LIVE | What Economic Survey says on GDP, inflation, and more

The Economic Survey 2023-24 has cautioned against including sensitive food commodities like common rice, wheat, and most pulses in futures trading until markets are more developed, even as the government expands the list of commodities eligible for derivatives trading.

The pre-budget economic survey, tabled in Parliament, stated: “Sensitive commodities may be kept outside the ambit of the futures market until the markets are developed and the regulator has a higher degree of comfort in diversifying the portfolio.” It suggested that agriculture futures markets should focus on “less-sensitive commodities” such as oilseeds, cotton, basmati rice and spices.

As part of recent policy initiatives to broaden the commodity derivatives market, the government expanded the list of commodities eligible for derivatives trading from 91 to 104 commodities on March 1, 2024. The new additions include apples, cashews, garlic, skimmed milk powder, white butter, weather and processed timber products.

The survey emphasised the need for "stable policies with minimal interventions" once regulators provide clear direction on commodity choices.

It also highlighted the potential role of Farmer Producer Organisations (FPOs) in linking small and dispersed farmers with commodity markets. The survey called for government, Sebi and commodity exchanges to promote FPOs across various agri-commodity segments.

“Skilling and hand-holding the FPOs through financial literacy initiatives can go a long way in encouraging the farmers to benefit from the Agri-derivative markets,” the survey noted.

In the long run, as market depth and liquidity increase, the survey suggested that banning futures trading may no longer be necessary to stabilise prices unless there is data-backed evidence of futures trading driving up price volatility.

The survey recommended that regulators closely monitor futures markets and conduct regular reviews, considering fluctuations in domestic production, consumption and global trade.

Extreme weather, lower reservoir levels and crop damage have affected farm output and led to higher food prices over the past two years, the government's Economic Survey 2023-24 said on Monday.

Unfavourable weather conditions particularly impacted the production prospects of vegetables and pulses, it said.

“In FY23 and FY24, the agriculture sector was affected by extreme weather events, lower reservoir levels, and damaged crops that adversely affected farm output and food prices. So, food inflation based on the Consumer Food Price Index (CFPI) increased from 3.8 per cent in FY22 to 6.6 per cent in FY23 and further to 7.5 per cent in FY24,” read the consolidated report on the state of the economy in the previous year.

Food inflation has been a global phenomenon in the last two years. Research, the government said, indicates the rising vulnerability of food prices to climate change — heat waves, uneven monsoon distribution, unseasonal rainfall, hailstorms, torrential rainfall, and historic dry conditions.

According to the Economic Survey, tomato prices surged in July 2023 due to seasonal changes, region-specific crop diseases such as white fly infestation, the early arrival of monsoonal rain in the northern part of the country, and logistics disruptions in isolated areas due to heavy rainfall.

The spike in onion prices was attributed to several factors, including rainfall during the last harvesting season affecting the quality of rabi onions, delays in sowing during the kharif season, prolonged dry spells impacting kharif production, and trade-related measures taken by other countries.

“The prices of pulses, particularly of tur, increased due to low production over the past two years, caused by adverse weather conditions. Urad production was affected by slow sowing progress in the rabi season coupled with climatic disturbances in the southern states,” the government said.

The area and output of gram was also lower compared to the previous rabi season, it said.

The government also said the Indian economy has consolidated its post-Covid recovery and is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges.

For the recovery to be sustained, it stressed, there has to be heavy lifting on the domestic front because the environment has become extraordinarily difficult for reaching agreements on key global issues such as trade, investment and climate.

The fiscal balances of the central and state governments taken together have improved progressively despite expansionary public investments, according to the Economic Survey 2023-24.

Tax compliance gains driven by procedural reforms, expenditure restraint, and increasing digitisation helped India achieve this fine balance, according to the Economic Survey 2023-24.

The external balance has been pressured by subdued global demand for goods, but strong services exports largely counterbalanced this, it added.

Noting that global output is now somewhat more resilient than in 2022, the pre-Budget document said inflationary pressures are shrinking, and trade is set to recover, should there be no further geo-political shocks or flare-ups.

