ECONOMIC SURVEY 2023-24

Challenges Highlighted in the Survey

• Global headwinds:
  • The environment for foreign direct investment (FDI) to grow in the coming years is not highly favourable.
    • The term foreign direct investment (FDI) refers to an ownership stake in a foreign company or project made by an investor, company, or government from another country.
    • FDI is generally used to describe a business decision to acquire a substantial stake in a foreign business or to buy it outright to expand operations to a new region.
    • The term is usually not used to describe a stock investment in a foreign company alone.
    • FDI is a key element in international economic integration because it creates stable and long-lasting links between economies.
  • High interest rates in developed countries have not only raised the cost of funding, but also increased the opportunity cost to invest in developing countries like India.
  • Moreover, economies such as India have to compete with industrial policies in the developed world involving considerable subsidies that encourage domestic investment.
  • Geopolitical uncertainties also continue to play spoilsport.
• China challenge:
  • The Chief Economic Advisor (CEA) underscored how India continues to be overly dependent on China for imports, especially for renewable energy.
  • China has not let go of the low-skills manufacturing space that India wanted to occupy.
• AI threat:
  • The Survey notes that while there has been a boom in telecommunications and Internet facilitated business process outsourcing (BPO), the next wave of technological evolution might bring the curtains down on it.
    • Business process outsourcing (BPO) is a method of subcontracting various business-related operations to third-party vendors.
    • Although BPO originally applied solely to manufacturing entities, such as soft drink manufacturers that outsourced large segments of their supply chains, BPO now applies to the outsourcing of various products and services.
  • Tepid private investment:
    • The Survey emphasised that the corporate sector had not responded, despite the Union government cutting taxes in September 2019 to facilitate capital formation.
    • “Between FY20 and FY23, the profit before taxes of the Indian corporate sector nearly quadrupled. Hiring and compensation growth hardly kept up with it,”.
  • Employment imperative:
    • The Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce.
  • Data deficiency:
    • A constant refrain against the government has been the lack of good quality and timely data especially related to employment.
    • In the Survey, the CEA accepted that this was indeed a gap that was holding back a proper analysis.
    • “The lack of availability of timely data on the absolute number of (formal and informal) jobs created even at annual intervals, let alone at higher frequencies, in various sectors — agriculture, industry including manufacturing and services — precludes an objective analysis of the labour market situation in the country,”.
  • Lifestyle disadvantages:
    • The Survey notes that “social media, screen time, sedentary habits, and unhealthy food are a lethal mix that can undermine public health and productivity and diminish India’s economic potential.”

Recommended solutions

• Job creation by the private sector:
  • One of the central pillars of the past two term of the governments has been the determination to reduce the role of government in the economy and incentivise the private sector to take over the dominant position.
  • In doing so, the government had hoped that the private sector would create jobs.
• Lifestyle changes by private sector:
  • India’s traditional lifestyle, food and recipes have shown how to live healthily and in harmony with nature and the environment for centuries.
  • It makes commercial sense for Indian businesses to learn about and embrace them, for they have a global market waiting to be led rather than tapped.
• Farm sector as the saviour:
  • Traditional economic theories suggest that as economies develop they make a structural transition from agriculture to manufacturing and services.
  • But the Survey states that “trade protectionism, resource-hoarding, excess capacity and dumping, onshoring production and the advent of AI are narrowing the scope for countries to squeeze out growth from manufacturing and services” and “forcing us” to turn conventional wisdom on its head.
  • A return to roots, as it were, in terms of farming practices and policy making, can generate higher value addition from agriculture, boost farmers’ income, create opportunities for food processing and exports and make the farm sector both fashionable and productive for India’s urban youth.
• Removing regulatory bottlenecks:
  • The survey highlights the need to ease regulatory burdens on businesses, particularly Medium, Small, and Micro Enterprises (MSMEs).
  • Despite some improvements, the licensing, inspection, and compliance requirements remain onerous, hindering business growth and development.
• Building state capacity:
  • Instead of big reforms, the survey advocates for building state capacity to sustain and accelerate economic progress.
  • This involves the detailed, practical work necessary to improve governance and implementation of policies at all levels.

SOURCE: https://indianexpress.com/article/explained/explained-economics/key-takeaways-from-economic-survey-9469497/