Consumption Back to Pre-Covid Trend
The Survey disagrees with critics like Arvind Subramanian, former chief economic adviser, who say consumption is too weak to be reconciled with 8.2% GDP growth, and has a chart showing consumption back to its pre-Covid trend.
But the way ahead has some dark clouds, says the Survey. Conditions are not remotely as favourable as in the decades when China burst through as a rising star. Fragmentation of the global economy, a reversal of globalisation, climate challenges, multiple military conflicts, and artificial intelligence (AI) are all threats. The Survey is too politically polite to highlight the greatest risk of all – the possible election of Donald Trump as US President.
It is especially apprehensive of the consequences of AI. It fears this could lead to tremendous job destruction – of not just unskilled but semi-skilled and high-skilled workers too – at a time when employment is already one of India’s top worries. It cites a study predicting the gradual demise of India’s services exports in the next decade. That is surely too alarmist.
It also declares that the rush into AI has led to a phenomenal use of electricity. This is raising carbon emissions hugely even as most countries swear by carbon reduction. Optimists believe AI will produce more solutions than problems. The Survey is not among them.
Are employment problems structural? The Survey prefers the explanation that employment was hit by the twin shocks of the bad-debt banking problem plus Covid, and now geopolitical shocks. Without doubt employment remains a major problem, but the Survey cites data suggesting a significant improvement in recent times. It argues that the uptake of MNREGS (food for work) is not correlated with distress, as many analysts have presumed.
The privatisation of public sector enterprises has not taken off. The government’s emphasis has shifted to the National Monetisation Pipeline – selling or leasing government infrastructure already built to private parties. Last year, this yielded ₹1.56 lakh crore, less than the target of ₹1.8 lakh crore, but still the highest in four years. Sale of assets were highest for new coal mines, followed by highways. For the current year, an indicative list of 33 highway assets have been listed for monetisation, and the new mining policy has paved the way for increasing sales of mines, especially of coal. This has proved more productive and less controversial than privatisation.
India’s stock markets continue to soar to record heights. The Survey says that early digitalisation enabled India to move to T+1 settlement (settlement the day after a transaction) well before the US and other countries. Indian retail participation has brought steady, rising sums through systemic investment plans, taking assets under mutual funds to record levels. This in the last year was supplemented by an inflow of $15 billion from abroad, vastly surpassing inflows into Brazil ($2.9 b) or Indonesia ($ 0.9 b). Many emerging markets suffered an outflow.
Indian stock markets today have record valuations. That is a compliment from global investors. But it also means an unexpected shock can result in a sharp fall.
Cautious Optimism
India’s economy is on a stable footing and resilient in the face of geopolitical challenges, according to the Economic Survey. Over the longer term, it cited the need for heavy lifting on the domestic front as the external environment gets tougher, calling for a grand alliance of the Centre, states and the private sector to rise above these hurdles.
