1-Feb-2023: Union Finance Minister tables the Economic Survey for the Financial Year 2022-23

Union Finance Minister tabled the Economic Survey for the Financial Year 2022-23, after the President’s address.

The Economic Survey 2022-23 highlighted that India’s economic recovery from the pandemic is complete and the economy is expected to grow in the range of 6% to 6.8% in the coming financial year 2023-24.

Economic Survey of India

• An annual document released by Ministry of Finance
  • Presented in Parliament a day before the Union Budget
  • Prepared by Economics Division of the Department of Economic Affairs under the guidance of Chief Economic Advisor
• Reviews developments in Indian economy over the previous 12 months
• Presents economic outlook for the current fiscal year
• Presents current state of Indian economy
  • Includes data on GDP, inflation, employment, and trade
• First presented in 1950-51
• Up to 1964, presented along with the Union Budget.
• From 1964 onwards, delinked from the Budget.

State of Indian Economy in 2022-23

Performance:

• Hosted the world's second-largest vaccination drive
• Public sector banks' financial health improved, leading to rapid credit growth for MSMEs

Current Challenges:

• Depreciating rupee
• Possibility of further US Fed interest rate hikes
• CAD may continue to widen due to elevated global commodity prices

Outlook 2023-24:

• Private consumption and capital formation leading economic growth and employment generation
• MSME recovery progressing with ECGS easing debt concerns
• India's growth expected to be swift in FY24
• Public digital platforms and measures supporting economic growth and boosting manufacturing output
• Global growth projected to decline in 2023

India's Medium-term Growth Outlook:

Context:

• Similar to 1998-2002, transformative reforms delayed growth returns due to temporary shocks.
• Structural reforms later paid growth dividends.

2014-2022 Period:

• Important period in India's economic history with reforms aimed at improving ease of living and doing business.
• Reforms based on creating public goods, trust-based governance, co-partnering with private sector, and increasing agricultural productivity.
• Balance sheet stress and global shocks negatively impacted key macroeconomic variables during this period.

2023-2030 Outlook:

• Growth outlook better than pre-pandemic years.
• Indian economy prepared to grow at its potential in the medium term.

Major Fiscal Developments Related to Revenue:

• Resilience in Union Government's finances in FY2023
• Increase in direct taxes and GST revenues

Revenue Growth and Performance:

• YoY growth of 15.5% in Gross Tax Revenue from April to November 2022
• Strong growth of direct taxes and GST
• YoY growth of 24.8% in GST from April to December 2022
• GST established as vital source of revenue for central and state governments

Increased Capex:

• Centre's Capex steadily increased from 1.7% of GDP (FY09 to FY20) to 2.5% of GDP in FY22
• Centre incentivized state governments through interest-free loans and increased borrowing limits
• Increased Capex has positive effects on medium-term growth, especially in infrastructure-intensive sectors like roads and highways, railways, housing, and urban affairs

Sustainable Debt-to-GDP ratio:

• Government's strategy of focusing on Capex-led growth will keep growth-interest rate differential positive
• Result in a sustainable debt-to-GDP ratio in the medium run

Status of Monetary Management and Financial Intermediation:

• RBI started monetary tightening cycle in April 2022
• Repo rate raised by 225 basis points
• Surplus liquidity decreased
• Balance sheets of financial institutions improved
• Easier for RBI to lend money
• Growth in credit offtake expected to continue and to be sustained by increase in private capital expenditure. It will start a virtuous cycle of investment.

Performance and Growth:

• Gross Non-Performing Assets (GNPA) ratio of SCBs dropped to 5.0 (7-year low)
• Capital-to-Risk Weighted Assets Ratio (CRAR) remains healthy at 16.0
• Recovery rate through Insolvency and Bankruptcy (IBC) channel was highest in FY22 compared to other channels
• Positive trend for SCBs

Regulating Prices and Inflation in 2022-23

Three phases of inflation in India:

• Jan-Apr: peak at 7.8% due to the war between Russia and Ukraine and crop shortages caused by heat waves in some parts of the country
• Dec: decline to 5.7% due to the prompt actions by the government and the Reserve Bank of India.

