Economic Survey 2023-24: India's GDP to grow at 6.5-7%

New Delhi: India's GDP is likely to grow at 6.5 to 7 per cent in the current fiscal year amid global challenges which may impact exports, said Economic Survey 2023-24 tabled in Parliament on Monday. The growth projected for 2024-25 is lower than the economic growth rate of 8.2 per cent estimated for the previous financial year. The Reserve Bank has projected the GDP growth for the fiscal year ending March 2025 at 7.2 per cent. Global agencies like IMF and ADB see India to grow at 7 per cent.

"...the Survey conservatively projects a real GDP growth of 6.5–7 per cent, with risks evenly balanced, cognizant of the fact that the market expectations are on the higher side," said the document tabled by Finance Minister Nirmala Sitharaman in Parliament. It said the domestic growth drivers have supported economic growth in 2023-24 despite uncertain global economic performance. Improved balance sheets will help the private sector cater to strong investment demand. The Survey also added a note of caution saying "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 advance economies, services exports are also likely to witness a further uptick. A normal rainfall forecast by the India Meteorological Department and the satisfactory spread of the southwest monsoon thus far are likely to improve the agriculture sector's performance and support the revival of rural demand, it said. However, the monsoon season still has some way to go, the Survey said.

FDI inflows from China can help India increase global supply chain participation

Increased foreign direct investment inflows from China can help increase India’s global supply chain participation and push exports, says the Economic Survey. The Survey said as India looks to deepen its involvement in global value chains (GVCs), it needs to look at the successes and strategies of East Asian economies. These economies have typically pursued two main strategies - reducing trade costs and facilitating foreign investment. It added that India faces two choices to benefit from 'China plus one' strategy and that is either to integrate into China's supply chain or promote FDI from China.

"Among these choices, focusing on FDI from China seems more promising for boosting India's exports to the US, similar to how East Asian economies did in the past," the Survey, tabled in Parliament by Nirmala Sitharaman on Monday, said. Moreover, choosing FDI as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade. "This is because China is India's top import partner, and the trade deficit with China has been growing. As the US and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value, and then re-exporting them," it added. The survey explained how increased FDI inflows from China can help in increasing India’s global supply chain participation along with a push to exports. At present, FDI from China in any sector needs government approval. China stands at 22nd position with only 0.37 per cent share (USD 2.5 billion) in total FDI equity inflow reported in India during April 2000 to March 2024.

PLI scheme for auto sector sees investment proposals worth Rs 67,690 cr

The production linked incentive scheme (PLI) for automobile and auto components has so far attracted a proposed investment of Rs 67,690 crore, said Economic Survey 2023-24 tabled in Parliament on Monday. A capital of Rs 14,043 crore has been invested till end-March 2024, it stated. Applicants have proposed employment generation of 1.48 lakh, against which 28,884 of jobs have been generated till March 31, 2024, the Economic Surevy 2023-24 stated. So far 85 applicants have got approval under the scheme, it noted. The PLI scheme for automobile and auto components has a budgetary outlay of Rs 25,938 crore from FY23 to FY27.

The scheme has been sub-divided into champion OEM incentive scheme and component champion incentive scheme. Besides, the government has approved the National Programme on Advanced Chemistry Cell (ACC) Battery Storage in May 2021 with a budgetary outlay of Rs 18,100 crore. The growth in the value of domestic production and consumption of automotive parts moderated during FY20 to FY23, compared to the preceding five years, as per the latest Economic Survey. In the first half of the last decade, passenger vehicles, such as cars and utility vehicles, experienced significant growth, it said. However, the pandemic had a substantial impact on all segments of the automotive industry, it added. "While passenger vehicles quickly recovered, the recovery period for two-wheelers, three-wheelers, and commercial vehicles is longer," it stated. In FY24, the country produced around 49 lakh passenger vehicles, 9.9 lakh three-wheelers, 214.7 lakh two-wheelers, and 10.7 lakh commercial vehicles, it stated.

