The Indian Economy—A Review

The Department of Economic Affairs, Ministry of Finance, released The Indian Economy—A Review on January 29, 2024. The review consists of two chapters, viz., Indian Economy: Past, Present and Future and what made the Indian economy resilient? This differs from the Economic Survey of India prepared by the Department of Economic Affairs, which is released before the full budget. However, the year 2024 being the election year, the survey will be released after the general elections. This review evaluates the state and journey of the Indian economy over the past ten years and provides a brief outlook for the coming years.

Chapter 1 offers an overview of the past, present, and future of the Indian economy, while Chapter 2 delves into the government's policies and progress across various sectors. The forecast suggests that the Indian economy is likely to achieve a growth rate of 7 per cent or above for FY24, marking the fourth consecutive year post-pandemic with such growth. However, alongside this positive outlook, the review also highlights challenges such as supply chain disruptions and the need for India to navigate through the transition to greener energy amidst global pressure. Overall, three major trends have been highlighted for the coming years: the end of the era of hyper-globalisation in global manufacturing, the advent of artificial intelligence (AI), and the energy transition challenge.

Analysis of Chapter 1—Indian Economy: Past, Present and Future

The review highlights significant transitions and challenges from the 1950s until 2014. The most important transition occurred during the shift from a closed to an open economy from the 1950s to the 1980s, characterised by import substitution, export subsidies, and stringent controls on technology and investment. Reforms in the post-1980 period aimed at enhancing productivity and demand through liberalisation, resulting in unsustainable investments, high inflation, and the Balance-of-Payments crisis of 1990–91.

Additionally, there was a notable shift from public to private investment from the 1970s to the 2000s. During this period, the private sector became the primary engine of growth and employment generation, particularly in the 1990s and 2000s. Furthermore, from the 1980s until the present, technology began to play a crucial role in India’s growth trajectory, overcoming barriers such as resource constraints and closed economy policies. The country gradually embraced technology, fostering self-reliance and transformation across various sectors.

However, despite these positive changes, certain challenges persisted in 2014, particularly for the newly formed government. Factors contributing to sub-5 per cent growth included difficulties in project decision-making, ill-targeted subsidies, a low manufacturing base, a large informal sector, and low agricultural productivity.

2014–24: Decade of Transformative Growth

The period from 2014 to 2024 witnessed significant developments across various sectors in India, driving economic growth, fostering job creation, and implementing reforms aimed at enhancing the overall welfare of the population.

Economic growth and reforms India embarked on a path of structural reforms, propelling it to become the fastest-growing economy among the G20 nations. Impressive growth rates of 9.1 per cent in FY22 and 7.2 per cent in FY23 showcased the resilience and potential of the Indian economy. Urban unemployment declined to 6.6 per cent, indicative of a robust job market. To bolster social welfare, the government extended the Pradhan Mantri Gharib Kalyan Anna Yojana until December 2028, ensuring food security for millions. Additionally, unprecedented investments in infrastructure, including road, rail, and air networks, coupled with a surge in the number of universities, underscored a commitment to both physical and human capital development. Despite challenges posed by the global pandemic, India’s economy exhibited resilience, rebounding from a contraction of 5.8 per cent in FY21 to an estimated growth of 7.3 per cent in FY24.

Financial sector reforms The government spearheaded comprehensive reforms in the financial sector, addressing longstanding challenges and bolstering resilience. Initiatives such as recapitalisation and the merger of public sector banks (PSBs), along with the enactment of the Insolvency and Bankruptcy Code 2016 (IBC), streamlined processes and cleaned up balance sheets. The IBC proved instrumental in resolving corporate distress, benefiting numerous debtors and promoting a healthier financial ecosystem. The private non-financial sector’s credit to the GDP ratio came down to 83.8 per cent in December 2018 from 113.6 per cent by December 2010. Additionally, simplification of regulatory frameworks, particularly in the real estate sector, enhanced transparency and ease of doing business. More than one lakh real estate projects and 72,012 real estate agents were registered under the Real Estate (Regulation and Development) Act 2016.

Taxation reforms Bold reforms in taxation include the adoption of the Goods and Services Tax (GST), reduction of corporate and income tax rates, and removal of the dividend distribution tax (DDT), aimed to rationalise the tax regime, reduce compliance burdens, and stimulate economic activity. Exemptions for sovereign wealth funds and pension funds further incentivised investment and promoted financial stability. The number of GST taxpayers has increased from ₹ 66 lakhs in 2017 to ₹ 1.4 lakh crore in 2022 (in terms of money, from ₹ 0.9 lakh crore in FY18 to ₹ 1.5 lakh crore in FY23.

Engagement with private sector A paradigm shift in the governments approach towards the private sector emphasised partnership and collaboration. Revival of the disinvestment policy and the introduction of a new public sector enterprise (PSE) policy for Aatmanirbhar Bharat signalled a commitment to leveraging private sector expertise and resources for national development. For example, production-linked incentives (PLIs) and liberalisation of the foreign direct investment (FDI) policy encouraged both domestic and foreign investments, fostering innovation and growth across sectors. Most sectors have opened for 100 per cent FDI under the automatic route.

Support for MSMEs and start-ups Recognising the pivotal role of micro, small, and medium enterprises (MSMEs) and start-ups in driving economic growth and employment, the government rolled out targeted support measures. Initiatives such as the Emergency Credit Line Guarantee Scheme (ECLGS) provided much-needed liquidity, while revisions in MSME definitions and the introduction of Trade Receivables Discounting System (TReDS) aimed to address systemic challenges and promote entrepreneurship and created an eco-system for start-ups to nurture, leading to an increase from 452 in 2016 to more than 98,000 in 2023.

Infrastructure development Unprecedented investments in infrastructure, encompassing initiatives such as Bharatmala, Sagarmala, electrification, and modernisation of railways and airports, laid the foundation for sustainable growth and regional connectivity. Large-scale public spending from 2.8 per cent of the GDP in FY14 to 4.5 per cent in FY23–24 not only addressed long-standing bottlenecks but also generated employment opportunities and stimulated economic activity.

