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Economic Status 2022-23: Recovery Milestone Achieved

• After overcoming the challenges posed by the pandemic-induced downturn, the Russian-Ukraine conflict, and inflation, the Indian economy is now experiencing a widespread recovery across various sectors. It is well on its way to returning to the growth trajectory seen before the pandemic in FY23.
• Projections indicate that India's GDP growth will remain strong in FY24, with forecasts placing it in the range of 6-6.8%. In the first half of the year, private consumption reached its highest level since FY15, resulting in a significant boost to production activity and improved capacity utilization across sectors.
• The current year's growth has been driven by the Capital Expenditure of the Central Government and a rise in private Capex, facilitated by the strengthened balance sheets of corporations. Additionally, credit growth to the MSME sector has been impressive, averaging over 30.6% during Jan-Nov 2022.
• In a positive sign, retail inflation has come back within the RBI's target range as of November 2022. The Indian Rupee has also performed well compared to other Emerging Market Economies in the period from April to December 2022.
• The Indian economy has shown resilience in terms of direct tax collections, remaining buoyant during the period from April to November 2022. Employment generation has been enhanced, evidenced by the decline in urban unemployment rates and the faster net registration in the Employee Provident Fund.
• Looking ahead, economic growth is expected to receive a boost from the expansion of public digital platforms and measures to increase manufacturing output.

Outlook for India's Medium-Term Growth: Optimistic and Hopeful

• During 2014-2022, the Indian economy underwent significant structural and governance reforms that bolstered its fundamentals and overall efficiency. These reforms were aimed at improving the ease of living and doing business, with a focus on creating public goods, adopting trust-based governance, partnering with the private sector for development, and enhancing agricultural productivity.
• However, the period from 2014 to 2022 also experienced challenges, including balance sheet stress caused by a credit boom in previous years and global shocks that adversely impacted macroeconomic variables like credit growth and capital formation, leading to economic slowdown.
• This scenario bears similarities to the period from 1998 to 2002 when transformative reforms initially faced setbacks due to temporary shocks in the economy. Subsequently, as these shocks subsided, the structural reforms paid dividends, leading to growth from 2003 onwards.
• Likewise, the Indian economy is now well-positioned to achieve faster growth in the coming decade, as the global shocks of the pandemic and the spike in commodity prices in 2022 gradually fade away. The banking, non-banking, and corporate sectors are showing healthier balance sheets, signaling the start of a fresh credit cycle, with bank credit growing at double-digit rates in recent months.
• The economy is benefiting from efficiency gains resulting from increased formalization, greater financial inclusion, and economic opportunities created by digital technology-based reforms. As a result, Chapter 2 of the Survey suggests that India's growth outlook appears brighter than in the pre-pandemic years, and the Indian economy is ready to realize its potential in the medium term.

Fiscal Developments: Revenue Resilience

• During FY23, the Union Government's finances exhibited remarkable resilience, thanks to the economic recovery, robust growth in direct taxes and Goods and Services Tax (GST) revenues, and realistic budget assumptions.
• From April to November 2022, Gross Tax Revenue recorded a YoY growth of 15.5%, primarily driven by significant increases in direct taxes and GST collections. Direct taxes saw much higher growth during the first eight months compared to their historical averages.
• GST has established itself as a crucial revenue source for both the central and state governments, with gross GST collections growing at 24.8% YoY from April to December 2022.
• Despite the higher revenue expenditure demands during the year, the Union Government continued to prioritize capital expenditure (Capex). Centre's Capex has steadily risen from a long-term average of 1.7% of GDP (FY09 to FY20) to 2.5% of GDP in FY22 PA. Additionally, the government encouraged State Governments to focus on Capex by providing interest-free loans and enhanced borrowing ceilings.
• This emphasis on infrastructure-intensive sectors like roads, highways, railways, housing, and urban affairs has significant positive implications for medium-term growth. The government's Capex-led growth strategy aims to maintain a positive growth-interest rate differential, leading to a sustainable debt-to-GDP ratio in the medium run.

Monetary Management and Financial Intermediation: A Positive Year

• In April 2022, the RBI initiated a monetary tightening cycle, raising the repo rate by 225 basis points, which effectively moderated surplus liquidity conditions.
• The improvement in financial institutions' balance sheets resulted in enhanced lending activity, with credit offtake expected to sustain. Coupled with a pickup in private Capex, this trend is expected to usher in a virtuous investment cycle.
• Scheduled Commercial Banks (SCBs) have experienced double-digit growth in non-food credit offtake since April 2022, while Non-Banking Financial Companies (NBFCs) have also witnessed an uptick in credit disbursal.
• The Gross Non-Performing Assets (GNPA) ratio of SCBs has declined to a seven-year low of 5.0%, indicating better asset quality. Furthermore, the Capital-to-Risk Weighted Assets Ratio (CRAR) remains healthy at 16.0%.
• The Insolvency and Bankruptcy (IBC) process proved to be highly effective in FY22, with the highest recovery rate for SCBs compared to other channels.

