Survey links growth to ongoing reforms

While services exports may continue to have a competitive advantage, future growth will hinge on domestic consumption and investment demand

- D K SRIVATSAVA

The Economic Survey 2023-24 profiles past economic performance, linking it to policy reforms and global conditions. It outlines India's potential to grow in the medium to long term.

Growth prospects

While India's economic performance was beset by Covid in 2020-21, it has shown the healthiest recovery among major global economies since then, witnessing an average growth of 8.3 per cent during 2021-22 to 2023-24. India may aim for a long-term growth of 7 per cent-plus. Achieving this would require sustaining a real investment rate of 35 per cent, assuming an incremental capital-to-output ratio (ICOR) of 5. With a net inflow of capital of about 2 per cent of gross domestic product (GDP), which may be considered sustainable, real domestic saving rate needs to be about 33 per cent. This appears feasible since in 2023-24, the real and nominal saving rates are estimated at 35.5 per cent and 32.7 per cent. For the Union Budget, it is the nominal GDP growth that is critical since tax revenue growth is dependent on it. Given the Survey's average real growth of 6.75 per cent (6.5 per cent to 7 per cent) for 2024-25, it is likely that the underlying nominal growth for the Union Budget for 2024-25 may be 10.5 per cent, implying an implicit price deflator (IPD)-based inflation of 3.5 per cent.

In the context of inflation management, the Survey calls for a review of the present inflation targeting regime, broadly arguing in favour of recasting the target to focus on non-food consumer price index (CPI) inflation. Since recent pressure on CPI inflation was largely driven by food inflation, this modification in inflation management might facilitate the easing of interest rates and thereby make monetary policy more growth-oriented.

Fiscal consolidation