Digitalisation and technology Harnessing the power of digital platforms, the government accelerated digitalisation reforms, fostering greater formalisation, financial inclusion, and economic opportunities. Emphasis on digital infrastructure facilitated access to finance, markets, and government services, driving efficiency gains and enhancing the overall competitiveness of the economy improved tax collection, creation of digital identities and the foundation for sustained and accelerated economic growth.

Inclusive growth policies Central to the government's vision was the promotion of inclusive growth, ensuring that the benefits of development reach all segments of society. Initiatives, such as free gas connections, toilet construction, Jan Dhan accounts, and healthcare schemes like Ayushman Bharat, aimed to uplift the marginalised and empower them to participate actively in the country's growth story.

Challenges Confronting the Indian Economy

Global economic interdependencies The Indian economy's growth trajectory is influenced not only by domestic factors but also by global developments. Increasing geoeconomic fragmentation and the slowdown of hyper-globalisation are impacting global trade and growth, potentially affecting India’s economic prospects.

Energy transition dilemma Balancing energy security with the imperative of transitioning to sustainable energy sources presents a complex challenge. Geopolitical, technological, and policy factors contribute to the multifaceted nature of this issue, influencing global economic dynamics.

Impact of artificial intelligence (AI) The rise of Artificial Intelligence (AI) poses significant challenges, particularly in terms of employment in service sectors. While AI offers opportunities for complementarity, it also poses risks of displacement, affecting around 40 per cent of global employment as has been recently highlighted in an IMF paper. Developing economies like India must invest in infrastructure and digital skills to fully harness the potential of AI.

Human capital development Ensuring the availability of a skilled workforce, fostering age-appropriate learning outcomes in schools, and promoting a healthy population are critical policy priorities. A skilled, educated, and healthy population enhances economic productivity and resilience.

However, to overcome these challenges, Indian government has taken various initiatives such as launching Pradhan Mantri Kaushal Vikas Yojana (PMKVY) to provide industry-relevant skill training to youth and facilitate better livelihoods; promoting renewable energy sources; and transitioning away from coal. India has achieved a combined installed capacity of 179.57 GW in renewable energy by November 23, including large hydropower. India has successfully leveraged technology for inclusive growth, evident in achievements such as the penetration of the Internet surpassing 50 per cent, as per the ‘Internet in India’ report 2023, Aadhaar facilitating over ₹ 34 lakh crore direct benefit transfers to over ₹ 1167 crore beneficiaries, and the Prime Minister’s Jan Dhan Yojana leading to significant financial inclusion. Technology played a crucial role in India’s successful management of the COVID-19 pandemic. Initiatives like the CoWin app facilitated one of the world’s largest vaccination programmes, with over ₹ 221 crore doses administered to the population aged 18 and above.

Analysis of Chapter 2—What Made the Indian Economy Resilient?

Chapter 2 discusses Indian economy’s resilience, i.e., the ability to withstand and recover from challenges, disruptions, or crises while maintaining or returning to a trajectory of growth and stability which is vividly demonstrated in recent years. Despite a pandemic-induced economic contraction in FY21, India has recorded consecutive two years of over 7 per cent growth, with projections indicating continued robust performance in FY24. This resilience extends beyond economic growth; indicators such as declining unemployment rates and rising economic activity, exemplified by steady increase in E-way bill generation, rail freight traffic, and port cargo traffic, underscore India’s ability to adapt and recover.

The roots of India’s resilience lie not only in post-pandemic measures but also in proactive policy decisions made prior to the crisis. Smart COVID management strategies, including localised lockdowns and rapid vaccination drives, have mitigated output contractions. Additionally, targeted fiscal policies, expansion of government’s capex budgets, and proactive inflation management have bolstered economic growth in spite of commodity price rise due to the Russia-Ukraine War.

Domestic Economy

India’s real GDP is estimated to grow at an average of 7.9 per cent between FY22 and FY24, showcasing a remarkable post-COVID recovery. This resilience is attributed to targeted government interventions, such as the Make in India mission and Production Linked Incentive (PLI) schemes.

Impact on key sectors include:

• Share of manufacturing in total Gross Value Added (GVA) increased to 18.4 per cent in FY18 and remains robust at 17.7 per cent in FY24, driven by initiatives like Make in India.
• Buoyed by factors like Real Estate Regulatory Authority (RERA) reforms and increased government capital expenditure, the construction sector has nearly recovered to pre-pandemic levels.
• The service sector, now comprising 54.6 per cent of the total GVA, experienced growth, particularly in non-contact services post-pandemic, aided by government initiatives like India Stack.
• Both domestic and external demands have contributed to sectoral growth, supported by effective pandemic management, the Insolvency and Bankruptcy Code (IBC), and government-led investments.
• The rise in exports, including in world services exports, reflects the success of specific government measures in stimulating external demand and fostering economic growth.

Resilience of consumption demand India’s consumption base is expanding, with significant projected growth in the middle class, which is expected to drive sustained economic growth and resilience in the years to come.

• The share of Private Final Consumption Expenditure (PFCE) in India’s GDP has increased from 58.4 per cent to 60.8 per cent over the last three years, highlighting its essential role as a growth driver post-COVID. This surge in consumption can be attributed to robust increases in per capita real gross national income (GNI) in the years preceding the pandemic. Besides, government policies promoting growth and market-friendly reforms have also facilitated this rise, alongside investor-friendly policies, financial sector reforms, and coordinated economic and monetary policies.
• PFCE growth is observed across all sectors, including durables, semi-durables, and services, indicating a balanced expansion.
• The increase in the PFCE is not solely driven by pent-up demand but also reflects positive economic outlooks, enhanced market transparency, and significant investments in infrastructure.
• The government's focus on digital infrastructure development and rural inclusiveness through schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY) and Direct Benefit Transfer (DBT) has further bolstered consumption.

Enabling investment-led economic growth With the government’s intervention’s India’s investment climate has transformed significantly in recent years. The first decade of the millennium witnessed an unsustainable credit boom, leading to mounting bad debt. In the second decade, there was a reluctance in lending, resulting in a decline in the investment share of the the GDP.

