Urging stability and pragmatism
The 2023-24 Economic Survey highlights challenges for India's economy amidst global risks, urging caution on boosting prospects and addressing asset bubble risks.
The 2023-24 Economic Survey comes in a very different political backdrop for the current government. After all, the BJP couldn’t win a majority in the Lok Sabha on its own — despite the Indian economy continuing to be a rare sweet spot of high growth, moderate inflation and macroeconomic stability among major economies.
The survey has left the task of preserving and replenishing the political capital of the government to the Budget. It has rightly assumed the role of being the voice of caution on the medium-term challenge of boosting India’s economic prospects. The survey specifically raises three issues.
It correctly flags the fact that the world will be very different going forward with both technological and geopolitical risks adding to headwinds for India’s goal of achieving a just and sustainable economic transformation. The former will predominantly be in the realm of constrains from developments such as Artificial Intelligence (AI) squeezing service sector jobs. The latter are likely to emerge from the world, especially developed countries, becoming more and more inward looking and protectionist. Difficult as these challenges are, they will become even more crippling if macroeconomic stability were to come under strain, is the survey’s clear message.
This underlines the importance of paying attention to the opportunities in the domestic market while doing all it takes to exploit opportunities abroad. It is here that the survey is critical of the government’s policies on the question of exploiting the China-plus-One moment in global value chains. India must encourage FDI from China rather than relying on the trade route to boost export-oriented domestic manufacturing, the survey argues in the backdrop of multiple Chinese companies facing punitive actions from the government’s many enforcement agencies over the past few years. This is a call for pragmatism, separating the geopolitical from the geo-economic. To be fair, this is easier said than done.
The most important caution from the survey is on the growing risk from what could be a vicious cycle of speculation and asset bubble creation in the financial markets. It flags India’s elevated market capitalisation to GDP ratio, growing retail participation in riskier forms of equity market activity such as derivative trading, and financial sector players indulging in mis-selling and speculative gains. Can the Centre and the regulators undertake a pre-emptive strike on this potentially hazardous exuberance without extracting a cost on market sentiment?
It remains to be seen whether the Budget and subsequent government policy do justice to these rightful concerns.
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