Economic Survey 2024: Addressing private investment, MSMEs, rural development concerns raised

Finance minister Nirmala Sitharaman on Monday, 22 July, tabled the Economic Survey 2024 and its statistical appendix in the Lok Sabha, setting the stage for the Union Budget 2024 presentation on 23 July during the Parliament's Monsoon Session.

The survey identifies six critical areas where the government needs to intensify its efforts, despite attempts to present an optimistic economic outlook since taking office in 2014.

Among the primary concerns highlighted in the Economic Survey 2024 is the need to boost private investment. Despite measures such as slashing corporate taxes from 30 per cent to 22 per cent in 2019, private investment has not picked up as anticipated.

Private Gross Fixed Capital Formation (GFCF), a measure of private sector investment in fixed capital such as buildings and machinery, has seen a steady decline. In 2022, private GFCF stood at 22 per cent of GDP, down from 25-26 per cent in FY14 and FY15.

Factors such as China’s manufacturing monopoly, low domestic consumption, and inflationary pressures exacerbated by the COVID-19 pandemic and geopolitical tensions have contributed to this sluggish investment. The government’s capital expenditure has tripled since FY20, but private sector participation remains tepid.

GFCF measures the growth of fixed capital, such as buildings and machinery, in an economy. It indicates the level of private sector investment. Overall GFCF includes both private and government investments.

Fixed capital is crucial as it enables workers to produce more goods and services, thereby boosting economic growth and improving living standards.

Expanding the growth and capabilities of Micro, Small, and Medium Enterprises (MSMEs) is another strategic priority. MSMEs face significant hurdles, including access to technology and timely financing.

The cumbersome and lengthy process of obtaining bank loans and meeting compliance requirements hampers their ability to compete with cheaper imports and export their products.

The sector has seen considerable strain, with 35,680 MSMEs shutting down since 2019, according to the Udyam portal. The challenges persist despite the pandemic's end, highlighting the need for targeted interventions to support MSMEs.

Agriculture, which employs nearly three-quarters of India’s rural families, is identified as a potential growth engine that requires substantial policy reforms. The sector's productivity lags behind global counterparts, with India’s rice yields significantly lower than those of China, Vietnam, and Indonesia.

Enhancing productivity through improved yields, diversification to high-value crops, and developing value chains is essential. Addressing rural poverty by creating non-farm employment opportunities and ensuring that development benefits reach the poor, landless, women, and scheduled castes and tribes is crucial for inclusive growth.

Securing financing for India's green transition is pivotal for sustainable development. The government has ambitious targets to achieve 500 GW of non-fossil fuel installed capacity by 2030, including 280 GW of solar and 140 GW of wind power.

This requires a continuous and substantial flow of investments into renewable energy alongside policies that foster a robust domestic renewable manufacturing industry while addressing social and environmental concerns.

Bridging the education-employment gap is another critical area. The current educational model’s heavy focus on theory over practical skills has resulted in a significant skills mismatch in the workforce.

Degree apprenticeships, which combine academic learning with vocational training, are proposed as a solution to enhance employability and align education with industry needs.

The World Economic Forum notes that only a small fraction of India’s workforce, including management professionals, engineers, and graduates, are employable. Addressing this skills gap is imperative for economic growth.

Lastly, building state capacity and capability is essential for effective policy implementation. The reliance on consultancy firms for handling economic, financial, and technical matters highlights the need for an institutionalised system of lateral entry at senior levels and enhanced training for civil servants. Initiatives like Mission Karmayogi aim to provide subject-specific training to bridge the skills gap within the civil services.

As the Union Budget 2024 is presented tomorrow (July 23), it remains to be seen how these focus areas pointed to in the Economic Survey 2024 will be addressed in the proposed fiscal policies.

The Economic Survey underscores the urgent need for strategic interventions to overcome these longstanding challenges and drive sustainable economic growth.