Highlights of the Economic Survey 2022-23

The following is a summary of the takeaways from the Economic Survey 2022-23 that was tabled by the Finance Minister Nirmala Sitharaman. The Survey was prepared by the Department of Economic Affairs under the guidance of the Chief Economic Advisor, Shri V Anantha Nageswaran.

Economic Growth: Recovery Complete, Robust Growth Decade to follow

1.????????India has seen 2 decades of first a credit boom followed by a credit bust cycle. The first decade saw high amounts of aggressive lending which was followed by a period of high financial system stress. The repairing process is now completed and hence the full impact of economic reforms will play out.

2.????????Recovery from pandemic completed, Indian economy is staging a broad-based recovery across sectors, positioning to ascend to the pre-pandemic growth path in FY23. FY23 GDP seen robust at 6.5-7%, follows an 8.7% growth in the previous year. Private consumption, increase in capex spending, strengthening corporate balance sheets and offtake of bank credit have been the key growth drivers. Private consumption has been the highest since FY 15 (58.5% as a percentage of GDP). Despite strong global headwinds, monetary policy tightening and without the advantage of a base effect, growth stands at 6.5-7% which is a reflection of underlying resilience. ?

3.????????Private consumption and capital formation trends seen in FY23 has helped employment generation, seen in declining urban unemployment rates and increase in Employee Provident Fund registrations.

Outlook for FY 23-24:

1.?????India to continue in its growth trajectory as the fastest growing major economy. GDP growth forecast for FY24 to be in the range of 6-6.8 % (baseline estimate of 6.5%), subject to global economic and political developments.

2.?????Growth to be supported by domestic demand & capital investments. Global economic prospects bleak with high uncertainty, dampening of trade

3.?????Risks to the growth outlook – (i) widening of the Current Account Deficit (ii) entrenched inflation leading to longer tightening and hence high borrowing costs

4.?????Upsides to the growth outlook (i) normalisation of supply chains (ii) return of capital flows to India due to monetary tightening in advanced economies (iii) leading to more impetus to private sector investment

Fiscal Position: Strong Revenue Generation with Capex Focus:

1.?????Government finances strong – driven by tax collections and economic recovery. Gross Tax Revenue registered a YoY growth of 15.5% from Apr-Nov 2022, driven by robust growth in the direct taxes and GST.

2.?????Reaching the budget estimate for fiscal deficit during FY23 not a concern

3.?????Centre's Capex has steadily increased from a long-term average of 1.7% of GDP (FY09 to FY20) to 2.5% of GDP in FY22.

4.?????Emphasis on infrastructure-intensive sectors, increase in Capex has large-scale positive implications for medium-term growth.

Current Account Deficit: May widen further:

1.?????Despite the depreciation seen, rupee among better performing currencies world-wide. Challenge to rupee depreciation with further rate hikes by the US Fed.

2.?????Exports surged in FY22 and upto the first half of FY23. Moderation in export growth seen in second half of FY23 due to slowing global growth. Prospects of sluggish exports continue into FY 24

3.?????Current Account Deficit may widen driven by commodity prices, creating further pressure on the rupee. CAD widened to 4.4% of GDP in Sep quarter from 2.2% of GDP in June quarter. For FY 23, sufficient cushion on reserves to finance CAD and manage the currency volatility

4.?????The scenario of subdued global growth presents two silver linings – oil prices will stay low, and India’s CAD will be better than currently projected. The overall external situation will remain manageable.

Banking Sector Performance: Clean-up completed, credit offtake propelled

1.?????Banking sector credit growth has moved into double digits, credit growth to MSME was robust at 30.5% during Jan-Nov 22 supported by government guarantee scheme

2.?????The GNPA ratio of commercial banks has fallen to a seven-year low of 5.0, while the capital adequacy remains healthy at 16.0

3.?????Recovery rate for the SCBs through IBC was highest in FY22 compared to other channels.

4.?????Growth in credit offtake is expected to sustain, and combined with a pick-up in private capex, will usher in a virtuous investment cycle.

Industry: Strong activity on multiple fronts, well supported by Government capex spend

1.?????GVA by the Industrial Sector grew 3.7% in H1 FY23 (significantly lesser than overall GVA growth of 9%). Estimated to grow at 4.5% in H2 FY23 supported by easing input prices and conducive demand conditions.

