Tools out to craft a flexing economy

India has recovered from a series of shocks and is on course to grow 6.5% in 2023-24, reinforcing its status as the fastest-growing major economy, the Economic Survey reckons. This is a fallout of economic management during and after the Covid outbreak that vaccinated a labour force in time to resume work, pushed up public sector capital expenditure to generate higher income and employment, brought inflation to manageable levels in reasonable time, and restored consumption through targeted emergency welfare. A revival in private investment and bank credit growth is expected to restore momentum that will be lost on account of a slowing world economy and trade. Arresting an anticipated slowdown in post-pandemic recovery is a rare achievement when it is accomplished with an improvement in the fiscal balance and without significant deterioration of the current account deficit.

The survey sees structural transformation since 2014 building resilience that can deliver 6.5% growth in the medium term. The policy reinforcements in play are vastly improved corporate balance sheets, renewed lending appetite among banks, accelerated physical and infrastructure build-up, formalisation of the economy, technology-aided tax and governance reforms, and a push towards self-sufficiency in manufacturing. These are reinforced by global developments that seek a diversification of supply chains. The survey also presents a set of suggested reforms to push up India’s potential growth rate to 7-8%. These include greater deregulation, factor market liberalisation, overhaul of energy pricing and skill development for energy transition, and a bigger push to privatisation.

Social sector spending by the Centre and states is outpacing total government expenditure and should lead to improving outcomes as bigger chunks of it are driven by technology. A remarkable vaccination drive helped labour markets to revive aided by increased formalisation of the economy and strong growth in agriculture. School enrolment and dropout rates have reversed Covid setbacks and higher education is undergoing rapid capacity addition. Add governance reform at the grassroots to the mix and India could realise its demographic dividend.