India's Economy Shines with 8.2% GDP Growth in 2024: Economic Survey Highlights Resilience Amid Challenges

_{Published on: 22 Jul, 2024 13:56}

Summary of the Economic Survey 2024.

The Economic Survey 2024 highlights India's resilience and growth with an 8.2% GDP increase. Inflation is controlled, though food prices are high. Public and private investments are robust, and FDI remains strong. Employment generation faces challenges, despite strong corporate performance. Policy continuity is expected with the return of the National Democratic Alliance government. Key sectors like banking, capital markets, insurance, and pensions show robust performance. Challenges include financial sector growth, food inflation, and addressing structural issues. The survey underscores the need for reforms and collaboration to sustain economic growth.

1. Growth and Stability: The Indian economy has shown resilience and stability, recovering from the pandemic-induced contraction. The GDP growth rate for FY24 is estimated at 8.2%, following growth rates of 9.7% and 7.0% in the previous two financial years.

2. Inflation Control: While the overall inflation rate is under control, specific food items have seen elevated inflation rates. The trade deficit has decreased compared to FY23, and the current account deficit is around 0.7% of GDP, with a surplus in the last quarter of the financial year.

3. Investment Trends: Public investment has been a key driver of capital formation, with private sector investment picking up momentum. Non-financial private-sector capital formation has expanded significantly, particularly in machinery and equipment, indicating a positive trend in private sector investment.

4. Foreign Direct Investment (FDI): FDI inflows have remained robust, with USD 45.8 billion in FY24 compared to USD 47.6 billion in FY23. Despite global challenges, India's investment climate remains healthy, offering profitable exits for private equity investors.

5. Employment: The economy has faced two significant shocks—high corporate indebtedness and the COVID-19 pandemic—which have influenced employment generation. The private sector has seen robust financial performance, but job creation and worker compensation growth need to match corporate profits.

6. Policy Continuity and Reform: The return of the National Democratic Alliance government signals political and policy continuity. For sustained recovery and growth, domestic efforts and reforms are necessary, given the challenging global environment.

7. Private Sector Role: The private sector is crucial for job creation and economic growth. There is a need for a tripartite compact involving the government, private sector, and academia to enhance skills and employment opportunities, particularly in the face of technological advancements and global uncertainties.

8. Challenges and Opportunities: The chapter highlights the importance of addressing structural issues in the labor market, enhancing the investment climate, and fostering collaboration between various stakeholders to achieve long-term economic goals.

Key Takeaways from the Chapter "Monetary Management and Financial Intermediation: Stability is the Watchword"

1. Banking Sector Performance:

   • India's banking sector showed robust performance in FY24 with double-digit growth in bank credit and multi-year lows in non-performing assets.
   • Asset quality improved significantly, highlighting the government's commitment to a stable banking sector.

2. Capital Markets:

   • Indian capital markets have become crucial to the country's growth, driven by technology, innovation, and digitisation.
   • The Nifty 50 index rose by 26.8% during FY24, showcasing the market's strong performance.
   • Market capitalisation to GDP ratio for India's stock market ranks fifth globally.

3. Insurance and Pension Sectors:

   • Regulatory measures aim for 'Insurance for all by 2047,' positioning India as one of the fastest-growing insurance markets in the next five years.
   • The pension sector saw a significant increase in subscribers and assets under management.

4. Monetary Policy and Credit Conditions:

   • The Central Bank maintained a steady policy rate, with the overall inflation rate under control.
   • The policy repo rate was kept at 6.5% to align inflation with targets while supporting growth.
   • The withdrawal of ₹2,000 banknotes and the merger of HDFC with HDFC Bank impacted liquidity conditions.

5. Financial Inclusion:

   • Efforts to improve financial inclusion focused on digital financial inclusion and data protection.
   • The introduction of Udyam Assist Platform (UAP) aimed to formalise informal micro enterprises and provide credit access.
   • Initiatives like UPI123Pay and UPI Lite aimed at enhancing digital payments and financial inclusion.