However, the survey noted that chances of geopolitical disturbances and conflicts have only gone up in recent times.

The survey said India's calibrated response to the pandemic on the economic front included three salient components.

“The first has been the focus on public spending on infrastructure, which kept the economy afloat by creating a strong demand for jobs and industrial output and triggered a lagged yet vigorous private investment response.

“Stronger balance sheets of the financial and non-financial private sector helped, aided by a decade of supporting initiatives by the government and the Reserve Bank of India,” it said.

The net impact of these developments has been that the Indian economy recovered and expanded in an orderly fashion in the last three years, the survey added.

The survey said the real GDP in FY24 was 20 per cent higher than its FY20 level, a feat that only a very few major economies achieved, while also leaving a strong possibility for robust growth in FY25 and beyond.

“Growth has been inclusive with a reduction in unemployment and multi-dimensional poverty and an increase in labour force participation,” it said, adding that overall, the Indian economy looks forward to FY25 optimistically, anticipating broad-based and inclusive growth.

For India, the survey said FY23 began with multiple challenges as spillovers from the conflict in Europe were stoking domestic price pressures and widening the current account deficit (CAD) through increased oil prices.

Central banks in several countries began raising policy rates to battle inflationary pressures, it said.

However, the survey said, throughout FY23 and FY24, the focus on macroeconomic stability was vital in securing economic growth amidst domestic and external vulnerabilities.

Indian exporters are adding more geographies to promote their outbound shipments and tide over the problems emerging due to global uncertainties caused by geopolitical tensions, the Economic Survey 2023-24 said.

Amidst the prevailing geopolitical dynamics, India is expected to benefit from its strong trade relations across countries, it said.

India has broad and diversified trade relationships with Asia, Europe, and the US.

It also said that the country's external sector remained strong amidst ongoing geopolitical headwinds accompanied by sticky inflation.

“India is adding more export destinations, signalling regional diversification of exports,” the survey said.

Citing a government data, it said the share of the top 10 countries in India’s merchandise exports has registered a declining trend, falling from a high of 61.9 per cent in FY2000 to 50.5 per cent in FY24.

Post-FY2000, Asian, African and Middle East nations, such as the UAE, Singapore, Hong Kong, and China, have emerged as export destinations, replacing traditional export partners like the UK, Germany, and Belgium.

The combined share of the developing regions viz. Asia and Africa in India’s total exports rose from around 42.9 per cent in 1999-2000 to 52 per cent in 2023-24.

In the last fiscal, the UAE, Singapore, China, Russia, and Australia were India’s major export partners.

Cumulatively, merchandise exports in April-June this fiscal climbed 5.84 per cent to USD 109.96 billion, and imports grew 7.6 per cent to USD 172.23 billion.

The trade deficit during April-June 2024 widened to USD 62.26 billion compared to USD 56.16 billion in the same period last year.

India's share in the global merchandise exports stood at 1.8 per cent in 2022 as against 1.6 per cent in 2020.

Similarly, its share in global services exports too rose to 4.3 per cent in 2022-23 from an average of 3.3 per cent during FY16-FY20.

The commerce ministry is targeting USD 800 billion worth of goods and services exports this fiscal. It was USD 778 billion in 2023-24.

“India’s services export in US dollars terms expanded at a robust CAGR of more than 14 per cent over the last 30 years (between 1993 and 2022), significantly higher than India’s merchandise export growth (10.7 per cent) and world services export growth (6.8 per cent),” the survey said.

The country is now the seventh-largest services exporting country globally, with a phenomenal rise from its 24th position in 2001.

India ranks 2nd in the world in telecommunication, computer, and information services exports, 6th in personal, cultural and recreational services exports, 10th in transport services shipments, and 14th in travel.

"India’s deep integration into the value chains of the global software industry has led to a change in the composition of its services exports basket," it added.

Further, India's greater integration in the global value chains is also helping push exports.

