Stable growth with prices under control: Economic Survey

In India, consumer price inflation never went above the upper end of the 6 percent band for a sustained period. The economic survey expects this to settle closer to the 4 percent rate that Indian policy makers target. Image: Saumya Khandelwal/Bloomberg via Getty Images
 
The Indian economy is in fine fettle and is expected to grow at 6.5-7 percent in the current year, according to a projection released by the Economic Survey. To maintain this, expect an uptick in capital expenditure partly financed by robust tax collections on the part of the government. 
 

“The Indian economy is on a strong wicket and stable footing demonstrating resilience in the face of geopolitical challenges,” according to the survey. It also pointed out that the economy has consolidated its post-Covid recovery and returned to the pre-pandemic growth path. Growth in FY24 came in at 8.2 percent and 7.0 and 9.7 percent in the two years preceding it. The survey pegged the inflation estimate for FY25 at 4.5 percent pointing to a nominal growth of 11 percent. 
 
The lower growth rate projection is open account of the fact that the global economic environment has become far more challenging on account of high interest rates and inflationary pressures and the survey authors believe a lot of the heavy lifting will have to be done locally. “The number of risks include—the monsoon, the nascent pick up in private capex as well as global (geopolitical risks) according to Sakshi Gupta, principal economist, HDFC Bank.
 
This means the government would have to keep a close eye on growth flagging and step in with remedial measures. The survey also noted that while corporate profits have been rising wage growth has been weak and this could harm consumer spending. Consumer spending makes up almost 60 percent of economic growth and has been the primary lever of the economy with government spending and exports being the other two. 
 
Aiding growth is the fact that inflation has been under control globally and India is closer to its inflation target than most major economies. The Western world had seen under two percent inflation in the decade post the financial crisis. With the stimulus provided during the lockdowns inflation rose to 5-7 percent in the Western world. Bringing it down to the 2 percent target has been a tall task and has resulted in the US Fed taking policy rates to 5-5.25 percent.

Also read: Budget 2024: Fiscal prudence or loosening the purse strings?

In India, consumer price inflation never went above the upper end of the 6 percent band for a sustained period. The economic survey expects this to settle closer to the 4 percent rate that Indian policy makers target. What is not known is how climate change will affect the long-term inflation rate worldwide. 
 
One area where policy makers are concerned is the excessive speculative activity taking place in stock markets. The Survey pointed out that the financialisation of economies has not ended well even for large economies. “India can ill-afford the economy’s over financialisation at the current development stage,” it said. 
 
It is fair to say that some intervention here may be coming in the Budget on Tuesday as the Economic Survey, SEBI as well as the Reserve Bank of India have spoken out against increased stock market activity. “The financial sector needs to expand at a pace that is in lockstep with economic growth, it added.