The Resilient Indian Economy

Sujeet Yadav

Amid global uncertainties, the Indian economy has showcased remarkable resilience, rebounding from pandemic setbacks and sustaining impressive growth, projecting over 7 percent for the third consecutive year in FY24. This resilience stems from a historical ability to overcome challenges, with Indians historically adept at rebuilding lives after natural disasters, contributing to economic recovery. Preemptive policy decisions, including effective COVID management, localised lockdowns and nationwide vaccination efforts, prevented severe economic contraction vis-a-vis other major economies. A substantial increase in government's capital expenditure, fiscal discipline in public sector banks and initiatives like the Asset Quality Review and recapitalisation fortified the financial system. Macroeconomic stability, managed inflation and low external debt shielded India from global economic uncertainties. Domestic demand, driven by sustained focus on infrastructure, housing and energy security, has been a consistent economic force. The commitment to resilience extends to addressing climate change, with a forward-thinking approach to energy security and environmental responsibility. This article delves into the key factors contributing to India's economic resilience.

DOMESTIC ECONOMY

Sectors that Withstood All Stroms

Manufacturing:  India's manufacturing sector showcased resilience with a notable increase in its share of Gross Value Added (GVA) from 17.2 percent in FY14 to 18.4 percent in FY18. Based on the advance estimates released recently, the share has stayed robust at 17.7 percent in FY24. This growth is attributed to the government's strategic initiatives, such as the Make in India mission and the successful implementation of Production Linked Incentive (PLI) schemes. These measures have not only stimulated the sector but also contributed significantly to the overall economic expansion.

Construction:  The construction sector, a crucial pillar of economic growth, has experienced a resurgence, reaching a share of 8.7 percent in FY 24. This revival can be attributed to policy measures like the Real Estate Regulatory Authority (RERA) and a substantial increase in government capital expenditure. The sector's recovery is vital for infrastructure development and economic momentum.

Services: The services sector, comprising 54.6 percent of total GVA in FY24, has demonstrated dynamic growth. The surge is propelled by non-contact services and the government's digitalisation initiatives encapsulated in the globally recognised India Stack. This sector's adaptability is a key factor in sustaining economic growth amid changing global dynamics.

Positive Consumption Pattern

Middle-Class Expansion:  The government's welfare approach has contributed to a substantial increase in the middle class, from 432 million in 2021 to a projected 1.02 billion in 2047. This middle-class expansion, supported by market-friendly reforms, reduced compliance burden and strategic disinvestment, has positively impacted per capita income and consumption. The growth in the middle class is a testament to India's sustained economic development and resilience.

Private Consumption Growth:  Private Final Consumption Expenditure (PFCE) has emerged as a powerhouse, increasing from 58.4 percent to 60.8 percent of GDP in the last three years. Beyond the release of pent-up demand, this growth is a result of prudent COVID-19 management fostering a positive economic outlook. PFCE not only supports economic stability but also fuels private capital investment, contributing significantly to India's resilience.

Digital Transformation:  The government's emphasis on structural reforms, digital infrastructure development and financial inclusion has expanded the consumption base. Digitalisation initiatives, such as Aarogya Setu and CoWin apps, have played a transformative role during the pandemic, contributing to the early re-opening of the economy. This shift towards digital platforms has not only facilitated economic activities but also reinforced consumer confidence.

Rural Inclusivity and Aspirational Spending:  Government-driven financial inclusion, improved physical connectivity and livelihood augmentation initiatives have led to increased social and economic inclusive-ness in rural India. Schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY) and Direct Benefit Transfer (DBT) have narrowed the rural-urban divide, resulting in higher spending on aspirational goods.

