Indian Economy

Economic Survey of India 2024-25: MajorHighlights by Madhusudhanan S

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Economic Survey of India 2024-25: Major Highlights by Madhusudhanan S Economic Survey of India 2024-25: Major Highlights Madhusudhanan S February 8, 2025 Economic Reforms, Indian Economy, Public Policy On 31 January, 2025, the Union Finance Minister tabled the Economic Survey 2024-25 in Parliament. Before going into the major highlights of the Economic Survey, it is pertinent to know what an economic survey is, its preparation and presentation, and its importance. Economic Survey Every year, the Finance Ministry releases the Economic Survey of India, an annual report that evaluates the country’s economic performance during the previous year. It draws attention to macroeconomic indicators, economic development, and the possible future challenges for India. To handle those economic challenges, the economic survey recommends necessary policy changes. Preparation & Presentation The Economic Survey of India is prepared under the supervision of the Chief Economic Advisor (CEA), Department of Economic Affairs, Ministry of Finance. Until 1964, the Economic Survey was presented in parliament along with the Union Budget, after which it was tabled one day before the Union Budget. The first Economic Survey was released in the Fiscal Year (FY) 1950-51. Importance  of Economic Survey The Economic Survey is the most comprehensive and reliable official analysis of the Indian economy. Economic Survey provides the Government’s official framework for decision-making and economic policy considerations. Economic Survey’s recommendations are suggestive and not binding. Economic Survey 2024 – 2025 – Major Highlights  The Economic Survey 2024-25, contains 13 chapters and includes a chapter which talks about whether the Artificial Intelligence era is Crisis or Catalyst for Labour (Labour in the AI era: Crisis or Catalyst). As the Survey is comprehensive, this article summarises the key points into the following seven major themes: State of the Economy Medium-Term Outlook: Deregulation Drives Growth Investment and Infrastructure Industry Service Sector Agriculture and Allied Activities Employment and Skill Development……To read more, download the PDF DOWNLOAD PDF

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Highlights of Economic Survey 2024-25 on Success Stories of Tamil Nadu By B Chandrasekaran