Capital markets becoming prominent in India's growth story

Capital markets are becoming more prominent in India's growth story, with an expanding share in capital formation and investment landscape on the back of technology, innovation and digitisation, according to the Economic Survey 2023-24 tabled in Parliament on Monday. Further, Indian markets are resilient to global geo-political and economic shocks. Despite heightened geopolitical risks, rising interest rates and volatile commodity prices, Indian capital markets have been one of the best performing among emerging markets in FY24, the Economic Survey said. The BSE benchmark Sensex has surged around 25 per cent in FY24. Moreover, the uptrend continued in FY25, with the 30-share index on July 3 touching the 80,000 mark in intra-day trading for the first time. "The exemplary performance of the Indian stock market compared to the world and emerging markets over the years can be primarily attributed to India’s resilience to global geo-political and economic shocks, its solid and stable domestic macroeconomic outlook, and the strength of the domestic investor base," said the document tabled by Finance Minister Nirmala Sitharaman in Parliament.

AI casts huge pall of uncertainty over impact on workers across skill levels

The Economic Survey on Monday said the advent of Artificial Intelligence (AI) casts a "huge pall of uncertainty" with regard to impact on workers across all skill levels. The Economic Survey 2023-24 tabled in Parliament predicted that the new-age technology, while turbocharging productivity, has the potential to disrupt employment in certain sectors. The Survey described AI as "phenomenal in its rapid pace of innovation and ease of diffusion" but also cautioned that the the future of work will be reshaped by it.

"... The advent of Artificial Intelligence casts a huge pall of uncertainty as to its impact on workers across all skill levels -- low, semi and high," it said. The biggest disruption for the future of work is the accelerated growth in AI, which is poised to revolutionise the global economy, the Survey noted. "India would not remain immune to this transformation. AI is being recognised as a general-purpose technology, like electricity and the internet, which is phenomenal in its rapid pace of innovation and ease of diffusion. As AI systems continue to get smarter and adoption increases, the future of work will be reshaped," it said. The Survey said AI has considerable potential for boosting productivity, but "also has the potential to disrupt employment in certain sectors". "Routine tasks, including customer service, will likely witness a high degree of automation; creative sectors will see extensive usage of AI tools for image and video creation; personalised AI tutors can reshape education and sectors like healthcare can witness accelerated drug discovery," it said.

Coal likely to remain backbone of country's energy system for next two decades

Coal is expected to continue to be the backbone of the Indian energy system for the next two decades and the phase-down of the dry fuel will be heavily dependent on the import of critical minerals required for clean energy and battery storage, the Economic Survey on Monday said. The carbon dioxide removal technologies and carbon capture utilisation and storage need to be explored to bring down the emissions from the use of coal, as per the Economic Survey 2023-24, which was tabled in Parliament. "Coal phase-down will be heavily dependent on the import of critical minerals required for renewable energy and battery storage unless the country invests in the development of technologies based on domestically available mineral resources and those that enable the reuse, recovery, and recycling of critical minerals," it explained.

It further said the adoption of gasification technology in India can transform the coal sector and bring down the dependence on import of natural gas, methanol, and ammonia, and will help lower emissions. Coal, which accounts for 70 per cent of the total electricity generation, is also a critical input in various industries, such as steel, sponge iron, cement, and paper. "Adopting gasification technology in India can revolutionise the coal sector, reducing reliance on imports of natural gas, methanol, ammonia, and other essential products while reducing emissions," the Economic Survey 2023-24 said. The Centre has launched several clean coal initiatives, including the coal gasification mission. The country is aiming to gasify 100 million tonnes of coal by 2030 through surface coal, lignite gasification projects.

Initiatives such as extracting coal bed methane gases, exploring coal to hydrogen, carbon capture and storage, and coal beneficiation through washeries can reduce emissions and enhance environmental sustainability. "Encouragement to adopt super-critical and ultra-super-critical technologies for coal power plants has also led to lower emissions and higher efficiency," it said. Coal accounts for more than 55 per cent of India's primary commercial energy. Coal-fired power generation accounts for about 70 per cent of the total power generation.

