Side-stepping analyses, the Economic Survey attempts to build narratives

Medium-term growth has been posited at a modest 6.5-7% rather than the double-digit rate that pushed China into the superpower league in the two decades since the turn of the millennium and India had dared to dream of in the heady years of the first decade of the millennium.

This modesty on the part of the Economic Survey has the political downside that five years from now, the Indian economy would still fall short of the target size of $5 trillion (the GDP in 2022-23, according to the first advance estimate, is ₹2,73,07,751 crore, ($3.342 trillion at today’s exchange rate of ₹81.7 to the dollar), which, growing at 6.5% compound for five years, would become $4.58 trillion, and growing for five years at a compound growth rate of 7%, would hit $4.69 trillion.

The Advance Estimate of GDP puts the ratio of fixed capital formation to GDP at current prices at 29.2%, still below 30% in the current year, below the percentage of mid-thirties it had reached in India’s fast growth years 2003-08, not to speak of the 50% of GDP reached by China in its years of undervalued exchange rates, massive export growth and double-digit economic growth.

Still, the Survey is gung-ho on investment rising sharply in India, both on account of the proven trend of rising capital expenditure out of Budget outlays and the rising trend of bank loans. It also cites, plausibly, the ongoing repair of bank balance sheets via recapitalization, aggressive provisioning and the working of the Insolvency and Bankruptcy Code, IBC. So, it expects the economy to register a growth rate of 6.5% this year.

Addressing a press conference, the chief author of the Economic Survey, chief economic advisor V. Anantha Nageswaran, stressed the potential of India’s digital public infrastructure to push up the growth rate by 0.5 to one full percentage point.

While waxing eloquent on the rise in welfare indicators such as maternal mortality rate and infant mortality rate, the rise in spending on education and healthcare and the spread of sanitation and clean drinking water, he glossed over certain unaddressed problems such as ever mounting dues of state electricity boards, the continuing distress in rural areas, as indicated by the continuing strong demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act in November and December, the average growth rate of industrial value add of 3% over the last five years and other such material at odds with a fairytale narrative.

While praising the industrial policy embodied by the Performance-Linked Incentive Scheme to boost manufacturing, the Survey failed to clear doubts on how much of actual value addition it creates locally and to what extent the import of components for PLI-pegged manufacturing contributes to India’s widening current account deficit.

On inflation, the Survey is optimistic that the worst is behind us and expects inflation next fiscal to be below the RBI’s upper bound of 6%. This is quite realistic. The latest indication of moderating risk of recession in the US, alongside moderating commodity prices could lead to reversal of the nervous strengthening of the dollar against all major currencies of the world, strengthening the rupee and toning down imported inflation. While a resurgent China would import more commodities and push up their prices, its exports would also help tame prices across the world.

The section on climate change is a big improvement on the Survey’s treatment of the subject in its previous edition, but still falls short of addressing the importance of carbon dioxide removal, particularly by the rich world, to combat climate change.

The Survey is right to posit that India is growing better and better, day by day, but would have been more useful if it had addressed the constraints that contain growth below optimal potential.

This Survey marks a first in years by not making any reforms recommendations. Perhaps it sees no point, given the reforms implemented in the past decade, such as the IBC, are being diluted or, as in the case of the scrapped farm laws, withdrawn altogether. Lok Sabha elections are due in 2024. When there wasn’t enough political conviction for pressing ahead on reforms so far, it’s unlikely to be mustered at this late stage in the electoral cycle.

The Economic Survey doesn’t venture beyond making note of information already available publicly, weaving it into a puffed-up narrative on notions as yet unmeasured, ‘trust-based governance’ for instance, substituting optimism for analyses, side-stepping the debates critical to India’s economic future: such as how the jobs crisis is to be solved or when government will resume publishing the poverty line data (paused a decade ago). With it, Nageswaran, or Van, as he is known to friends, makes a muted, almost disappointing debut.