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Highlights of Economic Survey 2024-25 on Success Stories of Tamil Nadu By B Chandrasekaran Highlights of Economic Survey 2024-25 on Success Stories of Tamil Nadu By B Chandrasekaran Chandrasekaran Balakrishnan February 5, 2025 Economic Reforms, Indian Economy, Tamilnadu Economy The Indian economy has been growing at a faster pace than many developed and developing economies. India has a massive goal of becoming a developed nation by 2050. Ascertaining the current status of economies is crucial for planning. Hence, the document of the Economic Survey report plays a vital role in bringing, a nuanced sectoral analysis that is fully packed with qualitative and quantitative data on the overall Indian economy and the regional economies of states. The latest economic survey 2024-25 focuses on “Driving domestic growth and resilience through deregulation” and deals with a wide range of segments like enhancing the productivity in agriculture and manufacturing; targeted measures of climate mitigations; decentralised urban governance; environmental protection by blending of technological innovations, MSMEs, etc. There is essential to understand that there is more need for the deregulation of governance itself as centralized governance in a country like India would be inefficient compared to decentralized local governance. The Survey Report notes, “The demand for state capability and capacity to respond to these developments and make progress on social and economic indicators amidst rising geopolitical conflicts will be unlike anything we have experienced since independence. Meeting that demand is a priority above all else.” Economic Survey also highlights the best practices, good governance, and innovative initiatives of regional economies of states. This exercise helps for replications by other states and bridge the gaps in welfare efforts to improve the lives of people. This analysis focuses on the case of Tamil Nadu whose many works have been highlighted in the Economic Survey 2024-25 as a success stories. Good governance at the regional level provides necessary fillip to growth and development of the region. The survey report highlights that “States have also participated in deregulation by reducing compliance burdens and simplifying and digitising processes. States have tried to reduce the cost of regulations by engaging with businesses to identify pain points. For example, Haryana and Tamil Nadu amended their building regulations 12 times in the past decade to make it easier to build”. In the age of digital revolution, ease of regulations for business operations especially financial operations helps industries to innovate for faster growth of MSMEs. The economic survey highlights that “The Governments of Goa and Tamil Nadu have set an example by adopting the TReDS platform to ensure timely payments to their MSME suppliers. Goa, heavily reliant on tourism, leveraged TReDS during the COVID-19 disruption to enhance supplier liquidity, facilitating payments for over 250 MSMEs since October 2020, with invoice discounts. Tamil Nadu joined TReDS in 2022 under the Raising and Accelerating MSME Performance (RAMP) program, supporting MSMEs in significant numbers. Their proactive adoption has inspired other states to follow suit.” Share of Value Additions Regional economies of states are emerging with competitive edges. About 43% of the total industrial Gross State Value Added (GSVA) during the financial year of 2022-23 at constant 2011-12 prices, comes from just four states such as the western states of Gujarat and Maharashtra and the southern states of Karnataka and Tamil Nadu. For the financial year 2022-23, more than one-fourth of the total services sector GSVA comes from Karnataka and Maharashtra. More than 50% of the total service sector GSVA comes from just a few states like Karnataka, Maharashtra, Tamil Nadu, Utter Pradesh, and Gujarat. These states also have more than 50% of the total industrial GSVA, suggesting that both feed into each other. Financial, real estate, and professional services have very high levels of concentration in a few states. Within the service sector, financial services are highly concentrated with Maharashtra (Mumbai), Tamil Nadu, Gujarat (GIFT City), and Karnataka accounting for more than 50% of total financial services GSVA. Further, more than one-third of real estate, ownership of dwelling, and professional services value added (GSVA) are from Karnataka, Maharashtra, Telangana, Haryana, and Tamil Nadu. Dual strengths–industrial and service: Maharashtra and Tamil Nadu typically represent states with reasonably strong industrial and service sectors. Their diversified economies integrate manufacturing with trade, financial services, real estate, and professional services. Among the larger states, “Tamil Nadu leads the pack with the highest concentration of factories per person, followed by Gujarat. Bihar hardly has any factories, while Uttar Pradesh hardly has any smaller enterprises.” The survey highlights Tamil Nadu’s Strategic Initiatives to Foster Footwear Manufacturing Growth. According to the Economic Survey 2024-25, Tamil Nadu is a leader in the traditional leather sector and now championing the growth of non-leather footwear. The state contributes to a 38% share in India’s footwear and leather products output, contributing to about 47% share in India’s total leather export. This sector generates more than 2 lakh employments. Agriculture and Transforming Rural Economies Economic Survey highlights, states have diversified towards crops where yield is high. For example, Andhra Pradesh diversified towards jowar, Madhya Pradesh towards moong, and Tamil Nadu towards maize. Diversity is also seen in inter-state variations in growth observed from 2011-12 to 2020-21. Andhra Pradesh was the leading performer with a CAGR of 8.8% in agriculture and allied sectors, excluding forestry and logging. Madhya Pradesh followed with 6.3%, and Tamil Nadu came in third with 4.8% among major states. The shift from cultivating traditional flowers to export-focused cut flowers highlights the industry’s transformation. Entrepreneurs across states like Tamil Nadu, Karnataka, Madhya Pradesh, West Bengal, Uttar Pradesh, and Maharashtra have capitalized on this opportunity, establishing sophisticated export-oriented floriculture units. The Rise of Horticulture India’s horticulture sector is more productive and profitable than traditional agriculture, emerging as a fast-growing industry. This can be seen from the fact that India is also a leading exporter, shipping 343,982.34 MT of fresh grapes worth Rs.3,460.70 crore (USD 417.07 million) globally in 2023-2410. Key grape-growing states are Maharashtra, Karnataka, Tamil Nadu, and Mizoram. Maharashtra leads in production, contributing over 67% of total

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Indian Budgets – Missing the Forest For the Trees by Shanmuganathan N