Govt measures helping toy industry to boost exports, cut imports from China

The government's steps such as mandatory quality norms and increase in customs duties have significantly helped the domestic toy players to boost exports and reduce dependence on Chinese imports, Economic Survey said on Monday. It said that India's emergence as a toy exporting nation can also be attributed to its integration into the global value chain and zero-duty market access for domestically manufactured toys in critical countries such as the UAE and Australia. The industry has long faced challenges in the global trade landscape, consistently being a net importer of toys for many years. "Rising exports, coupled with declining imports, transformed India from a deficit to a surplus nation in the trade of toys," it said.

For over a decade, India was heavily relied on China for around 76 per cent of its toy imports. "India's import bill for toys from China dropped from USD 214 million in FY'13 to USD 41.6 million in FY'24, leading to a decline in China's share in India's toy imports from 94 per cent in FY'13 to 64 per cent in FY'24, indicating India's competitiveness in the international toy market," the Survey said. During the period from 2014 to 2020, focused efforts by the government also resulted in the number of manufacturing units doubling. The measures taken by the government for the toy industry include the formulation of a comprehensive National Action Plan for Toys with 21 specific action points, an increase in basic customs duty on toys, sample testing of each import consignment to curb sub-standard imports, issuance of a Quality Control Order for toys, and support through cluster-based approaches.

The government is considering a production linked incentive (PLI) scheme for the sector to further boost the domestic manufacturing. Toy Association of India senior vice-president and CEO of Noida-based Little Genius Toys Pvt Ltd Naresh Kumar Gautam said that the country's exports from the sector will further grow in the coming years. The Survey also said that India has transitioned from an arms importer and found a place in the list of the top 25 arms exporter nations. The defence industry, including the private sector and Defence Public Sector Undertakings (DPSUs), has made efforts to achieve the highest-ever defence exports.

There has been a rise in the number of export authorisations issued to defence exporters. From 1,414 export authorisations in FY23, the number has increased to 1,507 in FY24. About 100 domestic companies are exporting a wide range of defence products and equipment such as aircraft like Dornier-228, artillery guns, Brahmos missiles, PINAKA rockets and launchers, radars, simulators, and armoured vehicles. To give a push to defence exports, the government has taken several policy initiatives over the past ten years. Export procedures have been simplified and made industry-friendly, with end-to-end online export authorisation curtailing delays and facilitating ease of doing business, the latest Economic Survey said. On smartphones, it said that India's domestic production and exports of smartphones have been increasing steadily, with significant changes achieved, especially since the launch of the PLI scheme in 2020. India also became the world's sixth-largest smartphone exporter in 2022, from 23rd in 2014. These exports rose by 42 per cent to USD 15.6 billion in 2023-24.

Need to focus on improving airlines viability; ensure environmental sustainability

India's aviation industry is on the cusp of unprecedented growth, and there should be a focus on improving the efficiency and viability of airlines while ensuring environmental sustainability, the Economic Survey 2023-24 said on Monday. While emphasising the importance of collaborative efforts between the government, industry stakeholders and international partners, the survey said there is a need to provide adequate long-haul connectivity from India by strengthening Indian airlines, as a large proportion of Indian international traffic goes through connectivity hubs in the Middle East and Southeast Asia. The civil aviation sector is boosted by growing demand, increased economic activity, tourism, higher disposable incomes, favourable demographics and greater penetration of aviation infrastructure.

India is the third largest domestic aviation market that recorded a 15 per cent year-on-year growth in total air passengers handled at airports to 37.6 crore in FY24. The survey, tabled by Finance Minister Nirmala Sitharaman in Parliament, highlighted that economic growth necessitates the growth of the aviation industry and the need for expanded airport capacity, which, in turn, brings up sustainability concerns and the need for more skilled workers. "The aviation industry in India is on the cusp of unprecedented growth, with a strong order book of more than 1500 aircraft placed by Indian airlines and a projected demand for over 2,200 aircraft by 2042," it said.

