A positive outlook
Finance Minister Nirmala Sitharaman is set to present the Union Budget for FY2024-25 today. The findings of the Economic Survey, tabled yesterday, are indicative of certain provisions that might be incorporated into the Union Budget. The Economic Survey gave the overview of an economy that has made a commendable recovery after the COVID-19 pandemic and stands resilient in the face of multiple global shocks. Standing out among major economies across the globe, India has escaped many setbacks riding on strong domestic dynamics. While India would like to carry forward this momentum, the Economic Survey has also recognised the need to invest in emerging domains like renewable energy and research in artificial intelligence. Additionally, the survey highlighted the fast-increasing relevance of financial markets in general, and capital markets in particular—indicating that the government might like to move forward with a capex push.
The Economic Survey has projected economic growth at 6.5-7 per cent, down from 8.2 per cent in 2023-24. The ‘conservative’ growth projection is lower than the IMF’s projection of 7 per cent, RBI’s projection of 7.2 per cent, and the government’s own pre-Interim Budget projection of 7 per cent. Notably, India’s GDP growth has exceeded 7 per cent over the past couple of years. The toned-down projection for FY 2024-25 has been attributed to a tepid investment scenario. The inflation outlook, on the other hand, has been predicted to be benign—based on the expectations of a normal monsoon, and moderating global prices of imports. The risk to the inflation outlook, as has been evident over the past several quarters, has been from the food part. The Economic Survey’s suggestion to explore whether India's inflation targeting framework should target the inflation rate excluding food items appears problematic. Food, as a basic product in a commodity basket, has a lot of bearing on the common masses, and its prices should be retained within the inflation-targeting framework. The idea of core inflation already gives a clear picture of non-food & fuel inflation. If the text of the Economic Survey is any indication, the government may further promote direct benefit transfers or coupons for specified purchases in the Union Budget.
On the most burning economic issue of the day, i.e., (un)employment, the Economic Survey for 2023-24 highlighted the need to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector. The survey marked a distinction between jobs and livelihood creation, meaning that the working-age population will not just seek jobs but also become self-employed and generate employment. The idea might seem fancy on paper but is far removed from the ground reality where the lack of jobs has been consistently throwing job seekers in distress — both economic and mental. Indeed, the expanding ecosystem of start-ups is helping the economy grow at an improved pace, but there is still no alternative to providing regular employment to a large chunk of the working-age population. As per the Economic Survey’s own estimates, the share of agriculture in the workforce will gradually decline from 45.8 per cent in 2023 to 25 per cent in 2047. This transition has to be accompanied by a robust employment generation strategy that is not over-reliant on the startup ecosystem. The Economic Survey suggested that the demand for jobs 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, among others.
Credit to tax compliance gains, expenditure restraint, and digitisation, the Economic Survey has indicated a balanced fiscal deficit scenario. On the trade front, merchandise exports in April-June climbed 5.84 per cent to USD 109.96 billion, and imports grew 7.6 per cent to USD 172.23 billion — leaving the corresponding trade deficit at USD 62.26 billion, up from USD 56.16 billion in the same period last year. Going forward, the export target for this fiscal (both goods and services) is USD 800 billion, up from USD 778 billion in 2023-24. Overall, the economic outlook of the past fiscal has been stable, paving the way for further improvements through budgetary allocations, with certain surmountable challenges, of course.