The government

• recognised unsustainable borrowing and over-optimism leading to a high fiscal deficit, current account deficit, and inflation.
• helped banks strengthen their balance sheets through recapitalisation and industry restructuring.
• implemented investment-boosting reforms to attract private corporate investment.
• witnessed a rebound in non-food bank credit growth, indicating increased credit disbursement.
• increased capital expenditure of the public sector substantially, from ₹ 5.6 lakh crore in FY15 to ₹ 18.6 lakh crore in FY24.
• rebalanced fiscal expenditure towards capital spending, addressing supply-side deficiencies.
• accelerated infrastructure projects stalled due to various issues such as construction delays and legal hurdles.
• implemented reforms to create a supportive policy environment, including digitalisation of bureaucratic procedures and streamlined project approvals.
• opened avenues for private investors through reduced corporate tax rates and a uniform GST regime.
• implemented mechanisms like the Pragati/Project Monitoring Group (PMG) to expedite project execution.
• supported rising household investment, particularly in real estate, through measures like increased bank credit for housing.
• observed an uptrend in housing sales and launches, despite challenges such as appreciation in real estate prices and higher interest rates.

Multiple indicators suggest a private investment upcycle as there is resurgence in private investment following the pandemic. The capital goods and infrastructure sectors have experienced robust growth, indicating increased investment from both listed and unlisted corporates. Household investment, particularly in real estate, has played a significant role in strengthening the overall investment rate. Contributions from the public sector, private sector, and households have led to a consistent increase in the overall investment rate. The sustained growth in investment reflects confidence in the future economic prospects of the country. This trend lays the foundation for sustained investment-led growth in the coming decade, indicating a positive outlook for the economy.

Agricultural sector policies ensuring food security Despite challenges from global health crises and climate variability, India’s agricultural sector, constituting 18 per cent of the GVA in FY24, has demonstrated remarkable resilience. From FY15 to FY23, the sector exhibited an average annual growth rate of 3.7 per cent, surpassing the previous decade’s growth rate of 3.4 per cent. Key crops like rice, wheat, pulses, coarse cereals, and oilseeds have recorded significant production, establishing India’s global dominance in agricultural commodities.

The government took the following initiatives for agricultural growth:

• Minimum support prices (MSPs) for 22 crops have been consistently increased to ensure a minimum 50 per cent margin over the cost of production.
• Various policy initiatives, such as Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), Pradhan Mantri Kisan Maandhan Yojana (PM-KMY), and Pradhan Mantri Fasal Bima Yojana (PMFBY), have provided financial and income support to farmers, which benefitted millions of people.
• Digital inclusion and mechanisation have been promoted to enhance productivity.
• The success of digital platforms like electronic National Agriculture Market (e-NAM) in integrating agricultural markets and facilitating online trading reflects these efforts.
• Additionally, the government is also making drone technology accessible to farmers and strengthening cooperative movements through computerisation.
• Initiatives like the Agriculture Infrastructure Fund (AIF), Pradhan Mantri Kisan Sampada Yojana (PMKSY), and Pradhan Mantri Krishi Sinchayi Yojana-Per Drop More Crop (PMKSY-PDMC) focus on enhancing post-harvest infrastructure, promoting sustainable agriculture practices, and improving irrigation efficiency.
• Ensuring food security remains a priority, supported by efficient procurement and distribution systems under schemes like Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) and Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA).
• Continuous innovation, policy consistency, and environmental considerations are highlighted as crucial factors for the sector's sustained growth and resilience.

Reform push to the Indian industry The reform push in the Indian industrial sector has been instrumental in driving accelerated growth and fostering resilience, particularly in the face of challenges like the COVID-19 pandemic. From FY15 to FY19, the sector experienced a significant uptick, with annual growth reaching 7.1 per cent, compared to 5.5 per cent in the preceding five years. Despite a brief contraction in FY21 due to the pandemic, recent reforms have set the stage for a robust projected growth rate of 8 per cent annually until FY24.

• Central to this growth trajectory are strategic government initiatives such as the Production Linked Incentive (PLI) scheme, aimed at bolstering domestic manufacturing and promoting self-reliance across 14 key sectors. This scheme, with a substantial investment of ₹ 1.97 lakh crore, has incentivised manufacturers, leading to notable increases in production, exports, and job creation.
• Support for entrepreneurship has flourished under the Startup India initiative, with over 1.14 lakh startups generating more than 12 lakh jobs. Regulatory reforms, including the decriminalisation of compliances, have further improved the ease of doing business, facilitating a conducive environment for industrial growth.
• The micro, small, and medium enterprises (MSMEs) have witnessed robust growth in credit provision and a decline in non-performing assets (NPAs), indicating improved financial health. MSMEs has been a priority sector, with measures like tax deductions, timely payment facilitation, and initiatives like PM Vishwakarma contributing to their vibrancy. Furthermore, schemes such as the Pradhan Mantri Mudra Yojana and the Credit Guarantee Fund Trust have facilitated significant loan disbursements, improving credit access and financial health within the MSME sector.
• Efforts to streamline logistics processes through initiatives like the Unified Logistics Interface Platform (ULIP) and integration with GST data have reduced costs and improved efficiency. Reports indicate a decline in logistics costs following GST implementation, alongside enhanced turnaround times at major ports.
• Additionally, the government’s focus on infrastructure development and affordable housing has stimulated robust growth in the construction sector, averaging around 12 per cent annually from FY22 to FY24. These collective reforms propelled industrial growth, positioning India for sustained economic development in the foreseeable future.

Digital infrastructure and delivery of citizen-centric services The Indian economy has demonstrated remarkable resilience in digital infrastructure and related proactive government interventions.