For India to take a leadership position in aviation, focus is required on improving the efficiency and viability of airlines while ensuring environmental sustainability, the survey said. According to the survey, the sector holds significant potential, requiring collaborative efforts between the government, industry stakeholders, and international partners. Investments in infrastructure, skill development, and sustainability initiatives will fuel the future expansion of the aviation sector in India.

"The airline industry is a highly competitive segment, susceptible to external shocks, such as oil prices, exchange rates, epidemics, wars, and equipment issues. These shocks can affect the operations of an airline and impact its viability, hence the development of capabilities in segments, such as MRO, leasing and skilling are needed to further support the airlines," it noted. Further, the survey said the future of aviation services in India is anchored in the growth of the maintenance, repair, and operations (MRO) sector and the burgeoning drone industry. As per the survey, an emerging challenge for the aviation sector would be compliance with a mandatory phase of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) from 2027. For the FY2020 to FY2025 period, the government's capital expenditure plan is over Rs 26,000 crore to develop, upgrade and modernise airports to meet international standards.

The Airport Authority of India (AAI) has spent around Rs 23,000 crore from FY2020 to FY2024 while public-private partnerships and other airport operators have shelled out around Rs 49,000 crore during the same period. "The number of airports in India has more than doubled since 2014. However, there is a need to augment this capacity by adding more airports as well as expansion/upgradation of existing airports in the next five years," the survey said. Among the services sectors, the survey said the aviation space saw the most significant credit inflow with a year-on-year growth of 56 per cent, attributed to increased aircraft leasing, hiring and a positive medium to long-term growth outlook.

Link skill development with production-linked, job-linked sops in high-growth areas

With only 4.4 per cent of India's young workforce formally skilled, linking skill development with production linked incentive (PLI) and employment-linked incentive schemes in high-growth potential sectors like toy, apparel, tourism, logistics and textiles would aid upgrading of skills as production moves up the value chain, the Economic Survey said on Monday.

The Survey for 2023-24 tabled in Parliament stated that "in order to reap the demographic advantage, it is necessary to equip the workforce with employable skills and knowledge that meet the requirements of the globalised labour market".

Currently, Production-Linked Incentive (PLI) scheme is available for 14 sectors. Industry bodies have been demanding introduction of an employment-linked incentive scheme to promote job creation in the economy, in the face of a growing young population amidst concerns about jobless growth.

According to the Survey, to maximise the outcomes from skilling initiatives, convergence, and utilisation of synergies with other employment-centric programmes would mutually benefit the two verticals.

"Measures are being taken by government to translate India's demographic dividend into a productivity dividend by enabling job and entrepreneurial opportunities that are in sync with the aspirations and abilities of India's youth. It is partnering with the industry to enhance skilling with employability," said the Survey.

It further stated that "linking skill development with PLI scheme and employment-linked incentive schemes in high-growth potential sectors like toy, apparel, tourism, logistics, textiles, leather sector etc. would aid upgrading of skills as production moves up the value chain".

Convergence of efforts at Centre, states needed to improve quality of education

Convergence of efforts across the Centre, states, and local bodies is needed to improve the quality of education, especially primary education, the Economic Survey has suggested.

The National Education Policy (NEP) 2020 is expected to yield foundational literacy and numeracy for every child passing the third standard in the near future, said the Survey for 2023-24 tabled in Parliament on Monday.

The Survey noted education is one of the most critical areas for India’s development, and mission-mode and cost-effective implementation of well-designed and well-intentioned programmes is essential to improve the quality of education, especially primary education, without which further years of education add little value.

"To realise the same, unity of purpose and convergence of efforts across the Centre, state, and local governments is called for, as ‘public education’ is a concurrent list subject," the Survey document said.