“The evidence of India’s enhanced global supply chain participation is reflected in increased investment by foreign firms in electronics, apparel and toys, automobiles and components, capital goods and semiconductor manufacturing in India,” it said.

The survey added that after a gap of nearly 10 years, four new FTAs (free trade agreements) have been signed over the period 2021 to 2024.

“Having signed FTAs with most East Asian partners, these new trade engagements focus on gaining access to the Western and African markets, as well as potential partners having trade complementarity,” it said.

India’s young demography and growing middle-class population provide an attractive market for its Western FTA partners.

“One of the major criteria for engaging with an FTA partner is to ensure that the trading partner is a natural partner in terms of trade complementarity,” it said.

Mobilization of finance as well as investment on competitive terms and resolution of land acquisition issues are necessary for realising Rs 30.5 lakh crore investment required for meeting the target of having 500GW renewable energy in India by 2030, according to the Economic Survey.

The Economic Survey 2023-24 says the Renewable Energy (RE) sector is expected to attract investments of about Rs 30.5 lakh crore in India between 2024 and 2030.

According to the Survey, this would create significant economic opportunities across the value chain.

The clean energy sector in India saw new investments of Rs 8.5 lakh crore (USD 102.4 billion) between 2014 and 2023, it said, adding that the RE sector received about USD 17.88 billion as FDI from April 2000 until March 2024.

On mobilization of necessary finance and investments on competitive terms for the RE sector, the Survey pointed towards gearing up the banking sector for arranging finances for larger deployment goals, exploring low-interest rate, long-term international funding, and developing a suitable mechanism for risk mitigation or sharing by addressing both technical and financial bottlenecks.

On land acquisition, the Survey pointed towards identification of land with RE potential, its conversion (if needed), clearance from land ceiling Act, decision on land lease rent, clearance from revenue department, and other such clearances.

State governments must play a major role in acquisition of land for RE projects, it suggested.

The suggestions assume significance in view of India's ambitious target of having 500GW of renewable energy by 2030.

India has put in place a target of achieving 50 per cent cumulative installed capacity for generating electric power from non-fossil fuel-based energy resources by 2030.

As per the National Electricity Plan of the Central Electricity Authority, non-fossil fuel (hydro, nuclear, solar, wind, biomass, small hydro, pump storage pumps) based capacity which is around 203.4 GW (46 per cent of the total) out of 441.9 GW of total installed capacity in 2023-24 is likely to increase to 349 GW (57.3 per cent) in 2026-27, and 500.6 GW (64.4 per cent) in 2029-30, it stated.

The survey also stated that India's green transition is more likely to significantly impact job opportunities in the renewable energy sector.

“... By 2030, clean energy initiatives can potentially create about 3.4 million jobs (short and long-term) by installing 238 GW of solar and 101 GW of new wind capacity to achieve the 500 GW non-fossil electricity generation capacity,” it stated.

These jobs represent those created in the wind and on-grid solar energy sectors, it said, adding that about one million can be employed to take up these green jobs.

India is a GCC favourite in a hugely competitive global market, the Economic Survey said on Monday asserting that the government has a crucial role in facilitating entry of global players keen on setting up Global Capability Centre operations here.

Lauding India's success story on the GCC front, the Survey said government support for identifying new business models for partnerships, simplifying the entry process, and emphasising trust and data security, among others, will further encourage the location of GCCs in India.

More than 150 multinationals have set up their GCCs in India over the last couple of years, it said tracing the journey from the "humble beginning of offshoring by Texas Instruments" all the way to India now emerging as a global favourite for GCC growth.

Put simply, Global Capability Centres or GCCs are offshore units set up by multinational companies to carry out a range of strategic functions for the parent. These units which previously engaged in simple back office functions have now evolved into handling some of the most complex functions across an organisation’s value chain.

“As more global players eye India to set up their GCC operations, the government has a crucial role in facilitating their entry,” the Survey highlighted.

Citing GCCs’ contribution to their parent organisations’ success and in propelling economic growth in India, the survey said they account for more than 1 per cent of the country’s GDP, a share that will only grow further.