Investment-Led Growth

The investment landscape in India has undergone a notable transformation, with a shift towards a pivotal role in driving economic growth. In the initial decade of the millennium, there was an impressive but un-sustainable investment rate, followed by a decrease in the investment share of GDP in the second decade due to banks' hesitancy to lend. However, government interventions, including bank recapitalisation and industry restructuring, have set the stage for increased investments in the last three years. Balanced fiscal measures and a surge in public sector capital expenditure from Rs. 5.6 lakh crore in FY15 to Rs. 18.6 lakh crore in FY24, a 5.1 times increase, have sustained investment growth and employment generation. This balanced fiscal approach, with a focus on capital spending, has created an environment conducive to economic resilience, particularly evident during the pandemic. Government efforts to accelerate infrastructure projects, coupled with digitalisation and streamlined approval processes, have played a pivotal role in reviving economic momentum. Private capital expenditure is showing signs of an upsurge, with robust growth in capital goods and infrastructure/ construction goods indices. House-hold investments, particularly in real estate, contribute significantly to the overall investment rate, showcasing optimism about the future. Despite pandemic- induced challenges, rising housing sales and launches, coupled with increased bank credit for housing, indicate a recovery in incomes and household optimism. The consistent increase in the overall investment rate over the past three years, surpassing FY16 levels relative to GDP, reflects confidence across public, private and household sectors. This robust investment climate lays a solid foundation for sustained investment-led growth in the Indian economy over the next decade.

Agrarian Resilience

The agricultural sector, contributing 18% to India's GVA in FY24, has emerged as a foundational pillar of the economy, displaying resilience and growing at an average annual rate of 3.7% from FY15 to FY23. Key to its success are strategic measures and supportive policies, including Minimum Support Prices (MSPs), Pradhan Mantri Kisan Maandhan Yojana (PM-KMY) and financial support programmes like PM-KISAN and Pradhan Mantri Fasal Bima Yojana (PMFBY), emphasising farmers' financial stability and crop diversification. Technology adoption, exemplified by the National Agriculture Market (e-NAM) and accessible drone technology, has revolutionised the agricultural landscape, enhancing productivity and reducing costs for farmers. Infrastructure development initiatives like the Agriculture Infra-structure Fund (AIF) and sustainability-focused programmes such as Per Drop More Crop (PMKSY-PDMC) and Natural Farming further underscore the commitment to building resilience in agriculture. Food security remains a priority, with timely procurement and distribution of food grains facilitated by schemes like Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) and Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), ensuring food security for vulnerable populations. Looking ahead, addressing future challenges in the agricultural sector will require continuous innovation in farming practices, crop varieties and technology adoption, with a focus on policy consistency and continuity aligned with environ-mental considerations.

Reforms Push to Industry

In the period from FY15 to FY19, India witnessed accele-rated industrial growth at an annual rate of 7.1%, surpassing the previous block's rate of 5.5%. Despite a temporary contraction due to the COVID-19 pandemic in FY21, resilient recovery is expected, projecting a robust 8% annual growth in the triennium concluding in March 2024. Government led strategic initiatives, particularly the 'Make in India' programme and the Production-Linked Incentive (PLI) scheme, have played a pivotal role in steering sectoral growth. The 'Make in India' initiative, designed to bolster domestic manufacturing and promote self-reliance, features the PLI scheme spanning 14 sectors, with substantial outcomes including significant investments, production/sales and employment generation. The Startup India initiative has nurtured over 1.14 lakh startups, creating more than 12 lakh jobs. Regulatory reforms, such as the decriminalisation of compliances, have improved the ease of doing business. Micro, Small and Medium Enterprises (MSMEs) have thrived under government support, with initiatives like the Udyam portal, Udyam Assist Platform (UAP) and the Pradhan Mantri Mudra Yojana. The credit guarantee schemes, including CGTMSE and Emergency Credit Line Guarantee Scheme (ECLGS), have significantly boosted credit provision to micro and small enterprises, evident in the improved portfolio performance. The logistics sector has witnessed transformation through initiatives like the Unified Logistics Interface Platform (ULIP) under the National Logistics Policy, leading to improved efficiency and cost reduction. The implementation of the Goods and Services Tax (GST) has contributed to a significant reduction in logistics costs for trucks, positively impacting the construction industry and major ports' turn around time.