2.?????Industrial Sector witnessed modest growth of 4.1% in FY23 compared to strong growth of 10.3% in FY22 on account of input cost-push pressures, supply chain disruptions, the China lockdown and the fading away of the base effect. ?

3.?????PMI Manufacturing increasing since July 2021. In December 2022, the sub-indices indicated an easing pace of input cost pressures, improving supplier delivery times, robust export orders and future output.

4.?????Significant rise in construction activity seen in FY23 with the enlarged Government capex being rapidly deployed. Considering the capex multiplier estimated, the economic output is set to increase 4x the amount of capex. Capex spend by the Government has been supported by increase in capex budget as well as buoyant direct tax collections. This has led to increase in private sector investment

5.?????Govt capex for Road Transport and Highways in Apr-Nov FY23 stood at ? 1.49 lakh crore (102% YoY increase).?Centre's Capital expenditure for Railways in Apr-Nov FY23 stood at ? 1.15 lakh crore (77% YoY increase).

6.?????Cumulative FDI in pharma crossed $20 billion. Further, FDI inflows have increased four-fold over five years to $699 million.

7.?????Performance of the agriculture and allied sector buoyant – driven by government measures to augment productivity, farmers price support, promoting crop diversification, improving market infrastructure (through farmer-producer organisations) and promotion of investment in infrastructure facilities through the Agriculture Infrastructure Fund.

8.?????Investment of ? 47,500 crores has been seen under the PLI schemes (106% of the designated target). Production/sales worth ? 3.85 lakh crore and employment generation of 3.0 lakh have been recorded due to PLI schemes.

Startup-Ecosystem: Reverse Flipping has started, government measures to further support

1.?????India ranks amongst the largest startup ecosystems in the world.

2.?????9 lakh+ direct jobs have been created by the DPIIT startups, notable 64% increase in jobs created in 2022, over the average number of new jobs created in the last 3 years.

3.?????Many Indian companies have been getting headquartered overseas (“Flipping”), especially in destinations with favourable legal environments and taxation policies.

4.?????Relatively easy access to capital through a vibrant PE/VC Ecosystem, changes in rules regarding roundtripping and the growing maturity of capital markets have both slowed down the Flipping and made companies explore Reverse Flipping.

5.?????To accelerate Reverse Flipping, some possible measures to be taken by the government include further simplification of taxation of ESOPs, simplifying procedures for capital flows, simplifying the process of grant of Start-up Certifications etc.

Employment & Social Infra: Improvement witnessed across education, health, labour market

1.?????Government’s spending on education & health have gone up from ? 5.3 lakh crores to ? 7.6 lakh crores. This has driven various metrics - primary school drop-out rates, pupil-to-teacher ratios, mortality rates etc.

2.?????Labour markets have recovered beyond pre-covid levels in both urban and rural areas. Urban unemployment rate declined to 7.2%, the lowest in 4 years, accompanied by an improvement in the labour force participation rate.

3.?????41.5 crore people exit poverty in India between 2005-06 and 2019-20.

Infrastructure & Logistics: Robust growth in infrastructure capacity over the last decade

1.?????Critical infrastructure capacity (such as electricity capacity, ports, railway, national highways) grew significantly (80% or more) between 2011 & 2020. National Highways/Roads construction grew from 6,061 Km in FY16 to 10,457 Km in FY22.

2.?????PPP Appraisal Committee has cleared 79 projects with a total project cost of ? 2.3 lakh crores from FY15 to FY23.

3.?????National Infrastructure Pipeline - ~1000 projects worth ? 5.5 lakh crores completed & ~89, 000 projects worth ? 141.4 lakh crores are under implementation

4.?????National Logistics Policy - aims to reduce logistics cost, from current 14-18% of GDP to global benchmark of 8%.

5.?????PM Gati Shakti National Master Plan creates comprehensive database for integrated planning and synchronised implementation across Ministries/ Departments, aims to ensure completion of projects within time and cost.

Digital Infrastructure: Significant headway creating democratised access

1.?????UPI-based transactions grew in value (121%) and volume (115%) terms, between 2019-2022, paving the way for its international adoption.

2.?????Recent initiative of the launch of Open Network for Digital Commerce (ONDC) is also playing a significant role in democratising digital payments, enabling interoperability, and bringing down transaction costs.

3.?????Overall tele-density in India is ~85%, though with wide differences across states.

4.?????The rural-urban digital divide (in terms of internet subscriptions) has reduced. There was a 200% increase in rural internet subscriptions between 2015 and 2021.?