“Starting with the humble beginning of offshoring by Texas Instruments by setting up its office in Bengaluru in 1985, India has come a long way to being at the epicentre of GCC growth,” it said.

In 2012, about 760 GCCs were operating out of India, that number swelled to over 1,000 in 2016 and 1,600 GCCs as of March 2023.

GCCs provide bespoke services in operation, product development and innovation. They operate across all IT, BPO, engineering, and software product development service lines, delivering complex work that requires a significant understanding of business context and imperatives.

“They have made a mark in key industry verticals such as banking and financial services, software, telecom and semiconductors, with a growing concentration in aerospace, automotive, oil and gas, healthcare and pharma,” the Survey stated.

The Survey also acknowledged government support in GCCs proliferation, mentioning, in particular, strategic interventions like Digital India that have streamlined online approvals and licensing processes.

“Initiatives like streamlined tax regulations and compliance procedures for foreign companies for setting up GCCs, flexible labour laws, and single window clearance systems for faster approvals have eased the business process,” the Survey said.

It further noted that improved digital infrastructure — high-speed internet, data centres — has been a boon for GCC operations, and also highlighted proactive approach of States like Karnataka, Telangana and Tamil Nadu in expanding GCC landscape.

The Survey also observed that GCCs are increasingly evaluating tier-II towns to expand their operations, influenced by the reverse migration seen during the pandemic and the cost arbitrage offered by such relatively under-penetrated markets.

The recent thrust on infrastructure development in these cities has also added to their appeal, it stated.

While US and Europe-based MNCs have been establishing their capability centres for a long time, international players from the Asia Pacific region, especially Japan and South Korea, have begun setting up their R&D/innovation centres in India over the past few years.

“Although other countries with GCC presence have emerged recently, India remains a GCC favourite in a highly competitive global environment due to its ample talent endowment and cost advantage,” it said.

The Economic Survey has projected a positive outlook for the real estate sector with housing demand set to rise on rapid urbanisation, but described legacy stalled projects as a “challenge”.

“Real estate and ownership of dwellings have accounted for over seven per cent of the overall GVA (gross value added) in the past decade, highlighting their integral role in the economy,” the survey said, which was tabled in the Parliament by Union Finance Minister Nirmala Sitharaman.

“The outlook for the real estate sector is encouraging. With increasing urbanisation, the housing industry is poised for a significant transformation,” the survey document said.

Stating that half of India's population is projected to dwell in urban regions by 2050 compared to 31 per cent in 2011, the survey stressed the need to adapt strategies and policies to meet the rising demand for housing and offer viable, cost-effective and sustainable solutions.

The survey also pointed out that “the legacy stalled real estate projects is a challenge”. Approximately 4.1 lakh stressed dwelling units, involving Rs 4.1 lakh crore, are affected as estimated by the Indian Banks' Association (IBA).

The Ministry of Housing and Urban Affairs established a committee to recommend solutions for completing stalled projects to address this issue. The committee identified the primary cause of stress as lack of financial viability, resulting in cost overruns and delays, and has suggested various recommendations.

The document mentioned that the real estate sector has witnessed a “robust recovery” after two challenging years of pandemic-induced lockdowns and economic instability.

The survey noted that the COVID pandemic has shifted homebuyers' preferences toward larger, sustainable spaces with additional amenities, driven by remote and hybrid working trends.

“Factors contributing to the sector’s growth include rapid urbanisation, rising income levels, the emergence of nuclear families, new entrants in the market, and improved financial options for developers and homebuyers,” it said, adding that the strong desire for home ownership was reinforced during the pandemic.

Quoting housing brokerage firm PropTiger data, the survey highlighted that residential real estate sales in the 2023 calendar year were at their highest since 2013, witnessing a 33 per cent annual growth, with a total sale of 4.1 lakh units in the top eight cities. The new supply witnessed an all-time high, with 5.2 lakh units launched in 2023 against 4.3 lakh units a year ago.