Digital Public Infrastructure

Amid the global economic disruptions caused by the COVID-19 pandemic, India strategically employed its robust Digital Public Infrastructure, known as India Stack, to catalyse economic recovery. Comprising three layers - Identity (Aadhaar), Payments (UPI, Aadhaar Payments Bridge, Aadhaar Enabled Payment Service) and Data (Account Aggregator) - India Stack em-powered citizens with digital identity, facilitated cashless payments and streamlined authentication. Aadhaar significantly increased financial inclusion, while the Payments Layer, particularly UPI, witnessed a substantial surge in cashless transactions. The Data Layer revolutionised KYC processes and enhanced access to financial services. Initiatives like Pradhan Mantri Jan Dhan Yojana utilised India Stack for direct benefit transfers, driving growth in accounts and deposits. The digital infrastructure also impacted the e-commerce sector, contributing to increased order volume and Gross Merchandise Value. Supportive financial and telecommunications policies, including demonetisation and FDI liberalisation, fostered India Stack's growth. Moreover, India's digital prowess has positioned it as a significant player in global services exports, particularly in business services like R&D and engineering.

Banking Sector Reforms

The banking sector has witnessed a remarkable resurgence, marked by a substantial credit surge exceeding deposit increases, with a 15 percent expansion in non-food bank credit in FY23, the highest in a decade. This success is attributed to sustained demand and a robust economic rebound post-COVID-19 challenges. The health of the banking sector has significantly improved, evident in the multi-year low Gross Non-Performing Assets (GNPAs) in September 2023. Reforms such as the Asset Quality Review (AQR) and Insolvency and Bankruptcy Code (IBC) have enhanced transparency and expedited bad debt resolution. Public Sector Banks (PSBs) displayed financial resilience, with positive trends in key ratios and recapitalisation efforts strengthened Credit to Risk-Weighted Asset Ratio (CRAR). The credit growth cycle, supported by government initiatives like the Emergency Credit Linked Guarantee Scheme (ECLGS), saw notable credit volumes, especially to MSMEs, with a CAGR of 14.2 percent from FY19 to FY24. The infrastructure sector also experienced a boost, reflected in growing bank credit disbursals with a CAGR of 4.2 percent between FY19 and FY24.

Flourishing Financial Markets

Over the past decade, India's financial markets have experienced substantial growth, balancing market liberalisation with regulatory measures for stability. The equity markets, represented by BSE Sensex and Nifty 50, have shown remarkable performance, with a CAGR of approximately 13.5 percent from 2014 to 2023 and reduced volatility. Retail investor inclusion has surged, with a 536 percent increase in demat accounts from March 2014 to December 2023, indicating rising interest. There has been a notable IPO surge, particularly in the SME segment, with 1,050 companies collectively raising Rs. 3.9 lakh Cr. since FY15. India ranks as the fifth-largest global market by market capitalisation, with a significantly improved capitalisation-to-GDP ratio of 104 percent by the end of 2022. The bonds segment reflects stability, with the spread between the US and India's 10-year sovereign bond yields indicating fiscal discipline and effective inflation management. Corporate bond issuances have grown substantially, reaching 2.9 times the FY2014 levels in FY23. Initiatives like the RBI's Retail Direct scheme, sovereign green bonds and SEBI's regulatory measures have contributed to the expansion of the bond market. India's financial markets are expected to play a crucial role in financing capital investment requirements, providing broader access for investors to diversify and save securely. Financial literacy will be essential for unlocking the full potential of these financial assets.

Macroeconomic Stability

India's commitment to macroeconomic stability, marked by robust output growth, price stability and a resilient external account, has been unwavering. The establishment of the Price Stabilisation Fund in 2014-15 effectively mitigated price volatility in key agrihorticultural commodities, contributing to improved fiscal and external balances. Despite challenges posed by the COVID-19 pandemic, disruptions in production, supply chains and global uncertainties, India managed to keep inflation within the 2 to 6 percent range. Post-pandemic economic revival in FY22 faced new challenges like geopolitical conflicts and rising global commodity prices in FY23. However, India success-fully maintained retail inflation below global levels in FY23, crediting its resilience to diversified energy sources and supply-side initiatives. In FY24 (April-December), inflationary pressures eased, with average retail inflation declining to 5.5 percent. Diligent price monitoring and supply-side mea-sures, including buffer strengthe-ning, open market releases and trade policy adjustments, contributed to stable overall retail inflation within the 2 to 6 percent range. Supportive monetary policy, with the RBI gradually increasing the policy repo rate to 6.5 percent by February 2023, played a pivotal role. The RBI's projection of inflation averaging 5.4 percent in FY24, within the notified tolerance level, reflects a balanced approach, anticipating improvements in fiscal and external balances and a moderation of macro vulnerabilities.

