Economic Survey 2024 identifies problems but offers no solutions

But despite being an official assessment of the economy, it has had a short shelf-life as far as the media and political class are concerned, as attention immediately shifts to the budget tabled the next day. For all practical purposes, it has remained an academic exercise.

Economic Survey 2023-24 comes at a crucial time. Though last year’s plus-8% growth suggests that the economy has recovered from the after-shocks of the pandemic, the recovery is fragile. While the rural economy has been in distress for some time, it has now spilled over to the rest of the economy. 

Private consumption and investment have shown no sign of a pick-up. In this context, the survey rightly flags the key issues. That unemployment remains a key challenge is now amply evident with or without data. It also correctly highlights the sluggish pace of private investment despite the government rolling out a red-carpet for it by way of a massive corporate tax cut. 

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Not only has private investment hardly responded to that cut, there is no evidence of it rising adequately to complement massive public investment. These issues deserve attention. But the survey painting the private sector as a villain is not just misleading, it misses the woods for the trees.

The problem is with India’s policy approach of subsidizing corporates with tax cuts. Even though the twin-balance sheet problem for banks and corporates has receded, companies are unlikely to use the subsidy to invest more when demand is deficient. Declining incomes are the biggest bottleneck for it. 

Instead of focusing on the supply side, the correct approach would have been to boost demand. Further, expecting corporates to create employment will only help resolve a part of our employment problem. A larger part of it relates to the low quality of employment and meagre earnings from it. 

Recent evidence from the survey of pain in the unorganized sector is a clear pointer to it. Not only did the sector see a decline in employment, it also saw a fall in real earnings.

The survey is right in arguing that a sustainable recovery is unlikely unless the agricultural sector revives. This is crucial not just to revive demand in the economy, but also to absorb labour in rural areas through non-farm diversification. But then again, the prescriptions for reviving agriculture in the survey are tokenistic and more of a wish list. 

Market reforms and diversification are important, no doubt. But the real issues facing the agricultural sector are of declining investment, uncertain prices and falling incomes. Recent years have seen the sector become more vulnerable to climate shocks. Some of this has contributed to sustained food inflation pressures, which have remained out of control despite efforts to cool prices down. 

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The survey’s suggestion of delinking food inflation from the government’s inflation targeting framework is an escapist idea. It is well-known that food inflation is partly structural and partly due to seasonal factors. Monetary policy is unlikely to be useful in taming it. However, delinking food inflation won’t make the problem disappear, given that food still constitutes almost half the consumption basket.

Similarly, while the survey highlights the urgency of acting upon climate change, blaming the developed world for imposing stricter targets on the developing world won’t help. Climate change is a reality. It is affecting half of all Indian workers, those who work on farms, and is contributing to several other problems, including health exigencies and vulnerable infrastructure.

Nonetheless, the survey deserves credit for pointing out the challenges of an economy as diverse as India. While it is right in arguing for a convergence in the approach of various stakeholders, the ultimate responsibility must lie with the government for creating demand, generating employment, stimulating investment, stabilizing prices and increasing incomes. 

Unfortunately, the reality, as presented in the Union budget the next day, hardly does justice to any of the issues that the survey highlighted. At the very least, this budget was expected to provide a basic minimum to improve agricultural incomes, suggest a strategy to raise incomes and create incentives for gainful employment. 

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It not only does lip-service to the issue of employment, there is also neither an acknowledgement of the issues highlighted by the survey nor adequate funding in response to them.