The momentum continued in January-March of 2024, witnessing record-breaking sales of 1.2 lakh units, clocking a robust 41 per cent Year-on-Year (YoY) growth.

Further, the rising demand for housing loans reflects the underlying demand for real estate. Housing loans as a percentage of GDP increased from FY12 to FY24.

Traditionally, banks have been the most significant players in the housing finance sector.

However, Housing Finance Companies (HFCs) have significantly contributed to this landscape over the years. They played a complementary role with banks in providing housing credit to the bottom of the pyramid. The share of outstanding housing loans as a percentage of total loans of HFCs stood at 70.8 per cent as of March 31, 2024.

The Survey listed various factors that have led to the growth in the housing sector, including the Pradhan Mantri Awas Yojana-Urban (PMAY-U), launched in 2015, has sanctioned over 1.2 crore houses for urban beneficiaries, ensuring durable housing.

Policy reforms like the Goods and Services Tax, Real Estate (Regulation and Development) Act, and the Insolvency and Bankruptcy Code have boosted transparency and investor confidence in real estate.

Initiatives like the Affordable Housing Fund and Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund have supported affordable housing projects. PMAY(U)-Credit Linked Subsidy Scheme interest subvention has been a primary demand-side driver. The National Housing Bank (NHB) has released Rs 49,460.1 crore in subsidies benefiting over 21.1 lakh households by March 2024.

The Survey believes that the digitisation of land records is poised to improve transparency in land transactions, diminish property ownership conflicts, and enhance the efficiency of land management.

Implementing a single-window clearance system for construction approvals will also accelerate construction processes, minimising delays and uncertainties, it said.

“Going forward, the demand for housing is expected to be driven by affordability and increased access to credit,” it added.

As of March 2024, the shares of Southern, Western and Northern states in the individual housing loans outstanding are 35.4 per cent, 31.2 per cent and 26.2 per cent, respectively.

“The Eastern States at 6.9 per cent and the eight North-eastern and Hilly states combining to 0.95 per cent share present an opportunity for undertaking initiatives for improving penetration,” the survey said.

Stating that sustainability and technology have emerged as significant disrupters for the real estate sector, the document said that sustainability would influence green construction practices and energy-efficient designs while technology will revolutionise smart homes and data-driven insights.

With more significant environmental concerns, the focus will be on energy-efficient systems, rainwater harvesting and smart building technologies, it said.

The initiatives of the government for cleaner fuel such as coal gasification mission and exploring coal to hydrogen need to be promoted to reduce emission and increase environmental sustainability, the Economic Survey on Monday said.

While phasing in renewables to the extent possible is crucial, in the short to medium term, the focus should also be on actively adopting clean coal technologies.

With the arrival of ultra super-critical technologies for coal-fired power plants, it would be possible to bring down emissions and achieve higher efficiency, the Economic Survey 2023-24 tabled in Parliament said.

“In exploring the landscape for ensuring energy security, it has become evident that risks are not merely obstacles but also harbingers of opportunities. While uncertainties loom, they present avenues for innovation, adaptation, and growth for India. While phasing in renewables to the extent possible is imperative, in the short to medium term, the focus should also be on actively adopting clean coal technologies,” it said.

The government has launched National Coal Gasification Mission to achieve coal gasification and liquefaction of 100 million tonne of coal by 2030. In line with the mission document, Coal India Ltd has signed pacts with BHEL, GAIL and IOCL to take up coal gasification projects in the country.

To promote coal gasification, the coal ministry has formulated a policy wherein, a provision has been made for 50 per cent rebate in revenue share for all future commercial mines auctions for the coal used in gasification purpose provided the quantity of dry fuel used for gasification is at least 10 per cent of total coal production.

Further, separate auction window under Non-Regulated Sector (NRS) has been created for making coal available for new coal gasification plants.

Green steel will play an important role in reshaping the future of the industry as the world moves towards a low-carbon economy, the Economic Survey for 2023-24 has said.

The concept of green steel promotes the production of steel using green energy sources and minimizing the usage of fossil fuels.

