Plethora of rhetoric is there about the progress and achievement of the Indian economy in the budget speech of 2023-24 by the finance minister. At this time, the country is celebrating the 75th anniversary of building a modern and independent India. In such a time, it would be appropriate to examine what is the validity of the beautiful picture of fundamentals of Indian economy being portrayed by the government in the first budget of Amrit Kaal and recently published economic survey? In this brief discussion, I have raised a few issues which are being overstated in the economic survey and budget.

First, I start connecting my discussion with highlighting some concerning areas regarding the aspects of economic growth that our economy is facing in recent times.  The most important concern is about the continuous fall in Index of Industrial Production (IIP) growth rate which during the last decade, from an annual growth rate of 7-8 percent decelerated to 3-4 percent in 2014-20. It reached negative in 2019-20. Further, export growth has remained negative or stagnant since 2014-15. Capital formation as a percent of GDP fell from 33.5 percent in 2014-15 to almost 31 percent in 2018-19 (See the chart). In 2011-12, this ratio was at peak of 39 percent. In the financial year 2020-21, due to complete lockdown, the growth rate of all macroeconomic variables fell in the negative zone except that of agriculture sector.   Improvement in World Bank ease of doing business ranking failed to attract significant FDI for Make in India projects. In the circumstances of global uncertainty, it is hard to promote export growth therefore; the economy needs to promote huge private investment demand by pumping public investment in infrastructure projects.

In a follow up, the capital expenditure (capex) of the central government increased by 63.4% in the first 8 months of FY23, crowding in the private capex (Economic Survey 2022-23, p2). In the budget 23-24, the government has tried to push consumption demand by encouraging tax payers to adopt a new tax regime with lower taxes. Considering the multiplier effect of investment in infrastructure projects, capex outlay has been increased to Rs 10 trillion, which stands at 10 percent of the GDP. Government feels that crowding in effect of government expenditure is more effective than the crowding out effect in the Indian economy. Certainly, these steps taken by the central government to revive industrial investment are a welcome move. 

Source for

IIP: NSO, GOI. Capital formation as % of GDP: Statistical Appendix, A26, Economic Survey2020-21. Export growth rate: Statistical Appendix, p111, Economic Survey 2021-22.

On account of above-mentioned measures taken, India`s GDP is expected to grow in a range of 6.5 to 7.0 percent in FY23 which is impressive and fastest among major emerging economies of the world. However, the GDP growth rate forecast for FY24 is somewhat lower than previous one because of uncertainty in global economy. On the basis of various other macroeconomic variables, it is argued that our economy has now back on the track of the recovery process after pandemic created havoc.  Recently, Raghuram Rajan`s concern over sequential slowdown in the quarterly growth of Indian economy cannot be overlooked. Suboptimal private investment, high interest rates and weak global economy growth are clearly questioning the sustainability of long run revival of Indian Economy.

Second, one of the important highlights of the union budget is that per capita income has more than doubled to 1.97 lakh in around 9 years. Further, one of the most important ones among the priority area of the government is inclusive development envisioned in the budget speech of the finance minister. Emphasis has been on improving the quality of life in rural areas to ensure equity and inclusive development. But chapter 6 of Economics survey 2022-23 clearly mentions that real rural wage rates were negative in the previous financial year due to elevated inflation. In India, 65% of the population lives in villages and more than 50% are directly dependent on rural livelihoods. With this dataset, is it fair to celebrate the increase of per capita income despite negative real rural wage rates? Answer is naïve. Even, if there is a wordsmith celebration of the doubling of the per capita income of the entire country, the question is what concrete and focused steps have been taken to increase real rural wage rates? Again, the answer is naïve. Economic survey further indicates that in coming years, a downfall in inflation rate has the potential to increase real rural wage rates. Various international agencies and organizations have cautioned all nations about slowdown in the global economy in coming years. In these circumstances, without taking any concrete steps, how can the government of a democratic country leave the rural people on their own, in the anticipation that people will be better off due to reduction in the inflation rate in near future?  The budgetary allocation of MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) has been reduced by 18 percent to 60000 crores in 2023-24 from the allocation of 73000 crore in the previous budget. Is this reduction helpful in achieving the desired outcome of inclusive development, when the rural real wages are negative? Again, the answer is naïve. If, it is assumed that there was to be an increase of at least 10 percent in the budget of MGNREGA this year, then this decline of budgetary allocation to MGNREGA will lessen the consumption expenditure in rural India by 20,000 crores approximately. It will certainly have an adverse consequence on the rural consumers` welfare. In UPA I (United Progressive Alliance) tenure, when the economy was producing contradictory results of high growth with lesser employment, then the government implemented program like MGNREGA. This program has tremendous success in ensuring employment entitlements to rural people and increasing wage rates.  Many studies reveal that huge money allocated to rural India through MNREGA maintained demand at high level during global financial crisis of 2008. On this front, the present regime does not seem to be doing optimally.

To conclude, in addition to faster economic growth, the success of a democratic nation must be judged by quality of life enjoyed and the freedom exercised by the individuals. Economic growth cannot be delinked from the end of promoting human capabilities and of enhancing well-being and freedom (Dreze & Sen 1997). Needless to say, pandemic has not only damaged to various aspects of economic growth but has also given birth to poverty, unemployment and loss in human development. If short term revival is visible on the growth front, then what is happening with the revival on the front of poverty, unemployment and loss in human development? India`s position is downgraded in the recently published human development report 2022. The government has no answer to these questions.

In a nutshell, the problem with the present regime is that plans are formulated on the basis of macro scenario without identifying the real problem and addressing the real gap at the ground level. Government still functions on the mistaken assumptions of trickledown theory. Serial denial of addressing the real issues is the key shortcoming of the policy formulation.

1. GOI Economic Survey, Oxford University Press, New Delhi. 2023.
2. Dreze J, Sen A. India: Economic Development and Social Opportunity, Oxford India Paperbacks, New Delhi. 1993; 43.