Prices and Inflation: Effective Balancing Act

In 2022, advanced economies experienced a resurgence of high inflation after several decades, but India managed to keep price rises in check. Although India's retail inflation rate reached 7.8% in April 2022, exceeding the RBI's upper tolerance limit of 6%, the inflation overshoot was among the lowest globally.

To tame the increase in price levels, the Indian government adopted a multi-pronged approach, including:

• Gradual reduction in export duty of petrol and diesel
• Bringing import duty on major inputs to zero while increasing the tax on export of iron ores and concentrates from 30% to 50%
• Waiving customs duty on cotton imports from 14 April 2022 until 30 September 2022
• Prohibiting the export of wheat products under HS Code 1101 and imposing export duty on rice
• Lowering basic duty on crude and refined palm oil, crude soybean oil, and crude sunflower oil

The RBI's anchoring of inflationary expectations through forward guidance and responsive monetary policy also played a crucial role in guiding the trajectory of inflation in the country. Consequently, one-year-ahead inflationary expectations by both businesses and households have moderated in the current financial year.

Timely policy interventions in the housing sector and low home loan interest rates stimulated demand and attracted buyers, particularly in the affordable segment in FY23. This, combined with a stable to moderate increase in Housing Price Indices (HPI), has instilled confidence in homeowners and home loan financiers about the retained value of assets.

India's success in managing inflation stands out when compared to advanced economies still grappling with persistent inflation rates.

Social Infrastructure and Employment: Inclusive Approach

• Significant increases in government spending were witnessed in the social sector. Budgeted expenditure on the health sector by both Central and State Governments reached 2.1% of GDP in FY23 (BE) and 2.2% in FY22 (RE) compared to 1.6% in FY21. Social sector expenditure increased to Rs. 21.3 lakh crore in FY23 (BE) from Rs. 9.1 lakh crore in FY16.
• The Survey highlights the findings of the 2022 UNDP report on the Multidimensional Poverty Index, showing that 41.5 crore people in India moved out of poverty between 2005-06 and 2019-20.
• The Aspirational Districts Programme has emerged as a model for good governance, especially in remote and challenging areas.
• The eShram portal has been developed to create a national database of unorganized workers, providing them with Aadhaar-verified recognition. As of December 31, 2022, over 28.5 crore unorganized workers have been registered on the eShram portal.
• The JAM (Jan-Dhan, Aadhaar, and Mobile) trinity, along with the power of Direct Benefit Transfer (DBT), has brought marginalized sections of society into the formal financial system, transforming governance through transparency and accountability.
• Labour markets have rebounded beyond pre-Covid levels in both urban and rural areas, with unemployment rates declining from 5.8% in 2018-19 to 4.2% in 2020-21.
• The year FY22 saw improvements in Gross Enrolment Ratios (GER) in schools and gender parity. GER in primary enrollment for both girls and boys (in class I to V) as a percentage of the population aged 6 to 10 years showed improvement in FY22.
• Due to various government initiatives in the health sector, out-of-pocket expenditure as a percentage of total health expenditure decreased from 64.2% in FY14 to 48.2% in FY19.
• Infant Mortality Rate (IMR), Under Five mortality rate (U5MR), and neonatal Mortality Rate (NMR) have shown a steady decline.
• As of January 6, 2023, more than 220 crore COVID vaccine doses have been administered, and as of January 4, 2023, nearly 22 crore beneficiaries have been verified under the Ayushman Bharat Scheme. Over 1.54 lakh Health and Wellness Centres have been operationalized across the country under Ayushman Bharat.