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Indian Budgets – Missing the Forest For the Trees by Shanmuganathan N Indian Budgets – Missing the Forest For the Trees by Shanmuganathan N by Shanmuganathan N February 4, 2025 Economic Reforms, Indian Economy, Indian Liberals I have consciously avoided commenting on Indian budgets despite writing extensively on various macroeconomic issues over the years. For a nation whose economic advisors have been steeped in the Keynesian witchcraft, it would have been easy to dismiss my arguments in favour of individual liberty, limited government and sound money as preposterous, or worse, anti-poor or anti-growth. What has changed now? Today, we have a Javier Milei (current Argentina President democratically elected 1 year back) demonstrating real time that ONLY Libertarianism works. I no longer have to go back to the days of the Classical Gold Standard or Patrick Henry to justify my arguments. So here it is..  On the budget passed – I can discuss income tax exemptions, the supposed ease of doing business, FDI hikes etc. Countless experts have opined but all of those discussions miss the “Forest For The Trees.”   The criticism in this article is valid for all Indian budgets without exception. In fact, there is hardly any difference whatsoever between the UPA and NDA budgets. Incidentally, Congress could have presented the same budget as Ms.Sitharaman did, and the BJP would have dismissed it as anti-growth and Inflationary (…or whatever). If I were to summarize the issue in one phrase that plagues the Indian Economic policy making since Independence, it is “Interventionism” – from a fiscal, monetary, and regulatory perspective. Starting from 1947 would be difficult for this article. However, we supposedly have adopted a reformist path since 1991 and so will start there. How has China leapfrogged India when we were both at the same level in 1991? Should we not even question the basic premise of Indian budgets and the philosophical leanings of our economic advisors? How is it that the Yuan has appreciated over the last three decades vis-à-vis the US Dollar while the Rupee has virtually plummeted with no end in sight? China has a trillion-dollar Annual trade surplus while we run trade deficits—so much for the arguments that a cheaper currency helps in promoting exports. As a country, we have buried our heads in the sands of “The General Theory of Employment, Interest, and Money.” When we should have followed Mises and Rothbard, we have chosen to borrow from Keynes and Karl Marx. In fact, from an economic policy perspective, we are closer to Marx than Keynes today. There is nothing remotely close in our budgets to describe the BJP as a “Right of Center” or “Far Right” party. Economically speaking, it’s even to the left of what the Congress was between 2005 and 2014. Right of Center used to mean something – balanced budgets, reducing regulations, minimum government etc. Today it is a political slogan. But this was the case even with Ronald Reagan so I don’t find any point in picking on current day conservatives. For the record, even Keynes never advocated running deficits during periods of growth. But this is like leaving a bottle of booze unchaperoned in a school and telling kids to drink only in an emergency. No prizes for guessing what would have happened next. Governments around the world, lead by the US, have spent like there is no tomorrow. Fiscal Deficits – The Cancer of Our Economy Firstly, we need to understand the gargantuan size of our deficits. Reporting the deficits as a % of the GDP, notwithstanding the international consensus on this, is a very disingenuous move on the part of Governments. It hides the extent to which the Governments are living beyond their means. Let’s take our FY2025 numbers: Government revenues were Rs.31 Lakh Crore, expenditures were Rs.48 Lakh Crore, and the interest component was Rs.11 Lakh Crore. I am using whole numbers because decimals are truly rounding off errors in the scheme of things. The fiscal deficit was 4.8% of the GDP as reported. I can pick several holes in the accounting principles used to report a lower deficit than is really the case, but I am skipping all of it and jumping ahead. Here is the big picture – The Total Amount available to Government after paying interest on current borrowings was Rs.20 Lakh Crore and they spent Rs.37 Lakh Crore. The Indian Government has overspent to the tune of 85% as compared to what was available to them. So, how does the Government fund the balance of Rs.17 Lakh Crore? That comes through the “Inflation Tax” (though it’s euphemistically referred to as borrowings from the Central Bank). I am simplifying here, but this is not far from the truth. At the end of the day, in essence, what doesn’t get funded directly through taxation gets indirectly funded through inflation. So the cost of Government to the citizens is not what it taxes but what it spends. The above 85% is not an exception. This would be the ballpark from 1991, perhaps even 1947. So what are the consequences of this Interventionism on the Fiscal front by the Government? There is one hallmark of Interventionism that is just plainly obvious to somebody who understands Laissez-Faire economics, but in reality, almost everybody seems to be oblivious to the fact. That Interventionism begets more Interventionism and this begets even more Interventionism becoming an infinite loop. So here are the follow-on effects. Not an exhaustive one by any standards. The deficit is met by the RBI monetization and this is “the monetary Inflation (MI)”. One of the consequences of MI is Price Inflation and this results in high interest rates. RBI then “intervenes” to lower the interest rates below what would be the “Natural Rate of interest”. This artificially low interest rate leads to the business cycle (refer “Austrian Business Cycle Theory”) or what is more commonly known as the boom-bust cycle. This leads to artificially high asset prices eventually resulting in the bursting of

