Economic Survey 2022-23: Industry and services regaining momentum

The global economy was hit hard by two macroeconomic shocks in 2022: The Russia-Ukraine conflict and synchronised monetary policy tightening by central banks, leading to a sharper than expected slowdown in global economic activity. Despite these global headwinds, the Indian industry and services sectors displayed remarkable resilience and are witnessing a strong rebound in FY23, as discussed in this year’s Economic Survey.

Gross value added in the industrial sector posted a stro­ng upturn, registering a growth rate of 3.7 per cent in H1, FY23, higher than the average growth of 2.8 per cent in H1 of the last decade. The Survey credits the rebound to robust domestic demand since FY22 and that has somewhat made up for moderating export growth and provided stimulus to industrial growth. Apart from domestic demand conditi­ons, augmented public capex and strengthening corporate balance sheets triggered investment demand. The improvement in banks’ asset quality has also led to an upswing in credit to industry, with large industries returning to banks as an alternative to volatile equity markets. Micro, small, and medium enterprises are also further supported by the Emergency Credit-Linked Guarantee Scheme in meeting their operational liabilities. All these have contributed to a strong uptick in industrial output, as reflected in an impro­ve­ment in various high-frequency indicators. PMI manufacturing remained in the expansionary zone and recorded the sharpest uptick in 13 months in December 2022; the index of industrial production also witnessed strong recovery during April-November 2022; FDI inflows in manufacturing have remained robust in FY23. According to the United Nations Conference on Trade and Development’s Investment Report, 2022, India was the seventh-largest recipient of FDI among the top 20 host countries in 2021.

The Survey also highlights the pivotal role of proactive policy response. The Make-in-India initiative, launched in 2014, emphasised self-reliance and helped address the gaps in domestic manufacturing capabilities, thereby improving the resilience to supply chain shocks during the crisis. The Production Linked Incentive has further complemented it.

Apart from the industrial sector, India’s services sector was worst impacted by the shocks. The Survey underlines how it has navigated the headwinds in the current year and is poised to be a source of strength for growth. The sector registered swift recovery in FY23, led by a strong upturn in contact-intensive services, bolstered by the release of pent-up demand and near universal vaccination coverage. The hotel industry is seeing improvement in occupancy, and the tourism sector is also showing signs of revival. Efforts to promote medical and wellness tourism — Ayush visa and “Heal in India” initiatives — are beginning to bear fruit. 

Besides contact-intensive services, digital services provided stability to the economy amid the turmoil. The policy focus on digital services much before the pandemic laid the foundation for digital services exports to expand as pa­n­demic-induced restrictions boosted its demand in India and abroad. As a result, driven by higher demand for digital support, cloud services, and infrastructure modernisation catering to new challenges, services exports remained buoyant amid uncertainties. IT-BPM, e-commerce, and digital financial services continued to register strong performance. 

India’s services and manufacturing sectors have displayed renewed growth in FY23, driven by both a demand upturn and structural reforms introduced by the government in the past few years, and the results are becoming more evident with the waning of these shocks. The external shocks can create headwinds for growth in the coming fiscal years, but the rebound in private consumption and the government’s push to capex are likely to buttress the sectors.

(The authors are Deputy Directors in the Ministry of Finance. The views expressed are personal.)