Climate Change and Environment: Preparing for the Future

India has made significant commitments and progress in addressing climate change and environmental concerns:

• India declared the Net Zero Pledge, aiming to achieve net zero emissions by 2070.
• The target of achieving 40% installed electric capacity from non-fossil fuels by 2030 was met ahead of schedule.
• The likely installed capacity from non-fossil fuels is projected to be more than 500 GW by 2030, leading to a decline of around 29% in the average emission rate by 2029-30, compared to 2014-15.
• India aims to reduce the emissions intensity of its GDP by 45% by 2030 from 2005 levels.
• About 50% of the cumulative electric power installed capacity is targeted to come from non-fossil fuel-based energy resources by 2030.
• A mass movement called "LIFE - Lifestyle for Environment" has been launched to promote environmentally friendly practices.
• The Sovereign Green Bond Framework (SGrBs) was issued in November 2022, and two tranches of ₹4,000 crore Sovereign Green Bonds were auctioned by the RBI.
• The National Green Hydrogen Mission aims to make India energy independent by 2047, with a target to develop a green hydrogen production capacity of at least 5 MMT per annum by 2030. This initiative is expected to reduce fossil fuel imports by over ₹1 lakh crore and create over 6 lakh jobs by 2030, along with adding about 125 GW of renewable energy capacity and abating nearly 50 MMT of annual GHG emissions.
• The Survey also highlights progress on eight missions under the National Action Plan on Climate Change (NAPCC) to address climate concerns and promote sustainable development. India has made remarkable strides in solar power capacity, with 61.6 GW installed as of October 2022. Additionally, the country has become a favored destination for renewable energy investments, attracting USD 78.1 billion in the last seven years.

In terms of agriculture and food management

• The agriculture and allied sector have shown robust performance, partly due to government measures to enhance productivity, ensure price support, promote crop diversification, and improve market infrastructure through farmer-producer organizations and the Agriculture Infrastructure Fund.
• Private investment in agriculture has increased to 9.3% in 2020-21.
• Minimum Support Price (MSP) for all mandated crops has been fixed at 1.5 times the all India weighted average cost of production since 2018.
• Institutional credit to the agricultural sector has grown to 18.6 lakh crore in 2021-22.
• Foodgrains production in India has seen sustained growth, reaching 315.7 million tonnes in 2021-22.
• Free foodgrains are provided to about 81.4 crore beneficiaries under the National Food Security Act for one year from January 1, 2023.
• The National Agriculture Market (e-NAM) Scheme has established an online, competitive, transparent bidding system involving 1.74 crore farmers and 2.39 lakh traders.
• Organic farming is being promoted through Farmer Producer Organizations (FPO) under the Paramparagat Krishi Vikas Yojana (PKVY).
• India is at the forefront of promoting millets through the International Year of Millets initiative.

Industry: Stable Recovery

• The Industrial Sector's Gross Value Added (GVA) exhibited a steady recovery, growing by 3.7% in the first half of FY 22-23. This growth rate surpassed the average of 2.8% achieved in the first half of the last decade. The recovery was bolstered by robust growth in Private Final Consumption Expenditure, export incentives during the first half of the year, increased investment demand driven by enhanced public capital expenditure, and improved bank and corporate balance sheets, which provided a demand stimulus to industrial growth.
• The industry responded strongly to the demand stimulus, as indicated by the Manufacturing Purchasing Managers' Index (PMI), which has remained in the expansion zone for 18 months since July 2021. Additionally, the Index of Industrial Production (IIP) showed healthy growth.
• Credit to Micro, Small, and Medium Enterprises (MSMEs) has grown by an average of around 30% since January 2022, while credit to large industries has been displaying double-digit growth since October 2022.
• The electronics sector experienced a significant boost, with exports nearly tripling from US$4.4 billion in FY19 to US$11.6 billion in FY22. India has now become the second-largest mobile phone manufacturer globally, witnessing a remarkable increase in handset production from 6 crore units in FY15 to 29 crore units in FY21.
• Foreign Direct Investment (FDI) flows into the Pharma Industry have quadrupled, rising from US$180 million in FY19 to US$699 million in FY22.
• The introduction of the Production Linked Incentive (PLI) schemes across 14 categories, with an estimated capital expenditure of ₹4 lakh crore over the next five years, has played a crucial role in integrating India into global supply chains. In FY22, investments of ₹47,500 crores were recorded under the PLI schemes, exceeding the designated target by 106% for the year. These schemes also resulted in production/sales worth ₹3.85 lakh crore and employment generation of 3.0 lakh.
• Numerous regulatory simplifications have been implemented, with over 39,000 compliances reduced, and more than 3500 provisions decriminalized as of January 2023.

