Economic Survey 2024: India’s tightrope walk on growth, inflation, and AI

The Survey reveals a resilient economy poised for growth, with capital markets shining and opportunities arising from “China plus one” strategy.

Union Finance Minister Nirmala Sitharaman speaks in the Lok Sabha during the first day of the Parliament session, in New Delhi on July 22. | Photo Credit: ANI

The Indian economy is on a strong wicket, despite geopolitical challenges, says the Economic Survey 2023-24 tabled in the Parliament by Union Finance Minister Nirmala Sitharaman on July 22. The Survey, authored by Chief Economic Adviser V. Anantha Nageswaran and his team, is an annual document presented by the government ahead of the Union Budget to review the state of the economy.

A higher level of private sector financing and resource mobilisation from new sources will be crucial for India to build quality infrastructure, says the survey. Facilitating this would not only require policy and institutional support from the Central government: State and local governments would have to play an equally important role.

India faces two choices to benefit from the “China plus one” strategy: either to integrate into China’s supply chain or promote FDI from China. “Among these choices, focusing on FDI from China seems more promising for boosting India’s exports to the US, similar to how East Asian economies did in the past,” says the survey.

China is India’s top import partner, and the trade deficit with China has been growing. As the US and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, it added. At present, FDI from China in any sector needs government approval.

Rise of India’s capital markets

Among the other highlights of the survey are that the production-linked incentive (PLI) scheme for automobile and auto components has so far attracted a proposed investment of Rs.67,690 crore.

A higher level of private sector financing and resource mobilisation from new sources will be crucial for India to build quality infrastructure, and facilitating this would not only require policy and institutional support from the Central government, but State and local governments too.

Capital markets are becoming more prominent in India’s growth story, with an expanding share in capital formation and investment landscape on the back of technology, innovation, and digitisation. Indian markets, according to the survey, are resilient to global geopolitical and economic shocks.

Despite heightened geopolitical risks, rising interest rates, and volatile commodity prices, Indian capital markets have been one of the best-performing among emerging markets in FY24. The BSE benchmark Sensex has surged around 25 per cent in FY24.

“The exemplary performance of the Indian stock market compared to the world and emerging markets over the years can be primarily attributed to India’s resilience to global geo-political and economic shocks, its solid and stable domestic macroeconomic outlook, and the strength of the domestic investor base,” said the document.

However, AI casts a huge pall of uncertainty over its impact on workers across skill levels. New-age technology, while turbocharging productivity, has the potential to disrupt employment in certain sectors. The survey described AI as “phenomenal in its rapid pace of innovation and ease of diffusion” but also cautioned that the future of work will be reshaped by it. “... The advent of Artificial Intelligence casts a huge pall of uncertainty as to its impact on workers across all skill levels—low, semi and high,” it said. The biggest disruption for the future of work is the accelerated growth in AI, the survey noted.

“India would not remain immune to this transformation. AI is being recognised as a general-purpose technology, like electricity and the internet, which is phenomenal in its rapid pace of innovation and ease of diffusion. As AI systems continue to get smarter and adoption increases, the future of work will be reshaped,” it said.

Key challenges

The survey however identifies several key challenges facing the agriculture sector, including the need to sustain growth while managing food price inflation, improving price discovery mechanisms, and addressing land fragmentation. “Despite its centrality in India’s growth trajectory, the agriculture sector continues to face structural issues that have implications for India’s economic growth,” the survey said.

Policymakers must strike a delicate balance between incentivising farmers to increase production and keeping food prices within acceptable limits. This dual objective requires careful policy interventions.

Key suggestions include the upgradation of agricultural technology, the application of modern skills in farm practices, enhancing agricultural marketing avenues, price stabilisation, the adoption of innovation in farming, lowering wastages in the use of fertilizer, water, and other inputs, and improving the agriculture-industry linkages.

The survey emphasises the importance of technological interventions and skill development in transforming the agricultural landscape. It also stresses the need for sustainable practices to ensure the long-term viability of the sector.

With inputs from agencies.