According to the Survey, the government's spending on social services including education rose by 9.36 per cent to Rs 23.50 lakh crore in FY24 from Rs 21.49 lakh crore in FY23. Of the total, Rs 8.28 lakh crore was spent on education alone during FY24, around 8 per cent higher from Rs 7.68 lakh crore in FY23.

Remittances to India likely grow 3.7 pc in 2024 to USD 124 bn

Remittances to India -- the second largest source of external financing after service exports -- are projected to grow at 3.7 per cent to USD 124 billion in 2024 and at 4 per cent to reach USD 129 billion in 2025, the Economic Survey said on Monday.

India's primary source of remittances is oil-exporting countries.

According to the World Bank, India has the largest emigrant population and is the top remittance recipient country. In 2023, remittances to India had hit USD 120 billion.

"The outlook for remittance in India for 2024 is strong, with the expectation that remittance growth will moderate to 3.7 per cent, taking... levels to USD 124 billion in 2024," the Economic Survey tabled in Parliament by Finance Minister Nirmala Sitharaman said.

The diversification of India's migrant pool -- between a large share of highly skilled workers employed mostly in high-income OECD markets, and the less-skilled migrants employed in the GCC markets -- is likely to lend stability to their remittances in the event of external shocks, it added.

"India's efforts to link its Unified Payments Interface (UPI) with source countries such as the United Arab Emirates and Singapore are expected to reduce costs and speed up remittances," the Survey said.

In 2023, the increase in remittances was driven mainly by declining inflation and strong labour markets in the United States and Europe -- the largest destinations for India's skilled migrants -- and other OECD destinations, as well as positive demand for skilled and less-skilled workers in the GCC countries.

Net services receipts increased from USD 143.3 billion during 2022-23 to USD 162.8 billion in 2023-24, primarily on account of rising exports of software, travel and business services.

The survey said remitters get better value in rupee terms when it depreciates in terms of foreign currencies, be it for UAE's Dirham, the US Dollar, the British Pound, or any other currency.

For every one USD a worker earns in distant land, he returns an augmented amount after necessarily being converted according to the foreign land he works in.

Hence, remittances exhibited a positive association with the exchange rate movement.

India needs to generate 78.5 lakh jobs in non-farm sector annually till 2030

The Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce, according to the Economic Survey for 2023-24.

The Survey tabled in Parliament on Monday provided a broad estimate of the number of jobs that the economy has to generate.

It further said that everyone in the working age will not seek jobs. Some of them will be self-employed and some of them will be employers too.

More than jobs, the Survey added, economic growth is about generating livelihoods. Governments at all levels and the private sector will have to strive together for it.

It said that the share of agriculture in the workforce will gradually decline from 45.8 per cent in 2023 to 25 per cent in 2047.

"Consequently, the Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce," the Survey said.

The demand of 78.5 lakh jobs in the non-farm sector per year, can be met by supplementing the existing schemes of PLI (60 lakh employment generation over 5 years), MITRA Textile scheme (20 lakh employment generation) and MUDRA, etc., it suggested.

The rising employment of flexi workers through staffing companies can be a channel for ensuring social security for informal workers, it stated.

It pointed out that there remains long-existing challenges of formalising a burgeoning workforce, facilitating job creation in sectors which can absorb workers shifting from agriculture, and ensuring social security benefits for those in regular wage/salaried employment.

It further suggested that state governments can grease the wheels of hiring by easing the compliance burden and reforming laws on land.

Concurrently, the employment landscape is fast changing worldwide, and India, aspiring to be a developed nation by 2047, must partake in the massive reshaping of jobs that AI has and is likely to further spin off, it suggested.

The impact of automation on workers being complex and uncertain, the direction of technological change remains susceptible to forces of political economy, it noted.

India thus needs to invest in research and steer the AI bandwagon towards shared prosperity, it suggested, adding that something as basic and age-old as unpaid care work needs attention too.