Services: A Strong Pillar

• The services sector is projected to grow at 9.1% in FY23, showing improvement from the 8.4% YoY growth observed in FY22. The robust expansion in the PMI services since July 2022 indicates strong service sector activity.
• India has established itself among the top ten services exporting countries, with its share in world commercial services exports increasing from 3% in 2015 to 4% in 2021. Despite the challenges posed by the Covid-19 pandemic and geopolitical uncertainties, India's services exports remained resilient, driven by higher demand for digital support, cloud services, and infrastructure modernization.
• Credit to the services sector has grown steadily, increasing by over 16% since July 2022. The real estate sector has witnessed sustained growth, leading to housing sales reaching pre-pandemic levels, with a 50% rise between 2021 and 2022. The hotel occupancy rate has also improved significantly, from 30-32% in April 2021 to 68-70% in November 2022.
• The tourism sector is showing signs of revival, with foreign tourist arrivals in India growing month-on-month in FY23 due to the resumption of scheduled international flights and the easing of Covid-19 regulations.
• Digital platforms are transforming India's financial services, and the e-commerce market is expected to grow at an annual rate of 18% through 2025.

External Sector

• Merchandise exports during April-December 2022 reached US$ 332.8 billion.
• India diversified its markets and experienced increased exports to Brazil, South Africa, and Saudi Arabia.
• Comprehensive Economic Partnership Agreements (CEPA) with UAE and Economic Cooperation and Trade Agreement (ECTA) with Australia came into force in 2022 to expand market size and enhance penetration.
• India received US$ 100 billion in remittances in 2022, making it the largest recipient of remittances in the world. Remittances served as the second-largest major source of external financing after service exports.
• As of December 2022, India's Forex Reserves stood at US$ 563 billion, covering 9.3 months of imports.
• India ranked as the sixth-largest foreign exchange reserves holder in the world by the end of November 2022.
• The current stock of external debt is well protected by the comfortable level of foreign exchange reserves.
• India exhibits relatively low levels of total debt as a percentage of Gross National Income and short-term debt as a percentage of total debt.

Physical and Digital Infrastructure

• The government granted In-Principal Approval to 56 projects with a Total Project Cost of ₹57,870.1 crore under the VGF Scheme from 2014-15 to 2022-23.
• The National Infrastructure Pipeline includes 89,151 projects costing ₹141.4 lakh crore, with 1009 projects worth ₹5.5 lakh crore already completed.
• The National Monetisation Pipeline estimates a cumulative investment potential of ₹9.0 lakh crore, achieving a monetisation target of ₹0.9 lakh crore in FY22, with a target of ₹1.6 lakh crore envisaged for FY23.
• PM GatiShakti National Master Plan aims to improve multimodal connectivity and logistics efficiency to facilitate the seamless movement of people and goods across Ministries/Departments.
• The electricity sector witnessed the sanction of the entire target capacity of 40 GW for the development of 59 Solar Parks in 16 states as of 30 September 2022.
• The total installed power capacity increased from 460.7 GW on 31 March 2021 to 482.2 GW on 31 March 2022.
• The National Logistics Policy envisions developing a technologically enabled, integrated, cost-efficient, resilient, sustainable, and trusted logistics ecosystem for accelerated and inclusive growth.
• Significant progress has been made in National Highways (NHs)/Roads Construction, with 10457 km NHs/roads constructed in FY22 compared to 6061 km in FY16.
• The Budget expenditure has increased from ₹1.4 lakh crore in FY20 to ₹2.4 lakh crore in FY23, giving a renewed push to Capital expenditure.
• The Inland Vessels Act 2021 replaced a 100-year-old Act to ensure hassle-free movement of Vessels, promoting Inland Water Transport.

India's Digital Public Infrastructure

• UPI-based transactions experienced substantial growth in value (121%) and volume (115%) terms between 2019 and 2022, opening the path for international adoption.
• India's total telephone subscriber base stands at 117.8 crore (as of September 2022), with 44.3% of subscribers in rural areas.
• Over 98% of total telephone subscribers are connected wirelessly, and the overall tele-density in India stood at 84.8% in March 2022.
• Rural internet subscriptions saw a 200% increase between 2015 and 2021.
• Prasar Bharati, India's autonomous public service broadcaster, broadcasts in 23 languages and 179 dialects from 479 stations, reaching 92% of the area and 99.1% of the total population.
• Aadhaar, introduced in 2009, achieved low-cost accessibility and transformed the market place and citizens' access to services through government schemes like MyScheme, TrEDS, GEM, e-NAM, and UMANG.
• The Account Aggregator framework enables consent-based data sharing across over 110 crore bank accounts.
• The National AI portal has published numerous articles, videos, and government initiatives, serving as a tool to overcome language barriers.
• Legislations are being introduced to enhance user privacy and establish an ecosystem for standard, open, and interoperable protocols, ensuring robust data governance.