Ahead of the Interim Budget this year the Economic Division of the Finance Ministry had presented the 'Review of Indian Economy’ in two chapters. The Economic Survey, a comprehensive annual report which displays the performance of the Indian economy in the past fiscal year, would be released a day before the budget session of every year, but this year due to the vote-on-account budget, the full Economic Survey will be released only before the full budget in July 2024.
The 'Review of Indian Economy', presented by the Finance Ministry presented the economic play of the policy intervention on the Indian economy during the last l0 years and the predictions for future growth. The ‘Review of Indian Economy’, released by the Finance Ministry presented that Indian economy has been maintaining the growth momentum despite the growing geopolitical tensions and global challenges.
The report presented that Indian economy would become a $7 trillion economy in the next six to seven years i.e. by 2030 and it is eminently possible for the Indian economy to grow by or above 7 per cent in FY24. However, it has also laid out four challenges confronting the Indian economy, including artificial intelligence's threat to services sector, the trade-off between energy security and economic growth and the availability of a skilled workforce.
The Finance Ministry's report notes that at times of an increasingly integrated global economy, India's growth outlook depends on the spill over effects of global developments and not just its domestic performance. Increased geo-economic fragmentation and the slowdown of hyper-globalisation are likely to result in further friend shoring and on shoring, which are already having repercussions on global trade and, subsequently on global growth.
And the recent events in the Red Sea region may have brought back concerns over reliance on global supply chains, further aggravating the slower growth in global trade in 2023, but today, the Indian economy is better placed than ever to take on these challenges because of the policies adopted and implemented during the last decade.
The government also views that the advent of artificial intelligence poses a big challenge to governments around the world because of the potential impact on services sector employment. This is of particular interest to India given that the services sector contributes to over 50 per cent to India's GDP. However, the projections of the India's GDP growth will be at pace and expected to grow by or above 7 per cent despite these challenges. Some analysts also predicted the similar growth momentum during the FY 25 too.
Given the issues of climate change being aggressively addressed by the policy makers worldwide, developing countries have come under scanner for their carbon targets and appetite to grow their economies. Under the net zero target, India has agreed to completely switch to renewables by 2070.
The trade-off between energy security and economic growth versus energy transition is a multifaceted issue having various dimensions: geopolitical technological, fiscal, economic and social and the policy actions being pursued by individual countries impacting other economies as presented in the report.
Finally, the government also views the availability of a talented and appropriately skilled workforce in the industry as a challenge to economic growth. Domestically, ensuring the availability of a talented and appropriately skilled workforce to the industry, age-appropriate learning outcomes in schools at all levels and a healthy and fit population are important policy priorities in the coming years.
A healthy, educated and skilled population augments the economically productive workforce. Now this becomes extremely crucial when 65 per cent of Indian population are currently under the age of 35 and India's demographic dividend is expected to persist at least until 2055 to 2056 and will be at peak around 2041, when the share of the working-age population between 20 to 59 years is expected to hit 59 per cent.
Meanwhile, the strength in India's financial sector and recent structural reforms would aid the Indian economy's push to grow above 7 per cent in the coming years. These reforms have also delivered an economic resilience that the country will need to deal with unanticipated global shocks in the future.
Public sector capital investment surged in the last 10 years, the financial sector is healthy, and non-food credit growth is strong, enabling the Indian economy grow at a brisk rate. Unwavering commitment to ensuring steady economic growth is generating resources for investment needed for climate change adaptation, building resilience, and mitigating emissions.
Greater inclusive development, much lower unemployment rate, and moderate inflation, mark the journey from fragility to stability and strength during the last 10 years. Covid management, mature stimulus measures and the monumentally successful vaccination launched the return of the economy to a high-growth path.
Structural reforms implemented since 2014 have strengthened the macroeconomic fundamentals of the economy. Over the last decade, the Indian concept of welfare has been significantly transformed into a more long-term-oriented, efficient, and empowering avatar. Female Labour Force Participation Rate rose from 23.3 per cent in 2017-18 to 37 per cent in 2022-23, reflecting a tectonic shift towards women-led development in India.
Meanwhile the decadal reforms that were taken by the government in educational sector, health care sector, improving the Ease of Doing Business Index, improving the gender parity in labour force market, capex push by the government, infrastructure development, maintaining fiscal balance of macro indicator, formalisation of economy and GST reforms, digitalisation of payments, reforms in insolvency and bankruptcy codes are few policy interventions that helped the Indian economy to maintain the growth momentum.
Today (February, 2024- IMF data), India is the 5th largest economy with a GDP of $4,112 billion, following Japan ($ 4,291 billion), Germany ($ 4,730 billion). China ($18,566 billion) and USA ($ 27,974 billion) that are on the top 5. India's GDP is projected to reach $4.2 trillion in FY24, with a nominal growth of 10.5 per cent.
However, it still needs to achieve a 9.1 per cent average growth to become the third largest economy by 2027, reaching the $5 trillion mark, and surpassing Japan as the fourth-largest economy and Germany as the third-largest economy. This growth is expected to take 3 years.
In addition to the four challenges identified by the Ministry of Finance increasing investment expenditure, improving productivity, improving health and education, creating more jobs and improving on gender parity, raising agricultural production and productivity, maintaining macroeconomic stability, managing global mega trends and improving governance would surely make the Indian economy a $ 7 trillion economy in the next few years. Right now the economy is in a good place and shown lot of resilience during the last decade inspite of many challenges.