• At the forefront of this infrastructure is India Stack, a world-class digital public infrastructure comprising three interconnected layers: the Identity Layer (Aadhaar), Payments Layer (Unified Payments Interface), and Data Layer (Account Aggregator). India Stack has facilitated online, paperless, and cashless transactions, revolutionising the country's services sector.
• The implementation of India Stack has yielded significant results, particularly in the Payments Layer where the Unified Payments Interface (UPI) saw a massive surge in cashless transactions, soaring from ₹ 0.07 lakh crore in FY17 to ₹ 143.4 lakh crore in FY24.
• The Identity Layer has provided digital identities to millions of Indians, promoting financial inclusion, and enabling direct benefit transfers, through initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY), which brought over 51.5 crore Indians into the formal banking system and facilitated more than ₹ 33.6 lakh crore in direct benefit transfers.
• During the pandemic, digital initiatives like the Aarogya Setu and CoWin apps played crucial roles in tracking the virus's spread and facilitating vaccination drives.
• Additionally, e-commerce platforms experienced significant growth, with the overall order volume increasing by 26.2 per cent in FY23, supported by a 23.5 per cent rise in Gross Merchandise Value (GMV). India’s e-commerce market is projected to reach USD 163 billion by 2026, underscoring its resilience and growth potential.

India’s robust digital infrastructure has significantly influenced services exports, especially in the realm of business services. The country has witnessed a notable rise in the contribution of services exports to its GDP, largely fuelled by the increased demand for digitisation and online service delivery following the pandemic. This surge in digital services exports is further amplified by the establishment of Global Capability Centres (GCCs) in India. These centres, comprising highly skilled professionals, advanced technology, and managerial expertise, contribute over 1 per cent to India’s GDP. Their presence not only enhances India’s reputation as a favoured hub for business services but also reinforces its position as a leading destination for professional capabilities on a global scale.

Credit creation is back Recent years have seen remarkable growth in bank credit, surpassing deposit growth rates. Non-food bank credit grew at 15 per cent in FY23, the highest in a decade, accompanied by improvements in asset quality across all Scheduled Commercial Banks (SCBs), with Gross Non-Performing Assets (GNPAs) and Net NPAs reaching multi-year lows by September 2023.

Reforms driving banking sector’s turnaround Government and the Reserve Bank of India (RBI) initiatives have played a key role. Initiatives like the Asset Quality Review (AQR) and prompt corrective action (PCA) framework, introduced in FY15, aimed at enhancing transparency and resilience.

Transformation in banking sector and NBFCs ● Enactment of the Insolvency and Bankruptcy Code (IBC) in 2016 facilitated expedited resolution of bad debts, leading to improvement in credit repayment culture and balance sheet health.

• Some 808 corporate debtors under the IBC were rescued through resolution plans, achieving realisations of 168.5 per cent against liquidation value and 32 per cent against admitted claims of creditors.
• Enactment of the IBC and banking regulation amendments transformed the resolution regime, empowering creditors and enhancing financial resilience.
• The merger of public sector banks strengthened banking sector stability, transitioning from the “twin balance sheet problem” of corporate and banks to the “twin balance sheet advantage.”
• Non-banking financial companies (NBFCs) witnessed robust credit expansion, outpacing bank credit growth, driven by improved asset quality, capital levels, and liquidity.
• Regulatory measures, including revised scale-based framework and extension of PCA framework to NBFCs, strengthened sector resilience, ensuring timely intervention and remedial measures.

The simultaneous stress on both banks and corporates creates a twin balance sheet problem. Corporates default on their loans due to overleveraging, leading to impaired bank balance sheets as they incur losses from non-repayment of loans. This vicious cycle exacerbates the economic challenges, as stressed banks find it difficult to lend further, constraining economic activity and growth.

Impact of reforms and government initiatives ● GNPA ratio declined since March 2019, despite pandemic challenges.

• Recapitalisation efforts and regulatory interventions bolstered banks’ capital adequacy, enabling them to resume credit extension.
• Initiatives like Emergency Credit Linked Guarantee Scheme (ECLGS) provided substantial credit support to MSMEs.
• Bank credit to MSMEs grew at a compound annual growth rate (CAGR) of 14.2 per cent from FY19 to FY24.
• Government’s emphasis on capital expenditure fuelled credit disbursal to the infrastructure sector, registering a CAGR of 4.2 per cent between FY19 and FY24.

Evolving financial markets to support the investment needs of a growing economy Over the past decade, the Indian financial markets have shown robust growth and resilience, driven by a combination of reforms and favourable economic conditions.

Equity market performance ● The BSE Sensex and the Nifty 50, key equity indices, grew at a CAGR of approximately 13.5 per cent from January 2014 to December 2023.

• Volatility decreased in 2023, reaching levels last seen in 2019, supported by solid corporate fundamentals due to balance sheet clean-up and deleveraging.
• Retail investors benefited from increased access to financial markets through digital technology adoption, leading to a significant rise in demat accounts, reaching ₹ 13.9 crore by December 2023—a 536 per cent growth at the end of March 2014.

IPO activity and market capitalisation ● Accelerated equity market activity saw a considerable increase in initial public offering (IPO) issuances, particularly in the SME segment, with 1,050 companies going public since FY15 and raising a capital of ₹ 3.9 lakh crore as compared to 441 companies which mobilised ₹ 1.5 lakh crore in the preceding nine years.

• India’s market capitalisation to GDP ratio improved from 79 per cent in 2014 to 104 per cent in 2022, making it the fifth-largest market globally by market capitalisation.
• The Indian equity markets secured the second-largest weightage in the Morgan Stanley Capital International (MSCI) Emerging Markets index, reflecting strong performance and attractiveness to investors.

Bond market development  ● India’s sovereign bond yields remained stable, reflecting robust macroeconomic fundamentals and fiscal discipline.

• Corporate bond market growth surged, with corporate bond issues in FY23 nearly three times higher than in FY14, and outstanding corporate bonds growing at a CAGR of 12.8 per cent during the said period.
• Initiatives such as the RBI's Retail Direct scheme, sovereign green bonds, and SEBI's regulations for new instruments like InvITs and Municipal Bonds contributed to the widening and deepening of the bond market ecosystem.

India’s financial markets are expected to play a crucial role in financing the country's capital investment needs. Access to financial markets will enable a larger pool of investors to diversify their investments and grow their savings safely. Investment in financial literacy alongside financial asset investment is essential for maximising the benefits of financial market participation.

Safeguarding Macroeconomic Stability

The Indian government and RBI prioritize maintaining macroeconomic stability, focusing on strong output growth, price stability, and a robust external account. Establishment of an institutional architecture reflects the commitment to fostering macro stability.

