As per the economic survey 2022, recovering from pandemic-induced contraction, Russian-Ukraine conflict and inflation, Indian economy is staging a broad based recovery across sectors, positioning to ascend to the pre-pandemic growth path in FY23.
India’s GDP growth is expected to remain robust in FY24. GDP forecast for FY24 to be in the range of 6-6.8 %.
Private consumption in H1 is highest since FY15 and this has led to a boost to production activity resulting in enhanced capacity utilisation across sectors.
The Capital Expenditure of Central Government and crowding in the private Capex led by strengthening of the balance sheets of the Corporates is one of the growth driver of the Indian economy in the current year.
The credit growth to the MSME sector was over 30.6 per cent on average during Jan-Nov 2022.
Retail inflation is back within RBI’s target range in November 2022.
Indian Rupee performed well compared to other Emerging Market Economies in Apr-Dec2022.
Direct Tax collections for the period April-November 2022 remain buoyant.
Enhanced Employment generation seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund.
Economic growth to be boosted from the expansion of public digital platforms and measures to boost manufacturing output.
India’s Medium Term Growth Outlook: with Optimism and Hope
Indian economy underwent wide-ranging structural and governance reforms that strengthened the economy’s fundamentals by enhancing its overall efficiency during 2014-2022.
With an underlying emphasis on improving the ease of living and doing business, the reforms after 2014 were based on the broad principles of creating public goods, adopting trust-based governance, co-partnering with the private sector for development, and improving agricultural productivity.
The period of 2014-2022 also witnessed balance sheet stress caused by the credit boom in the previous years and one-off global shocks, that adversely impacted the key macroeconomic variables such as credit growth, capital formation, and hence economic growth during this period.
This situation is analogous to the period 1998-2002 when transformative reforms undertaken by the government had lagged growth returns due to temporary shocks in the economy. Once these shocks faded, the structural reforms paid growth dividends from 2003.
Similarly, the Indian economy is well placed to grow faster in the coming decade once the global shocks of the pandemic and the spike in commodity prices in 2022 fade away.
With improved and healthier balance sheets of the banking, non-banking and corporate sectors, a fresh credit cycle has already begun, evident from the double-digit growth in bank credit over the past months.
Indian economy has also started benefiting from the efficiency gains resulting from greater formalisation, higher financial inclusion, and economic opportunities created by digital technology-based economic reforms.
Thus Chapter 2 of the Survey shows that India’s growth outlook seems better than in the pre-pandemic years, and the Indian economy is prepared to grow at its potential in the medium term.
The Survey said India’s growth estimate for FY23 is higher than for almost all major economies.
Indian Express quotes; “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,”.
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 also underlined that the fall in unemployment rate is accompanied by an improvement in the labour force participation rate.
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.
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.
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.
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