Bottlenecks:

• Gap between wholesale price index and consumer price index remained wide
• Core inflation still showing resistance to change

Regulatory measures:

• Reduced export duty on petrol and diesel
• Zero import duty on major inputs
• Export ban on wheat products and export duty on rice
• Reduced basic duty on crude and refined palm oil

Government policy intervention in housing sector:

• Low home loan interest rates boosted demand in affordable housing segment

RBI's forecast:

• Higher domestic prices for cereals, spices, and milk due to supply shortages and rising feed costs

Changing climate increasing risks of higher food prices.

Status of Social Infrastructure and Employment in India during 2022-23

Social Infrastructure

• Education
  • National Education Policy 2020
  • Improvements in enrollment ratios and gender parity in schools
• Healthcare
  • Budgeted spending on the health sector increased to 2.1% of GDP
  • 22 crore people benefited from Ayushman Bharat Scheme
  • Over 1.54 lakh health and wellness centres established
• Poverty Alleviation
  • More than 41 crore people exited poverty between 2005-06 and 2019-21
  • Aadhaar and Co-WIN played a critical role in administering over 2 billion vaccine doses
• Aspirational Districts Programme
  • Model of good governance, especially in remote areas

Employment

• Labour Force Participation
  • Unemployment rates fell from 5.8% in 2018-19 to 4.2% in 2020-21
  • Rural Female Labor Force Participation Rate rose from 19.7% to 27.7%
• eShram Portal
  • Created a national database of unorganised workers
  • Over 28.5 crore workers were registered as of December 31, 2022
• JAM Trinity and DBT
  • Brought marginalised people into the formal financial system and empowered them.

India’s Economic Performance in Climate Change and Environment:

• NDCs include:
  • Transition to renewable energy resources.
  • Commitment to achieve "Net Zero" emissions by 2070.
  • Steps taken to become energy independent.
• Emissions intensity of GDP reduction target of 45% by 2030 from 2005 levels.
• Target to achieve 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.
• India has already achieved 40% installed electric capacity from non-fossil fuels ahead of 2030.
• Likely installed capacity from non-fossil fuels will be more than 500 GW by 2030.
• Mass movement LiFE– Lifestyle for Environment launched at the Glasgow climate summit at UNFCCC COP26.
• India’s first Sovereign Green Bonds (SGrBs) Framework issued in Nov 2022.
• RBI auctioned two tranches of ₹4,000 crore SGrBs.
• Plans to be energy independent by 2047, relying on green hydrogen through the National Green Hydrogen Mission.
• Investments in renewables standing at USD 78.1 billion in the past 7 years.
• Solar power capacity installed under the National Solar Mission at 61.6 GW as of October 2022.

India's Economic Performance in Agriculture and Food Management:

• Robust average annual growth rate of 4.6% over the last six years
• Contribution towards overall growth, development, and food security
• Net exporter of agricultural products with exports touching a record USD 50.2 billion in 2021-22
• Measures taken by the govt:
  • Augmentation of crop and livestock productivity
  • MSP for all mandated crops fixed at 1.5 times of all India weighted average cost of production
  • Promotion of crop diversification
  • Mechanisation and boost to horticulture and organic farming
  • Private investment in agriculture increased to 9.3% in 2020-21
  • Institutional credit to the Agri sector continued to grow to Rs. 18.6 lakh crore in 2021-22
• Foodgrains production saw sustained increase and stood at 315.7 million tonnes in 2021-22
• First Advance Estimates for 2022-23 (Kharif only) estimate total foodgrains production at 149.9 million tonnes, higher than the average Kharif foodgrains production of the previous five years
• GoI decided to provide free foodgrains to beneficiaries under the NFSA 2013 for one year from 1 January 2023
• National Agriculture Market (e-NAM) Scheme established an online, competitive, transparent bidding system to ensure farmers get remunerative prices for their produce (covering 1.74 crore farmers and 2.39 lakh traders)
• Paramparagat Krishi Vikas Yojana (PKVY) promotes organic farming through Farmer Producer Organisations (FPO)
• India stands at the forefront to promote millets after the UNGA declared 2023 the International Year of Millets (IYM) in its 75th session in 2021.