Inflation with flexible targeting ● Introduction of flexible inflation targeting in FY16 aimed to keep inflation within the band of 4 +/- 2 per cent.

• Efforts to rein in inflation were crucial, given the high average retail inflation of 10 per cent between FY09 and FY14, highlighting macro-vulnerability.
• The setup of the Price Stabilisation Fund (PSF) in 2014-15 helped manage price volatility in key agricultural commodities, contributing to improved fiscal and external balances and reducing macro-vulnerabilities.

Post-pandemic economic recovery ● FY22 witnessed economic revival post-pandemic, with growth gaining momentum and inflation decreasing.

• India’s efforts to diversify energy supply sources reduced dependency on Organization of the Petroleum Exporting Countries (OPEC), contributing to growth revival despite ongoing global economic uncertainties and supply chain disruptions.

Inflation moderation in FY24 ● Average retail inflation eased to 5.5 per cent in FY23 (April-December), with core inflation reaching a 49-month low of 3.8 per cent in December 2023.

• Retail inflation stabilised within the notified tolerance band of 2 to 6 per cent, despite persistent global food inflation exacerbated by untimely rains and supply chain disruptions.

Policy responses ● Supportive monetary policy, including progressive increases in the policy repo rate, played a crucial role in controlling inflation.

• Supply-side initiatives such as strengthening buffers of key food items and implementing trade policy measures were instrumental in mitigating inflationary pressures.

RBI projects inflation to average 5.4 per cent in FY24, remaining within the notified tolerance level. Improvements in fiscal balance and external current account balance are anticipated to moderate macro vulnerabilities, signalling a positive outlook for the future.

Human Resources: Dovetailing Growth with Capacitating Welfare

A new approach to welfare India’s welfare approach has undergone significant evolution in the past decade, shifting towards a more long-term-oriented, efficient, and empowering model. This transformation aims to capacitate individuals and establish robust social infrastructure for future generations.

Focus on universal access and productivity The Union government has increased spending on social services, emphasising universal access to basic amenities. Notable programmes like Ujjwala Yojana, PM-Jan Aarogya Yojana, PM-Jal Jeevan Mission, and PM-AWAS Yojana prioritise long-term societal asset creation over short-term measures.

Mechanisms for efficiency and transparency Adoption of target-based budgetary allocation and Output-Outcome Monitoring Framework (OOMF) enhances fiscal efficiency and accountability. User-friendly dashboards and Management Information Systems (MIS) ensure real-time monitoring, while initiatives like Direct Benefit Transfer (DBT) and JAM (Jan Dhan Yojana-Aadhaar-Mobile) minimise leakages and improve fiscal efficiency. Schemes like 'One Nation One Ration Card' facilitate seamless portability of ration cards for migrant workers, institutionalising digital goods in welfare.

Investment in social enablers Prioritisation of social enablers like child immunisation and sanitation leads to positive externalities such as reduced disease incidence and improved long-term health outcomes. Affordable social security schemes like Atal Pension Yojana (APY), PM Jeevan Jyoti Yojana (PMJJY), and PM Suraksha Bima Yojana (PMSBY) provide a safety net for unorganised sector workers, witnessing significant progress in coverage over the years.

Infrastructure development for inclusive growth A large-scale infrastructure push translates growth enablers into development, generating significant employment opportunities at the grassroots level. Investments in digital, energy, and transport infrastructure strengthen the link between growth and development.

Crisis response and iterative approach During the COVID-19 crisis, India adopted a phased response coupled with safety nets for vulnerable sections, ensuring food security, credit for street vendors, and employment for returnee migrants. The calibrated response addressed specific needs while avoiding panic-induced excessive spending, showcasing adaptability and resilience in welfare policies.

A New Approach to Welfare

India’s ascent as the 5th largest economy has coincided with a significant improvement in the quality of life. A NITI Aayog report highlights that between 2015–16 and 2019–21, 13.5 crore Indians escaped multidimensional poverty, particularly in rural and backward regions, in line with the principle of “Antyodaya”.

Access to essential amenities ● Data from the National Family Health Survey (2019–21) reveals a consistent increase in access to vital amenities like electricity, drinking water, sanitation, and clean fuel.

• Notable decline in out-of-pocket health expenditure, from 62.6 per cent of total health expenditure (THE) in FY15 to 47.1 per cent in FY20.
• Reduction in maternal mortality ratio from 130 per lakh live births (2014–16) to 97 per lakh live births (2018–20).
• Female gross enrolment ratio (GER) in higher education surpasses male GER since FY18, indicating improved access to education.

Expansion of Amenities under the New Welfare Approach

Women-led Development: Tapping the Gender Dividend for India @ 100

• Women’s Reservation Bill (Nari Shakti Vandan Adhiniyam), 2023 was passed in September 2023, coinciding with India’s G20 Presidency. It aimed at enhancing women's participation in government, associated with improved institutions and probity.
• One-third reservation for women in Panchayats since 1991, led to greater investment in public goods and positive outcomes in child health and primary education.
• PM Jan Dhan Yojana increased women's bank account ownership from 53 per cent in 2015–16 to 78.6 per cent in 2019-21, empowering them economically.
• The Deendayal Antyodaya Yojana-National Rural Livelihood Mission (DAY-NRLM) empowers about nine crore women through more than 80 lakh SHGs, associated with economic, social, and political empowerment.
• The government targets the creation of 2 crore ‘Lakhpati Didis’ through skilling SHG members with marketable skills like plumbing, operation of drones, making of LED bulbs, etc.
• Over 59 lakh women have been certified under the PM Kaushal Vikas Yojana.
• Majority of beneficiaries of loans sanctioned under PM Mudra Yojana and Stand-Up India are women.
• More than 53 per cent of beneficiaries under the Prime Ministers Rural Digital Literacy campaign or PM Gramin Digital Saksharta Abhiyan (PMGDISHA) are women, promoting digital literacy.
• Initiatives like Swachh Bharat Mission, Ujjwala Yojana, and Jal Jeevan Mission have significantly improved the lives of women, reducing drudgery and care burden.
• 26.6 per cent of completed houses (2.4 crore) under PM AWAS Yojana (Gramin) are solely in the name of women, enhancing their decision-making power and overall well-being. Similarly, 69 per cent are jointly in the name of wife and husband.
•  “Beti Bachao, Beti Padhao” initiative encourages saving and educating the girl child.
• Sukanya Samriddhi Yojana promotes financial planning for the girl child with over 3.1 crore accounts.
• Increase in gross enrolment ratio (GER) of girls in secondary schools from 75.5 per cent in FY15 to 79.4 per cent in FY22 has been recorded.
• Female labour force participation rate rose to 37 per cent in 2022–23 from 23.3 per cent in 2017–18.
• Improvement in sex ratio at birth and reduction in maternal mortality rate indicate a significant shift towards women-led development in India.