The development of an affordable, reliable, and quality creche and elderly care infrastructure is the Achilles heel for female participation in paid work, which should be determined by comparative advantage and choice rather than dictated by gender, it stated. In their fascination for AI and fear of erosion of competitiveness, businesses have to bear in mind their responsibility for employment generation and the consequent impact on social stability, it said.

It noted that the new Labour Codes marginally improved some of regulatory limits (like daily work hours). However, it stated that the Codes are yet to be fully-operationalised and many states are found to be reintroducing the older restrictions under the new Laws. It suggested that labour laws need to be reviewed to re-evaluate incentives for employers, with a focus on achieving better outcomes for economic growth and prosperity in the manufacturing sector. Implementing more flexible labour laws could unleash substantial economic potential, promote gender inclusivity, and attract industrial investment, it stated.

India's renewable energy sector to attract investments worth Rs 30.5 lakh cr by 2030

Mobilization of finance as well as investment on competitive terms and resolution of land acquisition issues are necessary for realising Rs 30.5 lakh crore investment required for meeting the target of having 500GW renewable energy in India by 2030, according to the Economic Survey.

The Economic Survey 2023-24 tabled in Parliament on Monday the Renewable Energy (RE) sector is expected to attract investments of about Rs 30.5 lakh crore in India between 2024 and 2030.

According to the Survey, this would create significant economic opportunities across the value chain.

The clean energy sector in India saw new investments of Rs 8.5 lakh crore (USD 102.4 billion) between 2014 and 2023, it said, adding that the RE sector received about USD 17.88 billion as FDI from April 2000 until March 2024.

On mobilization of necessary finance and investments on competitive terms for the RE sector, the Survey pointed towards gearing up the banking sector for arranging finances for larger deployment goals, exploring low-interest rate, long-term international funding, and developing a suitable mechanism for risk mitigation or sharing by addressing both technical and financial bottlenecks.

On land acquisition, the Survey pointed towards identification of land with RE potential, its conversion (if needed), clearance from land ceiling Act, decision on land lease rent, clearance from revenue department, and other such clearances.

State governments must play a major role in acquisition of land for RE projects, it suggested.

The suggestions assume significance in view of India's ambitious target of having 500GW of renewable energy by 2030.

India has put in place a target of achieving 50 per cent cumulative installed capacity for generating electric power from non-fossil fuel-based energy resources by 2030.

As per the National Electricity Plan of the Central Electricity Authority, non-fossil fuel (hydro, nuclear, solar, wind, biomass, small hydro, pump storage pumps) based capacity which is around 203.4 GW (46 per cent of the total) out of 441.9 GW of total installed capacity in 2023-24 is likely to increase to 349 GW (57.3 per cent) in 2026-27, and 500.6 GW (64.4 per cent) in 2029-30, it stated.

The survey also stated that India's green transition is more likely to significantly impact job opportunities in the renewable energy sector.

"... By 2030, clean energy initiatives can potentially create about 3.4 million jobs (short and long-term) by installing 238 GW of solar and 101 GW of new wind capacity to achieve the 500 GW non-fossil electricity generation capacity," it stated.

These jobs represent those created in the wind and on-grid solar energy sectors, it said, adding that about one million can be employed to take up these green jobs.

Centre, states' fiscal balances improved progressively despite rise in public investment

The fiscal balances of the central and state governments taken together have improved progressively despite expansionary public investments, according to the Economic Survey 2023-24.

Tax compliance gains driven by procedural reforms, expenditure restraint, and increasing digitisation helped India achieve this fine balance, according to the Economic Survey 2023-24, tabled in Parliament by Finance Minister Nirmala Sitharaman on Monday.

The external balance has been pressured by subdued global demand for goods, but strong services exports largely counterbalanced this, it added.

Noting that global output is now somewhat more resilient than in 2022, the pre-Budget document said inflationary pressures are shrinking, and trade is set to recover, should there be no further geo-political shocks or flare-ups.

However, the survey noted that chances of geopolitical disturbances and conflicts have only gone up in recent times.

