Interim Budget 2024: 5 challenges for Indian economy listed in mini economic survey

Interim Budget 2024: 'The Indian Economy: A Review', the 74-page document written by V Anantha Nageswaran, Chief Economic Adviser, has stated that India can aspire to become a $ 7 trillion economy by 2030. Ahead of an usual Union Budget, the Finance Ministry tables the annual Economic Survey that gives the real growth rate for the coming fiscal.

This year, which has Lok Sabha elections scheduled in the month of April and May, the interim report, which is being referred as the mini economic survey, was presented giving an overview of India’s growth and outlining challenges in the next fiscal year.

CEA Nageswaran started the report with an assurance that if FY25 turns out to be right, it will be the fourth year after the pandemic that the Indian economy will grow at or over 7 per cent.

“Some predict it will achieve another year of 7 per cent real growth in FY25 as well. If the prognosis for FY25 turns out to be right, that will mark the fourth year post-pandemic that the Indian economy will have grown at or over 7 per cent,” the report stated.

Earlier, the National Statistical Office (NSO) projected a growth rate of 7.3 per cent for FY24, compared to the 7.2 per cent of FY23. Various domestic and global research agencies also have predicted that a growth rate ranging from 6.3 to 6.5 per cent, with a slight upward bias is very much possible looking at the current scenrio.

Here are the challenges that the report noted:

1. The report noted that in an increasingly integrated global economy, India’s growth outlook is not only a function of its domestic performance but also a reflection of the spillover effects of global developments. "Increased geo-economic fragmentation and the slowdown of hyper-globalisation are likely to result in further friend-shoring and onshoring, which are already having repercussions on global trade and, subsequently, on global growth," CEA Nageswaran noted.

2. The report noted development is key in building resilience and enabling effective mitigation action as, in the medium to long run, development would generate resources and capacity for effective climate action.

It said: "The current global approach to climate change is set on a course that runs the risk of making the low-income status of several nations permanent. For several of them, access to energy is a more important and immediate concern. Globally, there is a need to strike the right balance between development and emissions mitigation, and that begins with the realisation that wishing away the trade-off is the wrong place to start."
 
3. The report, which noted that India’s positive growth outlook is riding on the digital revolution, said the Artificial Intelligence (AI) poses a big challenge to governments around the world due to the questions it poses to employment, particularly in services sectors. 

This was recently highlighted in an IMF paper estimating that 40 per cent of global employment is exposed to AI, with the benefits of complementarity operating beside the risks of displacement. Further, the paper suggests that developing economies must invest in infrastructure and a digitally skilled labour force to fully harness AI’s potential.

The review further added that AI may remove the advantage of cost competitiveness that countries exporting digital services enjoy.

4. The Department of Economic Affairs noted that ensuring the availability of a talented and appropriately skilled workforce to the industry, age-appropriate learning outcomes in schools at all levels and a healthy and fit population are important policy priorities in the coming years will remain a challenge. A healthy, educated and skilled population augments the economically productive workforce, highlighted the Department of Economic Affairs.

"The employable percentage of final-year and pre-final-year students increased from 33.9% in 2014 to 51.3% in 2024," it said citing the findings of the online Wheebox National Employability Test.

5. The report further noted that exporting will not be easy in the current times for the country because of persisting geopolitical tensions, including recent events in the Red Sea, that further aggravated slower growth in global trade in 2023.

 “This reinforces the need to lower logistics costs and invest in product quality to hold on to and expand market share in areas where India has an advantage”, the review noted.

The report pointed at the Iran-backed militant group Houthis’ attack on shipments in the Red Sea that had forced many nations, including India, to divert their cargo away from the troubled routes to longer and costlier ones. Some estimates stated India’s exports could be lower by $30 billion in the ongoing fiscal due to the crisis in the Red Sea. 

Also read: Interim Budget 2024: Corpus under National Housing Bank for affordable housing may be hiked significantly, says report

Also read: Budget expectations: What Middle Class can expect from FM Nirmala Sitharaman? Here's a wishlist