For economic data, such as GDP and its growth, we follow a fiscal year system, from April 1 to March 31 of the succeeding year. Many countries follow a calendar year system. That fiscal year is a legacy. With Union Budget having moved to February 1, there is a case for recalibrating our statistical systems to the calendar year. That will make international comparisons easier too.
Adjusting for calendar year versus fiscal year, real growth in 2023 will be of the order of 7 per cent or thereabouts. Implicit in this is an assumption about growth being slower in the second half of 2023-24, compared to the first. But let’s remember, growth in the first half was better than what many had expected it to be. As we end 2023 and look forward towards 2024, the same point about possible underestimation extends to 2024 too.
Most forecasts for 2024-25 are in the range of 6.5 to 7.0 per cent. For calendar year 2024, we shouldn’t be surprised if growth exceeds 7 per cent, even if marginally. The external environment isn’t kind. Protectionism and geo-political tensions continue, though the Russia-Ukraine War seems to be settling down, unlike Israel-Hamas. The limited point is there is no reason to presume oil prices will shoot up to unmanageable levels, or supply chains disrupted to exert a toll on growth.
India is of course not insulated from global phenomena. This includes the real sector, not merely volatility in capital and foreign exchange markets. Had the external world been kinder, we might have aspired for 9 per cent real growth, with net exports a major driver.
Unfortunately, that’s not the case. But there is slack within the system and growth drivers in government expenditure (especially read capital expenditure), private investments and consumption. We can debate the extent to which private consumption has recovered, whether growth in manufacturing and construction will last and whether private capital expenditure will take off. Notwithstanding those debates, 6.5 to 7 per cent in 2024-25 is a given, as is 7 per cent for 2024 (witness buoyancy in tax revenues, both direct and indirect).
A few months ago, there was some premature celebration on social media about India having touched an aggregate GDP of 4 trillion US dollars. While that was premature, with a base of 3.73 trillion now, 4 trillion in the course of 2024 is a certainty, even with conservative estimates about growth and inflation. That sets the tone for 5 trillion somewhere around 2026 or 27 and the aspirational goal for a “developed” India in 2047. Let’s accept, there are critics caught in a time warp. They refuse to accept India has broken out of a 5 to 5.5 per cent growth band.
From the electoral angle, 2024 is an important year, not just for India, since several countries are heading towards elections. In principle, election outcomes are fraught with uncertainty. However, in India’s case, there is consensus that the Narendra Modi government will be back in May 2024 (all speculation is about exact numbers). Hence, a question is often asked – what will be the economic focus of the third Narendra Modi government? This is a misleading question since it implicitly suggests there was something wrong with the policies of the first two Modi governments, which will therefore have to be changed, as opposed to being tweaked.
Since May 2014, the building blocks have been
- Easing costs of doing business, not merely for the corporate sector
- Provision of public goods or basic necessities (physical and social infrastructure, financial products, digital inclusion)
- Targeted subsidies for those who deserve them.
NFHS-5 was conducted bang in the middle of Covid and resultant data has been used both by UNDP and NITI Aayog to highlight declines in multi-dimensional poverty and improvements in social sector indicators. Covid was an exogenous shock, not just for India, but for the entire world. Consequently, those three building blocks were tweaked. Unlike many other countries, India stuck to the goal of fiscal consolidation and increased capital expenditure, not revenue expenditure (this is one reason why inflation didn’t spin out of control).
There was an additional emphasis on social sector expenditure and portability of benefits. Digital public infrastructure received a push (Aadhaar is only one element of India Stack). These were policies that continued to be pursued in 2023 and they bore not only economic dividends but political ones too, the recent state assembly elections being a case in point. This new interpretation of inclusion (without doles), empowerment and welfare, is one reason why the return of a Narendra Modi government in 2024 is a given.
As one looks forward to 2024, the new government will continue with policies that set the trajectory for Amrit Kaal in 2047. With the full Budget, there will be an emphasis on tax reform. GST is still a work in progress and the structure needs to be made simpler, with fewer rates. On direct taxes, there is a need to incentivise more personal income and corporate taxpayers to move to the exemption-less system.
From 2026, recommendations of the 16th Finance Commission will kick in. In anticipation, the Union government will need to work out a medium-term fiscal consolidation and debt reduction strategy, with a rationalisation and streamlining of public expenditure (some centrally sponsored schemes have legislative backing). There are labour and land markets too, though these are largely in the state government domain. Implicit in what has been attempted since 2014, and more explicit post-Covid, is an emphasis on formalisation. This means formalisation of individual labour contracts, as well as of enterprises. While both have occurred, a clear identity is needed for unincorporated enterprises (GSTN is the obvious approach). For welfare benefits, there has to be matching between individuals (Aadhaar, bank accounts, health schemes) and those that are household-driven (MGNREGS).
As I said, the evidence doesn’t suggest any errors in policies undertaken since 2014, as opposed to tweaking and improvements. With a time lag, those policies ensured the growth and economic record in 2023. It is those policies that will continue, with tweaks, for 2024-29.
The author is the chairman of the Prime Minister’s Economic Council and a well-known Sanskrit scholar. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect News18’s views.
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