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A-liberal-vision-for-india

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A liberal Vision for India A liberal Vision for India Indian Economy February 23, 2012 Chandrasekaran Balakrishnan  In 2011, India made a distinct turn away from economic freedom with the failure of FDI in retail and the Cabinet nod for the so-called Food Security Bill—‘food’ for none, job ‘security’ for babus and a ‘bill’ for the rest of us. This turn towards statism will not be without terrible consequences. In spite of the two decades of progress brought about by a marginal increase in economic freedom, India has lost the plot. The question is why. At least in part it is because economic freedom is not, and was not even in 1991, defended as a matter of principle. To defend opening up of the retail sector to foreign investors or doing away with import duties on used cars as singular measures is playing in socialist terrain, for those against liberty will point to specific gains from curtailing freedoms while promoters of freedom have only yet unknown gains to offer. There is an urgent need to change the very terrain of public policy debate in India, and we must begin by paying heed to the following passage from Nobel Prize winner, F A Hayek’s book The Constitution of Liberty: “…freedom is almost certain to be destroyed by piecemeal encroachments. For in each particular instance it will be possible to promise concrete and tangible advantages as a result of curtailment of freedom, while the benefits sacrificed will in their nature always be unknown and uncertain. If freedom were not treated as the supreme principal, the fact that the promises which a free society has to offer can always be only chances and not certainties, only opportunities and not definite gifts to particular individuals, would inevitably prove a fatal weakness and lead to its slow erosion”. And a defence of liberty as a principle ought to offer a vision for India—a vision with answers to three fundamental questions. One, how can India become rich? Two, what about income-inequality? And three, what about the caste-system? We look at each in turn. One, how can India become rich? Modern economic growth happens through widespread application of science to production processes. And this happens not by government intervention but by entrepreneurship. Simon Kuznets, who won the Nobel Prize in 1971, tells us that “many economically important inventions of the late nineteenth and early twentieth centuries were the results of attempts to apply new scientific discoveries, attempts by people like Edison and Marconi who were no scientists but who understood the scientific advances and were impelled to look for practical applications”. The Soviet Union despite having had a very high number of PhDs per capita at one point did not produce a single innovation in consumer goods! This is because entrepreneurs bloom only in free market economies. Economists James D. Gwartney, Randall G. Holcombe, and Robert A. Lawson in a cross-country study of 99 countries for the period 1980-2000 find that “holding constant geographic factors and changes in human and physical capital, a one-unit increase in a country’s EFW [an index of economic freedom] rating increases the growth of per capita GDP by about 1.24 percentage points.” And 1.24 is not a small number; with the magic of compound interest a two unit increase in EFW could by itself double incomes in 29 years. In short, both theory and history tell us that the only – and yes only – way ordinary Indians can become wealthy is through a market economy. Two, what about income distribution? The market process is a leveling process both on the production and consumption side. A characteristic feature of a laissez faire economy is the introduction of new products and new production methods. This means capital employed in old production methods continuously become obsolete, and the wealth of owners of that capital depreciates in value. New entrepreneurs rise to riches and old fall, Vilfredo Pareto called this the “circulation of elites”. The elite in capitalism (unlike in Feudalism or Communism) are like the occupants of a hotel, the hotel is always full but never of the same people! That is the story on the production side. As for the consumption side, suffice it to quote the great Joseph Schumpeter: “the capitalist achievement does not typically consist in providing more silk stockings for the queen but in bringing them within the reach of factory girls…” The vast majority of government redistribution plans appear pale in contrast to the capitalist redistributive process. And redistribution through profit- motive rewards success in serving others unlike redistribution through vote-motive which reflects success in stealing from others. Lastly, what about the caste system? Capitalism nailed feudalism in the Western Europe, and it promises to do far worse to the caste system in India. Kuznets tells us that “Amongst the concomitants of modern economic growth are…an increase in the non-personal forms of economic organisation, and a rise in the relative important of economic achievement in the scale of social values”. Non-personal forms of economic organisation—no city dweller knows the caste of her milk producer—limits the domain of discrimination. And the growing influence of economic achievement flies in the face of by- birth social values. Interesting fairly modest increases in economic freedom seems to have brought above significant improvements for Dalits in India. In a 2011 paper, University of British Columbia scholars Hnatkovska, Lahiri and Paul find that wage gaps between Scheduled Castes (people from the bottom rung of the Hindu caste system) and non- Scheduled Castes have declined since the 1980s. This is no surprise, profit seeking firms link wages to worker productivity, not caste! Progress however is not merely an income- story. A recent survey of 19,087 Dalit families in two districts of Uttar Pradesh found that access to markets had improved Dalit grooming and eating practices, and increased access to jobs traditionally considered to be non-Dalit. In short, a market economy is the antidote to the age old caste system. And unlike the government’s lets-enlighten-the- masses

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