A realistic survey of the Indian Economy

The Economic Survey for 2022-23 has presented the customary wealth of information and data pertaining to the Indian economy. It has provided the growth projections for the current year and the next, as well as a medium-term outlook. Simultaneously, it has further articulated the rationale for those projections and outlooks.

As regards the projections for the current fiscal year, that is, 2022-23, most of the information provided in the Survey is in the public domain. Real GDP has been estimated to grow at 7 per cent; and the Reserve Bank of India has projected that inflation for the year will settle at 6.8 per cent. Taken together, these figures would yield a nominal economic growth rate of close to 14 per cent. The Survey has further highlighted high tax buoyancy, which would likely ensure meeting the budgeted fiscal deficit of 6.4 per cent of GDP for the year.

The upshot of the above figures is that despite being faced with a highly challenging external environment this year, overall, the India economy will emerge from it relatively unscathed. Though the inflation target was breached during the year, price rise has been retreating both in India and globally, and it should be possible for India to remain within the band of 2-6 per cent mandated under the inflation-targeting framework for the year 2023-24.

The Survey has projected a baseline real growth rate of 6.5 per cent for 2023-24. While it did not project inflation or nominal growth rates, one can safely assume a baseline inflation rate of 4.5-5 per cent, yielding a nominal growth rate of about 11-11.5 per cent in 2023-24.

Perhaps one of the most interesting parts of the Survey is the medium-term outlook it has presented. It takes full cognizance of the fact that India is a globally integrated economy. Holding the global environment constant, the Survey has presented two different scenarios. The first is the “business-as-usual” scenario, wherein the economy can grow at 6.5 per cent a year in the medium term. The second scenario is contingent on continuing reforms and their possible expansion into a few more areas, such as energy, wider regulatory reforms, administrative reforms, harnessing the untapped talent of women, leveraging micro, small and medium enterprises (MSMEs), and investment in education and skills. These are projected to help accelerate the growth rate to 7-8 per cent a year.

A third scenario, not explicitly mentioned in the Survey, is that India would require a healthy boost from the global economy. This resonates with the kind of support that the economy received from abroad in the early 2000s.

The question then arises as to which one of the above three scenarios will play out in the coming years. The third scenario seems only a remote possibility currently because the global environment seems unlikely to improve significantly enough in the coming years. This would pretty much leave us with the first two scenarios. 

Of these, the first one seems like a given, based on the payoffs of the strengths of the domestic economy and the dividends of past reforms. The latter include improved logistics; enhanced physical and digital infrastructure; digitisation; regulatory reforms; and healthy balance sheets of banks and companies.

Attaining the second scenario depicted in the Survey would require a greater contribution from the manufacturing sector, more integration with global markets, and India becoming a more attractive destination for foreign direct investment. The Survey is not adequately vocal about the fact that the manufacturing sector has still not started yielding the growth dividends despite decades of policy support.

All in all, we may brace ourselves to accept the first scenario while working relentlessly to steer the economy toward the second one.

The author is director-general, NCAER