6. Dealing with Distressed Assets:

   • The Insolvency and Bankruptcy Code (IBC) has been effective in resolving distressed assets, reducing the gross non-performing assets (GNPA) ratio to 2.8% in March 2024.
   • Asset Reconstruction Companies (ARCs) and the establishment of the National Asset Reconstruction Company Ltd. (NARCL) have been crucial in addressing distressed assets.

7. Financial Sector Challenges:

   • The significant increase in retail investors necessitates careful consideration to avoid overconfidence and speculation.
   • The financial sector must grow in tandem with the economy to avoid over-financialisation.

8. Government Measures:

   • Government initiatives aimed at strengthening the banking regulatory framework, enhancing credit availability to MSMEs, and supporting financial inclusion and digitalisation.
   • The Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund aims to provide debt financing for stalled housing projects.

These key points highlight the strong performance, strategic initiatives, and future challenges of India's monetary management and financial intermediation sector.

Key Takeaways from the Chapter "Prices and Inflation: Under Control"

1. Inflation Management:

   • Despite global challenges such as the pandemic and geopolitical tensions, India managed to maintain retail inflation at 5.4% in FY24, the lowest since the pandemic.
   • The Reserve Bank of India's (RBI) commitment to price stability and the government's policy actions played crucial roles in controlling inflation.

2. Global Impact:

   • The Russia-Ukraine war caused supply chain disruptions, leading to price pressures, particularly in energy and food prices.
   • Coordinated monetary tightening by central banks in advanced economies helped reduce global energy prices.

3. Comparative Inflation:

   • India's inflation rate in 2022 and 2023 was lower than the global average and that of Emerging Markets and Developing Economies (EMDEs).
   • Advanced economies generally experienced lower inflation compared to EMDEs due to established monetary policies and economic stability.

4. Core Inflation:

   • Core inflation, excluding food and energy prices, hit a four-year low in FY24, primarily driven by a decline in core goods and services inflation.
   • Monetary policy transmission was effective, with the RBI increasing the policy repo rate to control inflationary pressures.

5. Food Inflation:

   • Food inflation was driven by adverse weather conditions affecting agricultural output. Vegetables, pulses, and spices saw significant price increases.
   • The government implemented measures such as stock management, open market operations, and import policies to mitigate food inflation.

6. Sectoral Price Trends:

   • Consumer durable inflation remained elevated but softened in FY24 due to improved supply conditions.
   • Core consumer non-durable inflation declined sharply in FY24, driven by lower transport costs.

7. Administrative Actions:

   • The government took swift actions to contain food inflation, including export restrictions, subsidised provision of essential food items, and increased monitoring of prices.
   • Specific measures were taken for wheat, rice, pulses, onions, edible oils, and sugar to ensure adequate supply and stable prices.

8. Interstate Variations:

   • Retail inflation showed interstate variations, with rural areas experiencing higher inflation rates due to a higher weightage of food items in their consumption basket.
   • States with higher overall inflation tended to have a wider rural-to-urban inflation gap.

9. Future Outlook:

   • The RBI and IMF project India's consumer price inflation to align towards the target by FY26, assuming normal monsoon conditions and no further external shocks.
   • Efforts to increase domestic production of edible oils and pulses, improve storage facilities for vegetables, and enhance price monitoring mechanisms are essential for long-term price stability.

1. Economic Growth and Structural Reforms:

   • India's growth over the past decade has been resilient due to structural reforms since 2014.
   • India is projected to become the third-largest economy in the world.
   • Sustained growth of 7%+ is feasible with continued reforms.

2. Economic Context and Historical Progress:

   • India's economy grew from USD 300 billion in 1993 to an estimated USD 3.6 trillion in 2024.
   • Per capita GDP increased significantly, indicating improved living standards.

3. Global Challenges and India’s Aspirations:

   • India aims to become a developed nation by 2047, despite global economic, geopolitical, and environmental challenges.
   • The rise of nationalism and protectionism affects global trade and economic policies.