The survey said India's calibrated response to the pandemic on the economic front included three salient components.

"The first has been the focus on public spending on infrastructure, which kept the economy afloat by creating a strong demand for jobs and industrial output and triggered a lagged yet vigorous private investment response. "Stronger balance sheets of the financial and non-financial private sector helped, aided by a decade of supporting initiatives by the government and the Reserve Bank of India," it said. The net impact of these developments has been that the Indian economy recovered and expanded in an orderly fashion in the last three years, the survey added. The survey said the real GDP in FY24 was 20 per cent higher than its FY20 level, a feat that only a very few major economie achieved, while also leaving a strong possibility for robust growth in FY25 and beyond.

"Growth has been inclusive with a reduction in unemployment and multi-dimensional poverty and an increase in labour force participation," it said, adding that overall, the Indian economy looks forward to FY25 optimistically, anticipating broad-based and inclusive growth. For India, the survey said FY23 began with multiple challenges as spillovers from the conflict in Europe were stoking domestic price pressures and widening the current account deficit (CAD) through increased oil prices. Central banks in several countries began raising policy rates to battle inflationary pressures, it said. However, the survey said, throughout FY23 and FY24, the focus on macroeconomic stability was vital in securing economic growth amidst domestic and external vulnerabilities.

Defaults worth Rs 10.2 lakh cr settled at pre-admission of insolvency cases since 2016

Defaults worth Rs 10.2 lakh crore have been settled at the stage of pre-admission of insolvency cases since the inception of IBC in 2016, and more than one-fifth of the companies undergoing resolution process are from the real estate space, the Economic Survey said on Monday. Also, in the past six years since FY18, the IBC (Insolvency & Bankruptcy Code) has enabled over Rs 3 lakh crore recovery for banks, which was much more than what the lenders had recovered through previous mechanisms of Lok Adalats, DRTs, and the SARFAESI Act, it said. Since the implementation of IBC in 2016, a total of 31,394 corporate debtors cases "involving a value of Rs 13.9 lakh crore have been disposed of (including pre-admission case disposals) as of March 2024", said the Survey tabled in Parliament by Finance Minister Nirmala Sitharaman.

The loss of control immediately after the beginning of the resolution process has led debtors settle with creditors as soon as the applications are filed with the National Company Law Tribunal (NCLT). "A singularly notable fact is that Rs 10.2 lakh crore of underlying defaults were addressed at the pre-admission stage. This change in debtor behaviour has been a big boon for banks and other lending institutions," it said, adding the government has "taken several measures to improve the insolvency ecosystem". The IBC has created an "optimal incentive-disincentive mix" to facilitate above-board and transparent dealings in creditor-debtor relations, it said. As of March 2024, over 1,500 real estate companies were admitted to the insolvency resolution process under the IBC, accounting for a 21 per cent of total admissions, said the Economic Survey.

"One in four cases settled after admission was also from this sector. Of the 891 corporate debtors resolved, 133 were real estate companies, forming 15 per cent of the companies resolved," it said. As of March 2024, NCLT has facilitated the closure of 4,131 corporate insolvency resolution processes (CIRP). The Survey said: "3,171 corporate debtors have been rescued, of which 947 cases have been resolved through approved resolution plans, which brought in a realisable value of Rs 3.36 lakh crore." "In the resolved cases, the creditors recovered approximately 32 per cent of their claims," it added. This amounted to a recovery of 85 per cent of the fair value and 162 per cent of the liquidation value of assets. Now IBC is the dominant recovery route for SCBs (scheduled commercial banks), the Survey said. Over 3,000 businesses have emerged out of the CIRP, with continued business operations extending the productive use of resources trapped due to financial distress in these corporate debtors.

The firms that went through the resolution process have witnessed a significant improvement in their performance in terms of increase in tangible assets and average capex in the post-resolution period compared to the pre-resolution period. "The aggregate market valuation of resolved firms rose from around Rs 2 lakh crore in the pre-resolution phase to Rs 6 lakh crore in the post-resolution phase," it said. Also, there is a substantial increase in total employment and around a 50 per cent increase in the average employee expenses in the resolved firms (listed) in the three years post-resolution.

