Eco survey 2023: Bright prospects under dark clouds with silver linings

The Economic Survey provides a wide range of growth projections (6 per cent to 6.8 per cent) with a baseline growth of 6.5 per cent for FY24. This is understandable, given the uncertain global economic scenario. 

The optimistic growth scenario is built on the assumptions of a continued high government capital expenditure (CapEx) and unleashing of the private CapEx in FY24 with healthy corporate and bank balance sheets. The confidence on the growth front is also supported by recent economic data prints in Europe and the US, wherein inflation has come off its peaks, along with the sudden opening of the Chinese economy. 

The Economic Survey outlines the underlying framework of reforms in India centred on ease of doing business and ease of living with four pillars supporting it. The first pillar outlined is creating public goods through CapEx push and programmes like Bharatmala, Sagarmala, UDAN and the National Infrastructure Pipeline. The creation of the public digital infrastructure is also aligned with this including the UPI and ONDC. 

The second pillar of the reforms is outlined as trust-based governance to unleash efficiency gains. Implementation of IBC, RERA, and decriminalisation of offences under the Companies Act is some of the reforms aligned with this second pillar. 

The third pillar is promoting the private sector as a co-partner in development. Divestment of Public Sector Undertakings (PSUs), along with Production Linked Incentives (PLI), National Logistics Policy and the Emergency Credit Line for Guarantee Scheme (ECLGS) for MSMEs are a part of this pillar.  

Enhancing productivity in agriculture is the fourth pillar of the framework for reforms that include the promotion of the Farmer Producer Organisations (FPOs), Kisan Rail for perishable goods transport and the national agriculture marketplace (e-NAM). 

The Economic Survey presents strong fiscal fundamentals of the Government from the progressive formalisation and digitalisation of the economy. It has indicated that the fiscal deficit target for FY23 would be easily met and that the Government will continue the fiscal consolidation path. 

We can, therefore, assume around a 50 basis point reduction in the budgeted fiscal deficit in FY24 over FY23. Asset monetisation, being one of the core aspects of the Government’s strategy, as a partnership with the private sector is likely to continue and any anticipated shortfalls in the revenue projections could be made through accelerated action on this front, given the preparatory work is already undertaken during the current year.

 While the debt to GDP ratio has gone up, the survey points out that the gap in growth–interest rate differential is positive and hence the debt is sustainable. 

The survey has also outlined the concern over growing interest payment amounts and has highlighted making concerted efforts to bring this down through action on the asset monetisation front. We could, therefore, expect a much higher target of asset monetisation in the Budget. 

The survey makes an interesting point on realising a higher risk premium on interest rates by sticking to the path of fiscal consolidation in emerging economies through lower interest rates for the entire society and, hence, higher disposable incomes. On the monetary policy front, the survey has lauded the deft handling by the Reserve Bank of India (RBI) of the ForEx reserves and exchange rates as well as inflation targeting. The survey has provided a benign outlook for inflation with some risks emerging from higher food prices, as has been flagged by the RBI.

The Economic Survey, this time, has included two new chapters – one on the social sector and another on climate change and the environment.  The theme of the chapter on the social sector is inclusive development and the strides being made towards the attainment of Sustainable Development Goals (SDGs) and accelerating this pace of attainment in the Amrit Kaal. 

The chapter on climate change and the environment outlines the initiatives undertaken by India on renewable energy, green hydrogen and its commitments made in COP26. The chapter flags the concern about financing for these initiatives and lists green bonds as one of the items of focus. We anticipate that the Government will make announcements related to the same in the upcoming Budget.  

The message that growth thrust would be driven by higher CapEx, private consumption, credit growth to small businesses, strengthening the corporate balance sheet and return of migrant workers to cities could provide us with some cues on what we can expect in the Budget. 

A big dose of CapEx allocation, income tax relief to lower-income brackets, a continuation of the credit guarantee scheme for the MSMEs, PLIs for new sectors for enthusing private CapEx and plateauing of the allocation to MGNREGA are some of the key expectations in the upcoming Budget. It will be interesting to see how the Finance Minister walks the path of fiscal consolidation while giving impetus to CapEx and demand. 

(Ranen Banerjee is Partner and Leader- Economic Advisory Services, PwC India)