4. Key Policy Focus Areas:

   • Employment Generation: Creating 78.51 lakh jobs annually in the non-farm sector.
   • Skill Development: Addressing the skill gap with 51.25% youth employability.
   • Agriculture: Enhancing productivity, price discovery, and technological adoption.
   • MSMEs: Easing compliance and financing bottlenecks to boost growth.
   • Green Transition: Managing environmental policies, reducing emissions, and ensuring energy security.

5. Strategic Framework:

   • Private Sector Investment: Boosting investments through favorable policies and infrastructure.
   • MSMEs Growth: Focused initiatives for MSMEs, including credit schemes and reducing regulatory burdens.
   • Agriculture: Structural transformation to ensure sustainable and productive agriculture.
   • Climate Finance: Mobilizing international and domestic finance for green projects.
   • Education and Employment: Bridging the gap with better education policies and skill development.
   • State Capacity: Enhancing governance and administrative capabilities to support reforms.

6. Outlook and Goals:

   • India aims for strong, sustainable, and inclusive growth.
   • The focus will be on bottom-up reforms, addressing grassroots issues, and ensuring balanced development.

Key Takeaways from Chapter 8: Employment and Skill Development: Towards Quality

Current Employment Scenario

Over the past decade, India has experienced significant improvements in its employment landscape, driven by economic reforms, technological advancements, and a focus on skill development. The Periodic Labour Force Survey (PLFS) indicates a decline in the unemployment rate to 3.2% in 2022-23. This period also saw a rise in the labour force participation rate (LFPR) and worker-to-population ratio (WPR).

Youth and Female Employment

Rising Youth Employment: The youth unemployment rate has decreased from 17.8% in 2017-18 to 10% in 2022-23, with a corresponding increase in formal employment figures as indicated by EPFO data. Youth employment is critical for leveraging India's demographic dividend.

Female Labour Force Participation Rate (FLFPR): The FLFPR has been rising steadily, particularly in rural areas, where it increased by 16.9 percentage points between 2017-18 and 2022-23. This rise is attributed to high agricultural growth and improved access to basic amenities, which have freed up time for women to participate in the workforce.

Employment in Factories

The organised manufacturing sector has shown resilience post-pandemic. Employment per factory has surpassed pre-pandemic levels, and wages per worker have been increasing. States like Tamil Nadu, Gujarat, and Maharashtra lead in factory employment. The predominance of smaller factories is shifting towards larger ones, which offer better wages and employment growth.

Government Initiatives to Boost Employment

Several government measures have been implemented to foster job creation and worker welfare:

• National Career Service (NCS) Portal: This platform offers employment and career services, attracting over 4.1 crore jobseekers and 25.6 lakh employers by March 2024.
• e-Shram Portal: This is the first national database for unorganised workers, with over 29 crore registrations.
• Aatmanirbhar Bharat Rojgar Yojana (ABRY): Launched to boost employment post-COVID-19, benefiting 60.5 lakh individuals.
• Pension and Insurance Schemes: Includes Atal Pension Yojana (APY) and Pradhan Mantri Shram Yogi Maan-Dhan (PM-SYM).
• Labour Codes: Rationalisation of 29 central laws into four Labour Codes to simplify regulations and promote employment.

The Evolving Landscape of Jobs

Fourth Industrial Revolution: Technologies like AI, IoT, big data, and advanced manufacturing are reshaping job markets. The demand for digital roles, especially in AI and machine learning, is increasing.

Impact of AI: AI is transforming jobs, with potential disruptions in routine tasks and significant opportunities in new tech-driven roles. The future of work will require new skills, including analytical thinking, innovation, and resilience.

Gig Economy: The gig economy is expanding, driven by tech-enabled platforms and flexible work arrangements. By 2029-30, gig workers are expected to form 6.7% of the non-agricultural workforce.

Climate Change and Green Energy Transition: Climate change poses both risks and opportunities. Green technologies and renewable energy projects can create millions of jobs, while extreme weather events may lead to job losses in vulnerable sectors.

Requirement of Job Creation Until 2036

India needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to accommodate the rising workforce. This projection assumes a declining share of agriculture in employment and a rising WPR for women.

