In the backdrop of 8.2 per cent GDP growth in the previous fiscal, the Economic Survey for 2023-24 on Monday came out with a conservative forecast of the current discal economic growth at 6.5-7 per cent.

The Survey had a radical suggestion about rethinking the inflation targeting framework to evolve a system minus food and rethinking the policy towards China in terms of easing restrictions on FDI norms for India’s powerful neighbour.

The survey’s growth predictions are lower than the Reserve Bank of India’s 7.2 per cent but align with the 7 per cent forecast by other agencies like the International Monetary Fund (IMF) and the Asian Development Bank (ADB).

“The Economic Survey highlights the prevailing strengths of our economy and also showcases the outcomes of the various reforms our Government has brought. It also identifies areas for further growth and progress as we move towards building a Viksit Bharat,” Prime Minister Narendra Modi said in a social media post

The survey was tabled by Finance Minister Nirmala Sitharman in both the Houses of the Parliament. It has been authored by a team led by Chief Economic Advisor V Anantha Nageswaran. Addressing a press conference, the CEA said the growth projection may be lower compared to estimates by other agencies, yet the Survey accounts for risk factors including progress of monsoon, rising financial market risks in the developed world with spillover effects on India and the the geopolitical environment.

“We want to be prudent in projecting growth rate, that is why we have projected the country’s economic growth at 6.5 to 7 per cent in FY24,” he said. In the preface to the Survey report, the CEA said the Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges. He said the Indian economy has consolidated its post-Covid recovery with policymakers – fiscal and monetary – ensuring economic and financial stability.

“Nonetheless, change is the only constant for a country with high growth aspirations. For the recovery to be sustained, there has to be heavy lifting on the domestic front because the environment has become extraordinarily difficult to reach agreements on key global issues such as trade, investment and climate,” he wrote.

Inflation

The survey noted that the headline inflation rate is largely under control, although the inflation rate of some specific food items is elevated. It said that food constitutes a very high portion of the consumer price index in developing countries and when central banks in developing countries target headline inflation, they effectively target food prices. “So, when food prices rise, inflation targets come under threat. Therefore, the central bank appeals to the government to bring down the increase in the prices of food products. That prevents farmers from benefiting from the rise in terms of trade in their favour,” it said. Further, it suggested “India’s inflation targeting framework should consider targeting inflation, excluding food. Higher food prices are, more often, not demand-induced but supply-induced.”

Policy on China

Nageswaran highlighted that two forces can deepen trade deficit with China. One is trade diversion by the West away from China, because of which India’s industries will be placed as intermediate suppliers between China and the West (similar to Mexico and Vietnam). Second is for enhancing manufacturing capacity within the country which means reliance on Chinese manufacturing inputs will rise. Considering these, the survey said: “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.”

Employment

Nageswaran mentioned that India needs to generate an average of 78.5 lakh jobs annually until 2030 in the non-farm sector. Various reports suggest that 63 per centof Indian companies have talent shortage in IT, engineering services, and sales while at the same time 51.3 per cent of young people are employable. He also called for deregulations as current State level labour regulations have unintended adverse consequences for the workforce, and women especially. 10 most populous States collectively impose 139 prohibitions on women from participating in factory processes, while 11 States bar women’s employment at night.

On the issue of impact of AI on employment, he said that it could slow BPO sector growth, affecting customer service in short term, but in the long run, broader AI adoption could lead to significant improvements in healthcare and education, enhancing human capital.

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