P Chidambaram writes: First advance warning of 2023-24

In 2016-17, the National Statistics Office (NSO) introduced the wholesome practice of publishing the First Advance Estimates (FAE) of National Income of the financial year that is drawing to a close. The estimates will be useful inputs in the making of the Budget for the next financial year. Although based on data available only for the first eight months of the financial year, and some numbers are extrapolated, the estimates contain valuable information. Revenue and expenditure data compiled by the Controller General of Accounts available up to November are also good indicators. They will help the finance minister arrive at the Revised Estimates for the current year and the Budget Estimates for the next year.

Estimates are Mixed Bag

Estimates can go awry. Three or four months is a long time as far as the economy is concerned. No one could have anticipated the outbreak of coronavirus and its rapid spread by the end of March, 2020. All the numbers in the Budget for 2020-21 went for a toss. A Black Swan event like the international financial crisis that hit the world in September 2008 put paid to the estimates of growth, inflation and employment in every country including India.

Some lessons and clues can be drawn from the NSO’s press release dated January 6, 2023. Before I do that, I would like to recall the conclusions that I had drawn in the column of January 1, 2023 (“The Economy we will take into 2023”, The Indian Express). I had set out the outlook for 2023-24 based upon information taken from official and reliable sources. I suggest we look at the FAE and ask whether those conclusions need to be modified.

There are some bright spots: the nominal GDP (15.4 per cent) will be higher than the Budget estimates (11.1 per cent). Revenues are buoyant and may bring the government more money. As a result, it will be easier to achieve the target fiscal deficit of 6.4 per cent.

Consumption driven growth

However, there are a number of dark spots too. Nothing in the FAE would lead to altering my conclusion (based on the RBI Bulletin) that “the balance of risks is increasingly tilted toward a darkening global outlook and emerging market economies appear to be more vulnerable.” What seems to be driving growth in 2022-23 is private consumption (57.2 per cent of GDP). Going forward, private consumption will be hit by steady inflation and high unemployment. The other drivers of growth are flat — the much-touted government expenditure (10.3 per cent of GDP) will be lower than in the previous two years and exports (22.7 per cent of GDP) are flat amidst predictions of a slowdown in global trade (as per WTO).

The other concern is imports which will be 27.4 per cent of GDP. This represents a sharp jump from 19.1 per cent in 2020-21 and 23.9 per cent in 2021-22.

Higher imports without higher exports indicate that we are importing for consumption. This may put pressure on the exchange rate of the rupee, widen the current account deficit and trigger capital flight.

Going by economic activity, the two worrisome numbers are in respect of ‘Mining & Quarrying’ (2.4 per cent growth over last year) and ‘Manufacturing’ (1.6 per cent). These rates are sharply lower than the growth rates recorded in 2021-22. ‘Construction’ will grow at 9.1 per cent in 2022-23, but this will be a decline from the 11.5 per cent recorded in 2021-22. A week after the FAE were released, neither the finance minister nor the ministers concerned have explained the dismal performance of key sectors of the economy.

Production Down, Unemployment Up

The outlook on unemployment is also not bright. The biggest job-creating sectors are Agriculture, Mining & Quarrying, Manufacturing, Construction, and Trade, Hotels, Transport, Communications, etc. Except the last-named (13.7 per cent) there will be flat or tepid growth in the other sectors. These numbers vindicate the CMIE’s estimate of unemployment (all India unemployment rate was 8.3 per cent on January 13, 2023). Instead of addressing the underlying causes of growing unemployment (the message), government is traducing the messenger.

On the production side, the FAE numbers for 2022-23 are depressing. Conceding that the percentage change numbers of 2021-22 were over the pandemic-hit year of 2020-21, nevertheless, the percentage changes in 2022-23 in nearly all major heads point to a perceptible slow down of the economy — e.g., production of rice, crude oil and cement. Cargo handled at major seaports and airports will register lower growth rates than last year. The Railways will record lower growth rates in net tonne kilometers and passenger kilometers. The Index of Industrial Production (IIP) will be in low single digits in Mining (4.0 per cent), Manufacturing (5.0), Electricity (9.4) and Metallic Minerals (-6.5).

Persisting high inflation will add to the economic woes. The WPI of food articles will be 9.6 per cent, of manufactured products will be 7.6 per cent and of all commodities will be 12.3 per cent.

How will the finance minister address these weakness in the Budget for 2023-24? Sops or rhetoric will not lift the economy or alleviate the distress caused by inflation, unemployment and global recession. We need clear policies and determined action. Let’s wait for February 1, 2023.

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