Eyes on the Long-Term Apart from progress in human development, certain entrenched issues are there whose imagination requires sustained and strategic endeavour, such as—

Tackling malnutrition ● Broadening the scope of nutrition to encompass sanitation, clean water, basic medicines, and housing.

• Enhancing health and immunity through initiatives like Mission Saksham Anganwadi and Poshan 2.0.
• Implementing cost-effective strategies such as technology-based monitoring and behavioral change under POSHAN Abhiyaan.
• The above approach generated the following results: reduction in stunting from 38.4 per cent to 35.5 per cent, wasting from 21 per cent to 19.3 per cent, and underweight prevalence from 35.8 per cent to 32.1 per cent among children under five years.

Improving learning outcomes ● Focus should be on enhancing learning outcomes after achieving universal access to elementary education.

• Efforts should be made to mitigate the impact of COVID-19 on learning.
• The National Education Policy's emphasis should be on quality enhancement through measures like the national credit framework, teacher training, community participation, and pedagogical changes.
• Findings from the National Achievement Survey 2021 underscore the necessity of upgrading the quality of education in schools.

Employment Situation in the Past Decade

Over the past decade, India witnessed significant improvements in its employment landscape, attributed to economic reforms, technological advancements, and a focus on skill development. Structural reforms promoting ease of doing business have been instrumental in fostering productive employment generation.

Decline in unemployment rate ● According to the Periodic Labour Force Surveys (PLFS) by the National Statistical Organisation, the unemployment rate has substantially declined from 6 per cent in 2017–18 to 3.2 per cent in 2022–23 across rural and urban areas.

• This decline is accompanied by a rise in the Labour Force Participation Rate (LFPR) from 49.8 per cent to 57.9 per cent during the same period, with rural female LFPR showing significant growth.

Organised sector job market conditions ● Payroll data from the Employees' Provident Fund Organisation (EPFO) indicates a consistent yearly increase in payroll addition since 2018–19.

• Net payroll additions to EPFO tripled from ₹. 61 lakh in 2018–19 to 139 lakh in 2022-23, recovering swiftly from the COVID-19 pandemic, aided by the Aatmanirbhar Bharat Rojgar Yojana (ABRY).
• EPFO membership numbers grew impressively by an 11.3 per cent CAGR between FY14 and FY22, confirming the creation of regular jobs in India.

Rise of gig economy ● The proliferation of affordable Internet access and smartphones has led to the rise of the gig economy, employing 77 lakh workers in FY21, as per a NITI Aayog report.

• The gig economy offers job flexibility and entry-level opportunities, particularly in tier-2 and tier-3 cities, serving as a shock absorber during temporary unemployment.

Challenges ● India’s evolving employment scenario reflects positive strides in formalisation, skill development, entrepreneurship, and inclusive growth.

• Challenges remain in formalising a growing workforce, facilitating job creation in sectors transitioning from agriculture, and ensuring social security benefits for regular wage/salaried employees.
• Despite challenges, India’s commitment to technological advancement and infrastructure development positions it as a dynamic and resilient player in the global job market, fostering sustained economic growth and social progress.

Positive Aspects of Employment Scenario Along with the challenges of the 21st century, the positive aspects of emerging employment scenario are a good sign for sustained economic growth.

Rising youth employment ● Over the years, youth employment in India has shown a notable increase alongside the growing youth population.

• According to the PLFS, the youth (age 15–29 years) unemployment rate has decreased from 17.8 per cent in 2017–18 to 10 per cent in 2022–23.
• Youth labour force participation rate (LFPR) has expanded from 38.2 per cent to 44.5 per cent during the same period.
• The proportion of employed youth has risen from 31 per cent to 40.1 per cent in six years, indicating significant progress in employment opportunities for the youth.

State-level trends ● States with a larger share of the young population, such as Uttar Pradesh (UP), Bihar, and Madhya Pradesh (MP), have witnessed a decline in youth unemployment rates.

• In Uttar Pradesh, for example, the youth unemployment rate dropped from 16.7 per cent in 2017–18 to 7 per cent in 2022–23, accompanied by an increase in youth LFPR from 33.7 per cent to 41.4 per cent during the same period.
• States driving the youth bulge are leading the rise in youth employment, showcasing a positive trend in employment opportunities for young individuals.

Data source and insights ● Insights from former Chief Statistician TCA Anant highlight the sharp decline in youth unemployment rates and the increase in youth LFPR, indicating a significant addition to the number of employed youth relative to the population.

• The data contradicts the narrative of dwindling job opportunities for the youth, emphasising the positive trajectory of youth employment in India.

Rising female labour force participation rate ● Despite a decline in female labour force participation rate (FLFPR) in the new millennium, there has been a significant rise in female enrolment in education, particularly in senior secondary and higher education.

• Female gross enrolment ratio (GER) in senior secondary education doubled from 24.5 per cent in 2004–05 to 58.2 per cent in 2021–22, while in higher education, it quadrupled from 6.7 per cent in FY2001 to 27.9 per cent in FY21.
• The rising female enrolment in education suggests a correlation between FLFPR and education, aligning with Goldin's U-curve theory.

Rise in FLFPR ● FLFPR has been steadily rising for at least six years, increasing from 23.3 per cent in 2017–18 to 37 per cent in 2022–23.

• This growth is particularly pronounced in rural areas, accompanied by a shift towards self-employment and agriculture among working women.