Women-Led Development

The Women's Reservation Bill (Nari Shakti Vandan Adhiniyam - NSVA), introduced in September 2023, prioritises "women-led development," aligning with global recognition of the importance of women's participation in governance. The NSVA builds on the success of reserving one-third of Panchayat seats for women since 1991. This move has led to positive outcomes, such as increased investment in public goods related to women's concerns, improved child health, primary education outcomes and inclusive growth. Initiatives like the PM Jan Dhan Yojana have increased women's access to financial services and Women-led Self-Help Groups (SHGs) have shown a significant impact on economic, social and political empowerment. Human capital formation initiatives, such as the Skill India Mission and Start-up and Stand-Up India, have encouraged female participation in certification programmes and entrepreneurship schemes. Initiatives addressing sanitation, clean cooking gas and access to drinking water, such as 'Swachh Bharat Mission,' 'Ujjwala Yojana' and 'Jal Jeevan Mission,' have improved women's lives, enhancing safety, dignity and productivity. Housing allocations under PM Awas Yojana (Gramin) reflect a gender-inclusive approach, contributing to women's decision-making, health and the reduction of domestic violence. Initiatives like "Beti Bachao, Beti Padhao" and the Sukanya Samriddhi Yojana emphasis the health and education of the girl child, contributing to an increased Gross Enrollment Ratio (GER) of girls in secondary schools. These initiatives, recognising the gender dividend economically, are crucial for India's goal of becoming a developed country by 2047. These comprehensive initiatives have yielded dividends, with an increase in the female labour force participation rate, improvement in the sex ratio at birth and a decline in maternal mortality rates.

Recalibration of Welfare Strategies

Over the past decade, India has undergone a transformative shift in its welfare paradigm, moving towards a more sustainable, efficient and empowering framework. Social sector spending by the Union government has seen a significant increase, with a Compound Annual Growth Rate (CAGR) of 5.9 percent between FY12 and FY23. Notably, capital expenditure in social services has grown at an 8.1 percent CAGR over the same period, emphasising investment in societal assets. Initiatives promoting universal access to fundamental amenities, such as Ujjwala Yojana, PM-Jan Aarogya Yojana, PM-Jal Jeevan Mission and PM-AWAS Yojana, have been implemented, focusing on enduring societal infrastructure and empowering marginalised segments for long-term self-sufficiency. The adoption of a target-based allocation strategy and emphasis on fiscal efficiency through initiatives like the Output-Outcome Monitoring Framework and Digital India have increased transparency and accountability. The 'One Nation One Ration Card' programme further integrates digital tools into the welfare ecosystem. Prioritising social enablers, including investments in child immunisation and sanitation, has positive out-comes such as reduced disease incidence and improved long-term health. Social security schemes for the unorganised sector, like Atal Pension Yojana (APY), PM Jeevan Jyoti Yojana (PMJJY) and PM Suraksha Bima Yojana (PMSBY), reflect an inclusive expansion of the social safety net. The new welfare approach demonstrated resilience during the COVID-19 crisis, with a phased response and safety nets for vulnerable sections, addressing specific needs to ensure food security, credit for street vendors and employment for returnee migrants. This measured response prevented panic-induced depletion of resources. Under the broad umbrella of "empowering welfare," recent years have witnessed an extensive expansion, encapsulating achievements in affordable and wholesome health, revamped education, large-scale skilling, entrepreneur-ship, basic amenities and social security, reflecting a comprehensive and inclusive approach to human resource development.

