In today’s Finshots, we provide a simplified analysis of the 2023-2024 Economic Survey.
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Yesterday, Finance Minister Nirmala Sitharaman presented the annual Economic Survey in the Lok Sabha. This is, in a way, important for us at Finshot, as it gives us a glimpse into where the economy is heading. And this year’s survey contains a number of interesting observations.
So let’s get started.
The most controversial part of the report can be traced back to a few lines in chapter two.
I won’t quote the excerpt here. It just says that many young investors see the stock market rising and think that this rise will continue, so they jump into the stock market. They may be a bit too optimistic, expecting big returns without fully understanding that the market could also fall. And if people liquidate their savings and deposits to make money in the stock market, this could have real implications for themselves and the banking ecosystem as well. After all, if banks are unable to mobilize deposits, this could have an impact on borrowers and so on.
This has got several people talking: Is it true that people are putting their savings into the stock market?
Well, in a way, yes. It’s been a great year for mutual funds, with total assets under management growing by nearly 35% to Rs 5.3 lakh crore. This means India is increasingly warming to the idea of fully embracing financial markets. But some investors are also finding opportunities to sell off their holdings (thanks to the massive rise in stock prices) and dip into real estate investments.
In 2023, residential property sales in India recorded the highest since 2013, registering a growth of 33% with a total of 410,000 units sold in the top eight cities.
Looking at this data, you could argue that some of the household savings is moving away from banks. But you could also argue that this is a smart diversification strategy. This money is going into mutual funds and real estate. And that’s what most people in the developed world are doing.
This is an opportunity for banks to improve their services. Instead of complaining that people are only looking out for their own profits, maybe it’s time to offer higher interest rates on savings accounts.
Now, on to inflation. Nothing particularly important here. India has managed inflation better than most countries since COVID. Sure, there have been occasional price hikes in tomatoes, tar, milk etc. but most of that was down to bad weather. That is the nature of inflation in India. Bad weather leads to higher prices and the report correctly points out that the government may need to promote the cultivation of pulses in more districts (and in areas with irrigation facilities). And it may also need to invest in better storage and processing facilities to eliminate food wastage.
There’s also an interesting mention of edible oil. Domestic consumption of edible oil is growing faster than production, leading to increased import dependency. Certainly, this does not bode well for our future. So, perhaps we need to look at that.
Then there is the issue of employment. India’s employment prospects are undoubtedly improving. Almost all indicators point to this aspect. But there is a problem that cannot be ignored: only 4.4% of India’s youth workers have any formal skills. This means that most young workers do not have any formal job-specific training or education. This could be a big problem, especially considering that India’s economic growth depends on the realization of the potential of its young workers.
Will AI play a role in this?
The economic survey does not provide any definitive conclusions, but it does provide some perspective.
The paper cites the example of David Ricardo (a British economist) and the evolution of his thinking about technology and labor during the early Industrial Revolution. Initially, Ricardo believed that machines would not reduce the demand for labor. However, the impact of technologies such as the power loom, which replaced artisan weavers and reduced wages, caused Ricardo to change his mind. By 1821, Ricardo suggested that if machines could perform all tasks, the need for human labor might be eliminated entirely.
What is the moral of this story?
Well, perhaps the authors of the Economic Survey feel that increased caution should be exercised in introducing AI solutions into the workforce, lest they completely replace the human workforce.
There may be a balance to be struck here.
There is also a very important mention of unpaid work.
This invisible domestic work done by women is usually ignored in labour force and GDP calculations, but it has been variously assessed as highly valuable yet invisible. However, a recent report puts the economic value of unpaid domestic and care work by women in India at 15-17% of GDP. That’s a pretty big number, right?
Climate change is also a clear focus in the document. Of course, there’s a lot to unpack here, but considering this is a quick 3-minute newsletter, we’ll focus on one interesting detail we came across: their efforts to conserve water.
In Navanagar, Gujarat, farming had made groundwater salinity unsustainable due to low water levels. To solve this problem, local farmers, with the support of the Water Resources Department and the Gujarat Green Revolution Company, rehabilitated their village pond by connecting it to the Guhai Dam. They deepened the pond, built a reservoir, and installed pumping facilities, all at their own expense. They also installed a piped water system and adopted drip irrigation, which has significantly increased crop diversity and productivity while reducing water and electricity use. This is an example of a community working with the government to solve a real problem caused by humans and climate change.
And, of course, India is looking to grow its economy while reducing its carbon footprint, which means balancing higher energy demand with cleaner, more sustainable energy sources.
The document also spends a great deal of time extolling the virtues of government and the progress we’ve made in many areas of life. There’s not much criticism or introspection, if that’s what you’re expecting. But there are beautiful passages that offer sage advice.
In the preface the author states:
By letting go of control over areas where it is not needed, the Indian government can free up its capacity and increase its ability to focus on areas where it is needed. The licensing, inspection and compliance requirements that all levels of government continue to impose on businesses are an onerous burden. Compared to history, the burden is lighter. But it is still far heavier than it should be. The burden is felt most acutely by the small and medium-sized enterprises that are least prepared to bear it. It holds them back, stifles their aspirations, and in the process holds the country back. On the surface, it doesn’t seem to matter as economic growth rates are good and there are signs of progress. But the counterfactual, “what might have been,” will never be known.
Quoting the Ishopanishad, the authors say: “Power is a precious asset to a government. It can give up at least a part of it and enjoy the lightness that power brings to both the rulers and the ruled.”
I hope today’s Budget captures this sentiment.
Until then…
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