Contribution to rural production There is indeed a rising contribution of females to rural production, as evidenced by their increased participation as own account workers/employers and unpaid helpers. This trend can be attributed to factors such as continuous growth in agricultural output and improved access to basic amenities.

Composition changes in rural male workforce The decline in the share of agriculture in the rural male workforce does indicate a shift towards non-agricultural opportunities, reflecting changes in economic activities within rural areas.

Structural shift within agriculture ● The rise in skilled agricultural labour among rural females is an important development, indicating a shift towards more specialised roles within agriculture. This shift is accompanied by a decline in physically intensive labour roles.

• Market-oriented female workers contribute significantly to family income, underscoring the evolving efficiency and productivity within the agricultural sector.

Importance of female employment ● It is indeed crucial to recognise the importance of rising female employment in leveraging India’s demographic advantage.

• Additionally, the monetary contribution of women to rural family incomes not only enhances intra-household bargaining power but also influences decision-making dynamics within households, leading to broader societal changes in gender dynamics.

Skill Development and Entrepreneurship Recognising the importance of a skilled workforce in a rapidly changing global economy, the government has taken some proactive measures to increase the employability of its citizens.

Government initiatives ● The government established a central ministry in 2014 to streamline the skilling ecosystem. Key initiatives include the National Skill Development Mission and the National Policy on Skill Development and Entrepreneurship.

• The NEP 2020 emphasises vocational education and skill development, aiming to integrate it with general education.
• Skill India Mission, launched in 2015, aims to enhance employability through skill development.
• Nearly 1.4 crore candidates have been trained under PM Kaushal Vikas Yojana since 2015. The recent launch of the Skill India Digital platform further facilitates skill acquisition.

Progress and achievements ● India’s position in WorldSkills Competitions has risen from 39 in 2011 to 11 in 2022.

• According to the India Skills Report 2023, the employable percentage of final-year and pre-final-year students has increased from 33.9 per cent in 2014 to 51.3 per cent in 2024.
• Enrolment in higher education has increased from 3.2 crore in 2013–14 to 4.1 crore in 2020–21, indicating a rising trend in employability.

Future opportunities ● There is an opportunity to mainstream skilling into the education curriculum, as outlined in the NEP.

• Upskilling the existing workforce is crucial, especially considering that 72.6 per cent of workers aged 15–59 years have not received any formal/informal vocational/technical training (PLFS 2022–23 report).
• With a significant portion of the population having completed ten or more years of schooling, there is potential to bridge the gap between education and employability through finishing schools.

India’s External Sector: Safely Navigating through Uncertainties

Resilient merchandise trade ● Merchandise exports surged by over 50 per cent and services exports by 120 per cent from FY13 to FY23.

• FY23 saw a record-high merchandise export of US$ 451.1 billion, but growth moderated due to geopolitical tensions.
• Despite global shocks, India’s merchandise trade balance improved from a deficit of US$ 189.2 billion in April–November 2022 to US$ 166.4 billion in April–November 2023.

Diversification and quality enhancement ● India’s export basket has progressively diversified, offering scope for enhancing quality and complexity.

• Software services consistently constitute almost half of India’s service exports.
• Business services’ share in total services exports has increased since FY20, with double-digit growth seen post-pandemic, particularly in software and overall services exports.

Policy measures and initiatives ● The Department of Telecommunications issued guidelines for other service providers (OSPs), facilitating the Work-From-Home culture and extending it to Work-From-Anywhere in India.

• Efforts towards achieving export promotion include setting a target of US$ 2 trillion in exports by 2030.
• Measures include export credit insurance services, affordable export credit to MSME exporters, and encouragement to explore new markets and diversify products competitively.

Overall export growth ● Total exports (merchandise plus services) reached US$ 683.7 billion in FY22 and US$ 781.4 billion in FY23.

• Net exports’ share to GDP improved from (-)4.1 to (-)2.6 during FY04–FY13 to FY14–FY24, reflecting continuous efforts in policy and trade facilitation.

Comfortable current account balance ● India’s service exports and remittances have helped maintain a comfortable current account balance.

• Service exports grew at a CAGR of 7.1 per cent from FY12 to FY23, while remittances increased by 4.5 per cent during the same period.
• In H1 of FY24, the current account deficit (CAD) decreased to US$ 17.5 billion from US$ 48.8 billion the previous year, marking a 64.1 per cent decline, driven by improvements in both merchandise trade and

Worker remittances ● India is the world's largest recipient of worker remittances, receiving US$ 125 billion in 2023.

• Remittances have benefited from a structural shift in Indian migrants' destinations towards high-skilled jobs in countries like the US, the UK, and East Asia, supported by a shift in qualifications.
• Nearly 36 per cent of India’s remittances are attributed to high-skilled Indian migrants in top high-income destinations.
• In FY23, private transfer receipts, mainly representing remittances, reached a record US$ 112.5 billion, growing at 26.2 per cent following healthy growth of 11.2 per cent in FY22.
• During April–September 2023, private transfer receipts amounted to US$ 55.2 billion, up by 4.1 per cent from the corresponding period a year ago.

Foreign exchange reserves and capital account ● The current account deficit (CAD) decreased significantly during H1 of FY24, dropping to US$ 17.5 billion from US$ 48.8 billion the previous year.

• A positive balance on the capital account led to an accretion of foreign exchange reserves of US$ 27 billion since the end of FY23.
• The upsurge of 88.2 per cent in the capital account during H1 of FY24 was driven by higher inflows of foreign investment, both direct and portfolio.

Policy measures and FDI ● Measures to attract foreign investment include simplification and rationalisation of FPI regulatory regime, allowing FPIs to participate in currency derivatives, invest in REITs, InvITs, and AIFs, and mandating additional disclosures for FPI investments.

• India’s policies, like the production-linked incentive scheme and Make in India, have incentivised long-term investments.
• Despite subdued global trends, India remains a preferred destination for foreign investment due to factors like a young workforce and progressive policies.
• The compound annual growth rate (CAGR) for FDI in India during FY13–FY23 was 28.0 per cent.