"It is hard to find another policy measure that has created winners," the latest Economic Survey said. As of March this year, 2,476 CIRPs ended in liquidation as they failed to find a buyer within the stipulated time frame. A total of 586 firms were dissolved at the end of the liquidation process, releasing whatever resources were needed for alternate uses. The Survey also said that the government has strengthened the NCLTs, regarding infrastructure, increasing its strength by filling vacancies and proposing an integrated IT platform. Presently, the NCLT has 15 benches spread across the country with the Principal Bench at New Delhi. "The IBC has established itself as an indispensable component of the asset recovery and reconstruction market. In the process, it has forever changed the credit market landscape in the country for good," the Survey said. The IBC has provided an avenue for corporate debtors to resolve their debt and get an honourable exit from failed business endeavours. It has promoted "ease of doing business and encouraging entrepreneurship", the Survey said, adding, "The Code has established itself as an effective solution for addressing banks' stress by aiding in significantly reducing GNPAs and helping rescue failing corporate debtors."

Financial sector outlook appears bright, but needs tight vigil on vulnerabilities

The outlook for India's financial sector appears bright, but there is a need to keep a tight vigil on vulnerabilities as India can ill-afford the over-financialisation of the economy at this stage, said Economic Survey 2023-24 tabled in Parliament on Monday. The Indian financial sector is at a "turnpike moment", it said, adding that the dominance of banking support to credit is being reduced, and the role of capital markets is rising. For a country that aspires to be a developed nation by 2047, this is a long-awaited and welcome development, it said. "Being reliant on and exposed to the capital market, however, comes with its challenges and trade-offs. As India's financial sector undergoes this critical transformation, it must also brace for likely vulnerabilities and prepare itself with regulatory and government policy levers to intervene and hedge, as required," it said. Even as banks, non-banks and corporates battled balance-sheet excesses, the consequences of the credit boom of the first decade of the new millennium and the inevitable bust that followed in the second decade, the broad industry kept advancing the cause of financial inclusion and financial deepening, it added.

"Moving forward, healthier corporate and bank balance sheets will further strengthen private investment. The positive trends in the residential real estate market indicate that the household sector capital formation is increasing significantly," it said. For a developing economy such as India, it said, the financial sector needs to support the banking sector and fill the gap in capital required for the economy's growth. "Therefore, the financial sector should expand at a pace that is in lockstep with economic growth. In particular, India can ill-afford the economy's over-financialisation at its current development stage," it said. As India embarks on the vision to become a developed country by 2047, it is imperative that financial intermediation costs decline globally, the survey prepared by Chief Economic Adviser V Anantha Nageswaran and his team said. It further said the financial sector needs to support capital formation and promote trade, business, and investments in MSMEs, enabling them to scale.

"It also needs to provide insurance protection and retirement security to all citizens. The share of insurance and pension fund assets in GDP stands at 19 per cent and 5 per cent, respectively, in India, compared to a high of 52 per cent and 122 per cent in the US and 112 per cent and 80 per cent in the UK, leaving scope for further improvements," it added. The survey said that the next big step in the coming years is likely to be towards artificial intelligence/machine learning (AI/ML), decentralised finance, the Internet of Things (IoT), etc, which have a vast potential to disrupt the digital payments ecosystem. Further, it said the vision is for India to evolve as a ‘fintech nation’ with the highest number of fintech firms and the highest fintech adoption rate by incumbents fuelled by digital public infrastructure. "An approach should be evolved for common user data, eg KYC, across regulators. In the medium term, efforts should be made to move towards data-based lending instead of judgment-based lending, especially for small businesses," it said. The survey recommended that financial sector firms – public or privately owned – must become customer-centric. Without that, most quantitative metrics will remain elusive, it added.