Reasoned Optimism – Primary analysis of Economic Survey 2022-23 | 1st February 2023 | UPSC Daily Editorial Analysis

What's the article about?

• It talks about the Economic Survey 2022-23.

Relevance:

• GS3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment; Government Budgeting;
• Prelims

Context:

• Recently, the Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman tabled the Economic Survey 2022-23 in Parliament.
• Primary analysis of the Survey is presented here.

What is the Economic Survey?

• As the name suggests, the Economic Survey is a detailed report of the state of the national economy in the financial year that is coming to a close.
• It is prepared by the Economic Division of the Department of Economic Affairs (DEA) under the guidance of the CEA. Once prepared, the Survey is approved by the Finance Minister
• The first Economic Survey was presented for 1950-51 and until 1964, it was presented along with the Budget.
• Similarly, for the longest time, the survey was presented in just one volume, with specific chapters dedicated to different key sectors of the economy – such as services, agriculture, and manufacturing – as well as key policy areas – such as fiscal developments, state of employment and inflation etc. This volume carries a detailed statistical abstract as well.
• However, between 2010-11 and 2020-21, the survey was presented in two volumes. The additional volume carried the intellectual imprint of the CEA and often dealt with some of the major issues and debates facing the economy.
• Last year’s survey reverted back to a single volume format, possibly because it was prepared and presented while there was a change in guard in the CEA’s office and the current CEA – V Anantha Nageswaran – took charge when the survey was released.

Primary Analysis of the Economic Survey 2022-23:

• This year’s survey is carefully optimistic in its assessment of the prospects of the Indian economy over the coming year.
• The optimism is noteworthy, especially given the global situation, which is far from ideal, with tightening financial conditions and slowing trade growth.

On the growth front:

• The Survey has projected the Indian economy to grow at 6.5 per cent in 2023-24.
• This view contradicts more gloomy estimates by international agencies and other independent assessments.
  • For example, in its latest World Economic Outlook, the International Monetary Fund has pegged India’s economic growth to slow down from 6.8 per cent in 2022 to 6.1 per cent in 2023.

• The Survey’s growth prognosis is based on expectations of robust domestic demand and a pick-up in capital expenditure.
• It notes that as export growth moderated in the ongoing financial year, domestic consumption rebounded, providing a fillip to economic activity.
• However, this was largely due to the release of “pent-up” demand.
  • Note: Pent-up demand is when an economy experiences consumer demand for goods and services that has been building up over time, typically due to a recession, lockdowns or other reasons.
  • People were unable to purchase their planned items due to pandemic-induced lockdowns. However, as soon as the lockdowns were lifted, individuals rushed into the market to purchase those items. As a result, demand temporarily increased. This phenomenon is termed as the “release of pent-up demand.”

On the investment front:

• The Survey highlights the increasing trend in project announcements and private capex spending.
  • Capital expenditure (Capex) is money that is spent to acquire, repair, update, or improve a fixed company asset, such as a building, business, or equipment.
• While there are some signs of an uptick in the private investment cycle, these indicate a skew in favour of specific sectors, not a broad-based pick-up.
• Moreover, the continuing downturn in exports will have ramifications. While the Survey does acknowledge the prospects of sluggish exports, a detailed articulation on the risks to growth from a slowdown in the developed economies — if interest rates remain “higher for longer” — is absent.

On other fronts:

• The Survey has devoted an entire chapter to India’s medium-term growth outlook.
• The broad conclusion is encouraging — the twin balance sheet crisis does not appear to be an impediment to growth anymore.
• Both corporate and banking sector balance sheets are in far better shape, and the credit cycle is poised for an uptick.

Way Forward:

• The Survey emphatically states the Indian economy is well placed to embark on a growth trajectory similar to what it experienced post 2003.
• This is reassuring. Thus, while the short-term outlook is challenging, favourable demographics, formalisation and digitisation are reasons for optimism in the long run.

Read the complete summary of ES here: Key Highlights of Economic Survey 2022-23