 

Introduction and Overview

The agriculture sector is vital to India's economy, supporting about 42.3% of the population and contributing 18.2% to the GDP. Over the last five years, the sector has grown at an average annual rate of 4.18%, supported by government initiatives aimed at ensuring remunerative prices, enhancing access to credit, promoting crop diversification, and adopting sustainable practices. Despite these advances, challenges like low productivity, fragmented land holdings, and inadequate marketing infrastructure remain.

Current State of Agriculture

India is a significant producer of various crops, including rice, wheat, cotton, and the largest producer of milk, pulses, and spices. However, crop yields are lower compared to other major producers due to factors like fragmented land holdings, low farm investment, insufficient farm mechanization, and dependency on monsoons. The government’s efforts have focused on increasing productivity and sustainability through policies like Minimum Support Prices (MSP) and the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN).

Government Initiatives and Reforms

MSP and Direct Benefits: The MSP is set at one and a half times the all-India weighted average cost of production to assure farmers of remunerative prices. PM-KISAN provides direct financial benefits of ₹6000 annually to farmers, supporting over 11 crore farmers as of 2024.

Digital Agriculture: Digital initiatives like the Digital Agriculture Mission and the e-National Agriculture Market (e-NAM) facilitate better decision-making and market access for farmers. These technologies help in improving price discovery and market efficiency.

Climate Finance and Sustainability: The government emphasizes the need for sustainable farming practices. Programs like the National Mission for Sustainable Agriculture (NMSA) aim to make Indian agriculture more resilient to climate change. Initiatives such as the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) enhance irrigation coverage and efficiency, crucial for combating the variability in weather conditions.

Crop Diversification and Productivity Enhancement

To address sustainability challenges and reduce the dependency on water-intensive crops like rice and wheat, the government promotes crop diversification through the Crop Diversification Programme (CDP). This initiative encourages farmers to shift towards pulses, oilseeds, and nutri-cereals, supported by higher MSPs for these crops.

Mechanization and Technology Adoption

Farm Mechanization: Mechanization is crucial for modern agriculture, especially for small and marginal farmers. The Sub-Mission on Agricultural Mechanization (SMAM) provides financial assistance for the procurement of farm machinery, which helps increase productivity and reduce labor costs.

Smart Agriculture: Technologies like AI, IoT, and remote sensing are increasingly being integrated into agriculture. These advancements are part of the broader Digital Agriculture Mission, aiming to transform farming practices through precision agriculture and better resource management.

Livestock and Fisheries

The livestock sector has grown significantly, contributing to an increased share of agriculture's Gross Value Added (GVA). Programs like the Rashtriya Gokul Mission and the National Programme for Dairy Development aim to enhance productivity and market access. The fisheries sector, supported by the Pradhan Mantri Matsya Sampada Yojana (PMMSY), has also seen substantial growth, contributing significantly to the agricultural economy.

Food Security and Management

India maintains a substantial stock of food grains, with around 40% distributed to two-thirds of the population for free under schemes like the PM Garib Kalyan Yojana (PMGKAY) and the National Food Security Act (NFSA). The focus is on ensuring food security while managing stock efficiently to reduce wastage and ensure availability.

Investment and Infrastructure Development

Capital Formation: Investment in agriculture, particularly in post-harvest infrastructure, is crucial for reducing waste and increasing farmers' incomes. The government has implemented various schemes to boost investment, including the Agriculture Infrastructure Fund (AIF), which provides medium-term debt financing for post-harvest management and community farming projects.

Access to Credit: Access to affordable credit is essential for small and marginal farmers. Initiatives like the Kisan Credit Card (KCC) have streamlined credit accessibility, and insurance schemes like the Pradhan Mantri Fasal Bima Yojana (PMFBY) provide a safety net against crop losses.

Challenges and Future Outlook

Despite significant progress, challenges remain in terms of increasing productivity, ensuring sustainability, and improving market infrastructure. The government's strategic focus includes enhancing investment, promoting sustainable farming practices, and leveraging technology to drive growth. The vision is to achieve strong, sustainable, and inclusive growth in agriculture, making it a key driver of India's economic development.