Economic challenges can be withstood and gradually mitigated with astute policymaking. This is the overarching message in the first chapter of the Economic Survey 2022-23. The survey notes the recent economic challenges India has faced and overcome — economic contraction caused by the pandemic, high inflation caused by the global commodities price shock, currency depreciation, and external deficit caused by the import of dearer oil in 2022-23. Retail inflation in India has tapered to within the tolerance band of 2-6%, unlike persistently high levels in advanced economies.
India’s annual GDP growth of 7% is not only the highest among the major economies but carries greater inclusivity as well. The rupee has depreciated less than major currencies of the world, including those of some of the emerging market economies, and foreign exchange reserves have started rebuilding despite no let-up in monetary tightening by the Fed.
The survey recognises the role of effective policy-making in tackling economic challenges. Inflation was reduced by cutting duties, limiting exports, preventing excess stocks, and rolling back liquidity before the softening of local weather extremities and global commodity prices led to a further decline in inflationary pressures. The advantage that India had of dealing with manageable inflation is attributed to the government not undertaking the substantially big fiscal expansion that advanced economies did to support and stimulate growth during the pandemic. The survey also observes that India’s impressive GDP growth recovery from 2021 onwards, initially stimulated by a surge in exports and subsequently by a strong rebound in private consumption for contact-based services, was an outcome of sound policy action on vaccination. The near-universal vaccination involving the administration of more than 2 billion doses is the single most important reason behind the strong consumption rebound that has also revived the housing sector.
The survey further recognises the expansionary public sector capex programme with its nascent catalytic effect on private investment as providing substantial stimulus to growth. The survey additionally draws attention to the rising inclusivity of growth as seen in the declining rate of urban unemployment, formalisation of the workforce, financially stronger MSMEs, well-targeted government support, and improvement in rural welfare, ascribing these, in part, to specific interventions by the government.
By linking the depreciation of the rupee to monetary tightening by the Fed, the survey highlights the role played by external factors in determining the value of the Indian currency.
Further, by stating that the rupee has been a relatively better-performing currency, the survey gives a sense that the Indian economy has emerged stronger in the last few years. In so doing, it implicitly gives credence to the gamechanging impact of economic reforms implemented during those years, which have delivered India’s present economic strength — a strength repeatedly reaffirmed whenever FPI inflows quickly return at the slightest indication of Fed contemplating a slowing in rate hikes. If during these challenging times, India can still finance around 10 months of imports, it bespeaks the economic strength such reforms have given the country in the last few years.The survey has projected India’s real GDP to grow at around 6.5% in 2023-24, supported by macroeconomic stability. The projected growth is slightly lower than the current-year level in view of the tepid export performance expected from the anticipated slowing of global output.
Fundamentally, however, the survey attributes the projected growth to a systemic upturn of the investment cycle arising from repaired corporate balance sheets and well-capitalised banks. These essential conditions for growth took their time to mature, after being ushered in by post 2013 economic reforms. They not only embody the projected growth rate but are a close ally to future reforms that are expected to continue navigating the economy successfully through unceasing turbulence.
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