Sustained Efforts for Long-Term Goals

India's new welfare approach, while accelerating human development, recognises persistent challenges that require continuous and strategic efforts with broad societal involvement. Tackling malnutrition is a key focus, expanding to include sanitation, clean water, basic medicines, housing and a life cycle approach. Initiatives like Mission Saksham Anganwadi and Poshan 2.0 emphasis holistic health, wellness and immunity, with the POSHAN Abhiyaan employing cost-effective strategies that show positive results in nutrition indicators. With universal access to elementary education achieved, the focus has shifted to enhancing learning outcomes. The National Education Policy emphasises a national credit framework, teacher training, community participation and pedagogical changes, marking a silent revolution in the education sector. Positive transformations in India's employment landscape over the past decade are attributed to economic reforms, technological advancements and a focus on skill development. Unemployment rates have substantially decreased, labour force participation has increased and structural reforms promoting ease of doing business are crucial for productive employment generation. The organised sector exhibits consistent growth, with the gig economy employing 77 lakh workers in FY21. Access to the internet and smartphones has facilitated gig economy growth, creating entry-level jobs and fostering job flexibility. Youth employment has risen, with a notable decline in the youth unemployment rate. Female Labour Force Participation Rate (FLFPR) has increased steadily, particularly in rural areas, indicating productive and remunerative contributions to rural family incomes. Skill development initiatives, especially under the Skill India Mission, have contributed to India's rising position in World Skills Competitions. The Skill India Digital platform enhances the skilling eco-system, with transformative progress in skill development and opportunities to mainstream skilling into the education curriculum and upskill the existing workforce.

EXTERNAL SECTOR

India's external sectors have played a crucial role in contributing to the country's economic resilience.

Merchandise Trade: Despite geopolitical tensions, India's merchandise exports surged, reaching a record-high of USD 451.1 billion in FY23, growing more than 50% over the past decade. The merchandise trade balance improved significantly, moving from a deficit of USD 189.2 billion in April-November 2022 to USD 166.4 billion in April-November 2023.

Services Exports: India has emerged as a global IT hub, showcasing consistent growth in Software and IT services exports. Additionally, the country plays a significant role in business process outsourcing, financial services, healthcare, education, tourism, telecommunications, media, real estate and professional services. The sector's contribution to India's GDP is substantial, reflecting its resilience and adaptability. With a focus on innovation, skill development and technology, the services sector continues to play a pivotal role in India's economic growth and global competitiveness.

Diversification and Export Targets: There has been a progressive diversification in India's export basket, with continuous efforts to enhance production capacity and export promotion. The government aims for exports of USD 2 trillion by 2030, with measures like setting export targets, export credit insurance services and encouraging banks to provide affordable export credit to MSME exporters.

Current Account Balance: Service exports and remittances helped maintain a comfortable current account balance, with the current account deficit dropping to USD 17.5 billion in H1 FY24. India is the largest recipient of worker remittances globally, receiving USD 125 billion in 2023, reflecting a shift towards high-skilled jobs.

Capital Account: Despite a negative balance on the current account in H1 FY24, the capital account showed a positive balance, resulting in an accretion of foreign exchange reserves by USD 27 billion since FY23. The stability in the rupee against other currencies, along with foreign portfolio investors' increased exposure, contributed to the positive trend.

FDI Trends: India remains a preferred destination for Foreign Direct Investment (FDI), with a CAGR of 28.0% in FY13-FY23. Cumulative FDI inflows increased from USD 305.3 billion (FY05-FY14) to USD 596.5 billion (FY15-FY23), showcasing resilience despite global economic challenges.

Foreign Exchange Reserves and External Debt: India's foreign exchange reserves stood at USD 623.2 billion, covering imports for more than ten months. External debt is considered comfortable, with prudent management and the short-term debt at 20.1% of total external debt.

International Investment Position (IIP): India's IIP remained stable, with total liabilities increasing by 6.5% (YoY) and total assets increasing by 10.2% (YoY) as of end-September 2023.

Climate Action and Resilience: India has adopted a comprehensive approach to climate action, focusing on adaptation, resilience building and mitigation actions, as reflected in its Nationally Determined Contributions (NDCs). The government has implemented various policies and initiatives to promote renewable energy, energy efficiency and climate-conscious practices.

(Data sourced from 'The Indian Economy: A Review' by the Department of Economic Affairs, Ministry of Finance, Government of India.)

(The author is a New Delhi-based correspondent of an international multimedia news platform. Feedback on this article can be sent to feedback.employmentnews@gmail.com)

Views expressed are personal.