India's Economic Performance in the Industrial Sector:

• Overall Gross Value Added (GVA) of Industrial Sector grew by 3.7% in first half of FY 22-23
• Higher than the average growth of 2.8% achieved in the first half of the last decade

Factors contributing to Industrial Growth:

• Robust growth in Private Final Consumption Expenditure
• Export stimulus during the first half of the year
• Increase in investment demand triggered by enhanced public capex
• Strengthened bank and corporate balance sheets

Supply response of Industry: Robust response to demand stimulus

Key Performance Indicators: Purchasing Managers Index (PMI) and Index of Industrial Production (IIP) in upward growth trajectory since July 2021

Credit growth: Both MSMEs and large industries have shown double digit growth (MSMEs by 30% since Jan 2022)

Electronics Exports:

• India’s electronics exports have risen nearly threefold, from US $4.4 billion in FY19 to US $11.6 Billion in FY22
• India is the second-largest mobile phone manufacturer globally

Foreign Direct Investment: FDI flows into the Pharma Industry have risen four times, from US $180 million in FY19 to US $699 million in FY22

Production Linked Incentive (PLI) schemes: Introduced across 14 categories, with an estimated capex of Rs. 4 lakh crore over the next five years, to plug India into global supply chains

Compliance and Decriminalisation: Over 39,000 compliances have been reduced and more than 3500 provisions decriminalised as of January 2023 by amending the Companies Act 2013

Make in India 2.0: Focusing on 27 sectors, which include 15 manufacturing sectors and 12 service sectors to enhance India’s integration in the global value chain.

India’s Economic Performance in the Services Sector

• Expected growth of 9.1% in FY23, compared to 8.4% (YoY) in FY22
• Robust expansion in PMI (Purchasing Managers' Index) services since July 2022
• Among top ten services exporting countries in 2021 with a share of 4% in world commercial services exports
• Resilient services sector even throughout Covid-19 pandemic and geopolitical uncertainties
• Higher demand for digital support, cloud services, and infrastructure modernization
• Sustained growth in real-estate sector, leading to pre-pandemic housing sales levels
• 50% rise in real-estate sector between 2021 and 2022
• Improved hotel occupancy rate from 30-32% in April 2021 to 68-70% in November 2022 in tourism sector
• Signs of revival with increasing foreign tourist arrivals in FY23 in tourism sector
• Digital platforms transforming India’s financial services
• India’s e-commerce market projected to grow at 18% annually through 2025

India’s Economic Performance in the External Sector:

• Current Account Balance (CAB) recorded a deficit of US$ 36.4 billion (4.4% of GDP) in Q2 of FY23
• Higher merchandise trade deficit of US$ 83.5 billion and an increase in net investment income outgo
• India diversified its markets and increased exports to Brazil, South Africa and Saudi Arabia
• India signed CEPA with UAE and ECTA with Australia in 2022 to increase market size and penetration
• India is the largest recipient of remittances in the world, receiving US$ 100 bn in 2022
• Remittances are the second largest source of external financing after service export
• India’s Forex Reserves stood at US$ 563 bn covering 9.3 months of imports as of December 2022
• India was the 6th largest foreign exchange reserves holder in the world.

India's Economic Performance in the Digital Public Infrastructure

DPI's Potential GDP Growth

• DPI can add 60-100 basis points to India's potential GDP growth rate

Platforms for E-commerce and Credit Access

• ONDC and OCEN will open avenues for e-commerce market access and credit availability for smaller businesses
• Strengthen the expected economic growth

Unified Payment Interface (UPI)

• UPI-based transactions grew in value (121%) and volume (115%) between 2019-22
• Paving the way for international adoption

Telephone and Radio - Digital Empowerment

• Total telephone subscriber base stands at 117.8 crore (as of Sept,22)
• 44.3% of subscribers in rural India
• More than 98% of the total telephone subscribers are connected wirelessly
• Overall teledensity in India stood at 84.8% (as of March,22)
• 5G services launched with Indian Telegraph Right of Way (Amendment) Rules, 2022
• Facilitate faster and easier deployment of telegraph infrastructure to enable speedy 5G rollout
• Prasar Bharati broadcasts in 23 languages, 179 dialects, reaches 92% of India's total area and 99.1% of the total population

Digital Public Goods

• MyScheme, TrEDS, GEM, e-NAM, UMANG schemes transformed India's market place and enabled citizens to access services across sectors
• Open Credit Enablement Network aims to democratize lending operations while allowing end-to-end digital loan applications
• National AI portal published 1520 articles, 262 videos, and 120 government initiatives
• Bhashini is viewed as a tool for overcoming the language barrier
• Digital public infrastructure products like e-RUPI, e-Way Bill ensure real value for money to consumers and reduce the compliance burden for producers.