survey, details the industry's decent financial performance. A sample of 33,000 companies shows that between FY20 and FY23, the profit before taxes of the Indian corporate sector nearly quadrupled. The 2019 corporate tax cuts precisely aimed for this, but the government while delivering the tax sops expected corporates to invest. Are they is a moot question.
Two critical sub-components of investments tell you the ground reality. If investment growth in machinery and equipment cumulatively grew by just 35% in the four years to FY23, capital formation in dwellings, other buildings and structures shot past 105%. This isn't a healthy mix, by Nageswaran's own submission.
The Survey believes that the role of the corporate sector has never been greater than it is now. This at a time when India Inc has stuck to the script that their investment trajectory may seem separated by distance, but is joined by love and commitment. Companies should invest, but to do so, they need demand visibility, which comes from employment and income growth.
As for the thorny issue of job creation, the Survey notes that India needs to generate nearly 78.51 lakh jobs every year in the non-farm sector alone to cater to the rising workforce.
In FY24 alone, 46.7 million joined the workforce -- the highest since FY82. Formal employment data showed over 31 million people joined the formal workforce for the first time, with 21 million joining the Employees' State Insurance Corporation and 10 million joining the Employees' Provident Fund (EPF) Scheme.
In all, our workforce is estimated to be nearly 56.5 crore, of which more than 45% are employed in agriculture, 11.4% in manufacturing, 28.9% in services, and 13% in construction. 65% of the population is under 35, but many lack the skills. Regarding the employment status of workers, 57.3% of the total workforce is self-employed, while 18.3% are unpaid workers in household enterprises, with casual labour accounting for 21.8%, and salaried workers constituting 20.9%.
Citing the recent data on the Annual Survey of Industries, the Survey notes that the total number of factory jobs grew annually by 3.6% between FY14 and FY22 or from 1.04 crore to 1.36 crore in absolute numbers. Somewhat more satisfyingly, they grew faster at 4% in factories employing more than a hundred workers than in smaller units with less than 100. The annual growth rate was 1.2%, dismal by any standards and crudely confirms the fact that the informal sector continues to survive the harshness of life's winter. All on its own.
India doesn't yet have a corresponding Annual Survey of Services. The lack of availability of timely data on the absolute number of formal and informal jobs created even at annual intervals, let alone at higher frequencies, in various sectors precludes an objective analysis of the labour market situation in the country. Considering the twin shocks of bad loans and the pandemic impact, India's ability to create jobs isn't structurally impaired, but going forward, the task is cut out, the Survey admits.
MSMEs - the very pulse of life itself
Meanwhile, it declares that MSMEs are the very pulse of life itself. They account for 45% of manufacturing output and employ over 11 crore and so strengthening MSMEs is central to the next phase growth. But the sector is stuck, rather suspended between what is and what could have been, thanks to the triple shocks of demonetisation, GST rollout and the Covid-19 pandemic. The government did rollout credit guarantee schemes and so on, but the continue to start each new year feeling fragile and on the back foot.
Nageswaran does acknowledge as much and equating them with Mittelstand, which refers to a group of businesses in European countries that have proved successful in enduring economic change and turbulence, he concluded that the sector continues to face extensive regulation, compliance requirements and faces bottlenecks with access to affordable and timely funding. Citing the Lok Sabha Standing Committee on Finance's April 2022 report, he noted that the credit gap in the MSME sector is estimated to be Rs 20-25 lakh crore.
Highlighting how kind we are to our farmers
Coming to agriculture, the Survey glosses over the attention it showers on the farming community. Sample this: India subsidises their water, power and fertilizers. The former two are provided virtually free. Their incomes are not taxed. The government offers them a minimum support price for 23 selected commodities. Monthly cash support is offered through PM-Kisan scheme. State and central governments write off their loans. In sum, we spend enough resources to look after the farmers well. but need re-orientation of existing and new policies.
That said, Nageswaran suggests that farm sector can be the saviour, given the narrowing scope for countries to squeeze out growth from manufacturing and services.
"A return to roots, as it were, in terms of farming practices and policymaking, can generate higher value addition from agriculture, boost farmer's income, create opportunities for food processing and exports and make the farm sector fashionable and productive," he observed.
Household stress
On the issue of household stress, the Survey offers a rare horror-satire moment, when you don't know whether to fear or laugh. While official data shows that the net household savings declined sharply to Rs 14.16 lakh crore in three years to 2022-23, from Rs 17.12 lakh crore in FY22, and Rs 23.29 lakh crore in FY21, Nageswaran maintained that they are not in distress and in fact investing in financial and physical assets that have gone up from 10.8% in FY21 to 12.9% in FY23.
"Especially in last 4 years the foray of retail investors into stock market through SIPs and mutual funds has been quite prolifically documented. Our national income data do not record this at market prices and that is the reason why there is a feeling financial liabilities have grown faster than financial assets of households," Nageswaran said.
Lastly, the Survey takes a dig at critics carping about governance.
The political class, with its ears to the ground and the civil services, with its exposure to districts, states and central ministries, have a better shot at understanding the complexities. They intuitively know there's no place for exclusive approaches and binary choices, which are the staple of sterile discussions and discourses, the Survey states.
Examples are urban vs rural, growth vs development, manufacturing vs services. India needs multiple pathways, it emphasised.
A few of the numbers highlighted in the survey