“As the world moves towards a low-carbon economy, green steel is poised to play a pivotal role in reshaping the future of the steel industry,” said the Survey.

India’s steel sector accounts for 12 per cent of India's greenhouse gas emissions with an emission intensity of 2.5 tonnes of CO2 per tonne of crude steel compared to the global average of 1.9 tonnes of CO2 per tonne of crude steel, it said.

The Survey also said that India remained a net importer of steel during the first, second and third quarters of FY24 because of price differentials between international and domestic prices of finished steel.

Low prices in the international markets led to reduced profit margins for exports and made imports more affordable, affecting the trade balance in the steel sector, it said.

The import dependence on coking coal, an essential raw material for steel production also went up from 56.1 MT in FY23 to 58.1 MT in FY24, the Survey said.

The Survey also highlighted that many technologies required for global net zero are commercially unavailable, such as hydrogen-fuelled steel/cement, steel and aluminium production with (Carbon Capture, Utilization, and Storage) CCUS, etc.

“There is a need to enhance international cooperation in R&D, especially in the domains of distributed RE, offshore wind, geothermal, tidal energy, biofuels, compressed biogas, green hydrogen, energy storage, electrolysers, and nuclear power (including small modular reactors SMR),” it said.

A higher level of private sector financing and resource mobilisation from new sources will be crucial for India to build quality infrastructure, according to the Economic Survey 2023-24.

According to the survey, facilitating this would not only require policy and institutional support from the central government, but state and local governments will have to play an equally important role.

The survey noted that there is a need to improve data capture and reporting mechanisms for investments in infrastructure across instruments and sectors as well as its composition across different projects at a granular level.

Existing databases fall short on assessing the demand for infrastructure and tracking the utilisation of facilities built in the sub-sectors, the pre-Budget document said.

It pointed out that international experience shows us how initiatives at the sub-national level can facilitate resource mobilisation for infrastructure development.

“Given the fiscal compulsions and consolidation plans of the Union and the state governments, it is important that viable projects on the public-private participation mode emerge and get executed,” the survey said.

According to the survey, infrastructure-creation efforts in India are predominantly public sector-led.

As per the Infrastructure Monitor 2023 published by Global Infrastructure Hub and the World Bank, India's investment in infrastructure was largely funded by the public sector -- which includes the government agencies and state-owned entities and banks.

Between FY19 and FY23, the central and state governments contributed to 49 per cent and 29 per cent of the total investments, respectively, while the private sector contributed 22 per cent.

As per the survey, railways and National Highway Authority of India, in the total capital expenditure of the Union government, increased from 36.4 per cent in FY21 to 42.9 per cent in FY24 (RE).

These two components of capital expenditure increased 2.6 times from FY21 to FY24 (RE) in their absolute values.

The gross inflow of external commercial borrowings to infrastructure sectors also picked up at USD 9.05 billion in FY24, as against an average of USD 5.91 billion during FY20 to FY23.

The capital investment by the government and private sector in road sector rose from 0.4 per cent in FY15 to about 1.0 per cent of GDP (around Rs 3.01 lakh crore) in FY24.

The sector has attracted its highest-ever private investment in FY24 as the private sector capitalises on a conducive policy environment.

Over the last 10 years, there has been significant progress in the development of national highways, increasing 1.6 times from 2014 to 2024.

The average daily pace of NH construction increased 3 times from 11.7 km in FY14 to 34 km by FY24.

The survey noted that India's Maritime Vision 2030 outlines over 150 initiatives to improve ports, shipping, and inland waterways and envisions investments of Rs 3-3.5 lakh crore.

The Maritime Amrit Kaal Vision 2047 outlines over 300 initiatives across 11 key areas to drive growth and development in India's coastal regions.

“Its vision aims to reduce the average vessel turnaround time (containers) from 25 hours in 2020 to less than 20 hours in 2030,” the survey said.

Noting that Indian ports are rapidly expanding capacity to meet growing trade, it said major port capacity has nearly doubled since 2014.