External debt and financial indicators ● India’s foreign exchange reserves stood at US$ 623.2 billion as of December 2023, covering imports for over ten months.

• External debt as a ratio to GDP fell to 18.6 per cent by the end of September 2023 from 22.4 per cent in March 2013.
• The net international investment position (NIIP) to GDP ratio declined consistently from (-) 18.2 per cent in March 2014 to (-) 11.3 per cent in September 2023, indicating improved creditworthiness.
• India’s international investment position remained stable, with total liabilities increasing by 6.5 per cent YoY and total assets increasing by 10.2 per cent YoY as of September 2023.

Way forward for the external sector Persistent sticky inflation, sluggish growth, and mounting fiscal pressures continue to characterise the global economic landscape. Furthermore, ongoing geopolitical tensions and a surge in shipping costs due to rerouting routes pose additional risks, particularly in terms of inflating energy costs and exacerbating inflationary pressures.

Estimates for FY24 ● Initial assessments for FY24 indicate a moderation in the contribution of exports to GDP compared to FY23. This deceleration is primarily attributed to a slowdown in global demand, reflecting broader economic challenges.

• Despite the challenges, reforms in the foreign direct investment (FDI) policy, ongoing infrastructure improvements, and initiatives such as production-linked incentives are expected to sustain the momentum of investment in the Indian economy.
• In a notable shift from the preceding two years, FPIs have emerged as net buyers in FY24. This trend is driven by mounting confidence in India’s economic prospects and markets, buoyed by stable foreign exchange reserves and favourable external debt positions.
• The growth trajectory of remittances is anticipated to persist, with an expected increase of up to 8 per cent in 2024, reaching an estimated level of US$ 135 billion. This upward trend underscores the continued importance of remittances as a significant source of external inflows for India’s economy.

Climate Action

India’s climate action towards building resilience Achieving resilient growth and sustainable livelihoods remains a priority. Global climate agreements mandate developed countries to support developing nations, but the flow of resources has been limited. India acknowledges the need for collective action on climate change and adopts a comprehensive approach, addressing adaptation, resilience building, and mitigation despite its low historical carbon contribution.

Nationally determined contributions (NDCs) ● India’s first NDCs, announced in 2015, set ambitious targets for emission intensity reduction, non-fossil fuel energy, and carbon sinks.

• India has already surpassed targets for non-fossil fuel energy capacity and emission intensity reduction, leading to an updated NDC in 2022 with even more ambitious goals.

NDC Target Report (2015–2024)

Targets Set in 2015 NDC

• Reduce the emission intensity of India’s GDP by 33 to 35 per cent by 2030 from the 2005 level.
• Achieve about 40 per cent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.
• Create an additional carbon sink of 2.5 to 3 billion tonnes of CO2eq through additional forest and tree cover by 2030.

Achieved Targets

• By 2019, India achieved a reduction of 33 per cent from the 2005 level.
• India surpassed the target, reaching 43.9 per cent in November 2023, up from 32.3 per cent in 2014 and 30.4 per cent in 2004.
• By 2019, India created an additional carbon sink of 1.97 billion tonnes of CO2, surpassing the 2005 level.

Revised Targets in 2022 NDC

• Achieve 50 per cent cumulative electric power installed capacity from non-fossil sources.
• Reduction in emissions intensity of GDP by 45 per cent from 2005 levels.
• Promote a healthy and sustainable way of living through a mass movement for LiFE—Lifestyle for Environment.

National action plan on climate change (NAPCC) ● The NAPCC comprises missions focusing on specific areas like solar energy, water, sustainable agriculture, and health.

• The National Adaptation Fund for Climate Change (NAFCC) supports adaptation actions across various sectors.

Renewable energy and energy efficiency ● India has witnessed rapid expansion in non-fossil fuel capacity, doubling in the last nine years.

• Initiatives like the Perform Achieve and Trade (PAT) scheme and the Carbon Credit Trading Scheme (CCTS) incentivise energy efficiency and emission reduction.

Policy incentives and schemes ● Various schemes and policies post-2014 promote renewable energy and energy efficiency.

• Initiatives like PM-KUSUM, UJALA, and PMUY have contributed to energy efficiency and renewable energy adoption.
• The National Green Hydrogen Mission aims to boost hydrogen production using renewable sources and reduce emissions.
• India’s holistic approach to development encompasses economic growth, disaster risk management, health, conservation, and climate action. Through initiatives like Mission LiFE, India promotes environmentally friendly practices at the individual and community levels, contributing to global efforts in combating climate change. Additionally, India plays a leadership role in international platforms such as the International Solar Alliance (ISA) and the Coalition for Disaster Resilient Infrastructure (CDRI), underscoring its commitment to global climate action and disaster risk reduction.
• Economically, India has made significant strides over the past decade, transitioning from the 10th to the 5th largest economy globally, with a remarkable surge in GDP from US$ 1.9 trillion to an estimated US$ 3.7 trillion in FY24. Despite challenges like the COVID-19 pandemic and macroeconomic imbalances, ongoing reforms have fostered economic resilience. Projections suggest that India is poised to ascend to the rank of the third-largest economy, targeting a GDP of US$ 5 trillion within the next three years.
• India’s ambition to evolve into a ‘developed country’ by 2047 underscores the importance of sustained reforms and active state government involvement. Key drivers of India’s economic success include robust domestic demand, bolstered by reforms, and strategic investments in infrastructure and manufacturing. Continued focus on investments in physical infrastructure, institutional efficiency, and technology can propel growth rates beyond 7 per cent by 2030.

Outlook

The implementation of the Goods and Services Tax (GST) has streamlined domestic markets, reduced logistics costs, and strengthened government finances. Despite global economic challenges, India has exhibited resilience, achieving a compounded annual growth rate of 7.4 per cent between 2014 and 2019. To sustain momentum, future reforms must prioritise crucial sectors such as education, health care, energy security, and support for micro, small, and medium enterprises (MSMEs). With concerted efforts and conducive conditions, India holds the potential to reach a GDP of US$ 7 trillion by 2030, fostering an enhanced quality of life for its citizens and solidifying its position as a global economic powerhouse.

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