Exports to jobs: 5 macro signals FM should heed ahead of Budget 2024

Informal Sector Employment and PM SVANidhi Expansion

• Informal Sector Employment: The Annual Survey on Unincorporated Sector Enterprises reveals that India’s informal sector employment remains below pre-pandemic levels, especially in manufacturing, which saw a significant loss of jobs over the seven-year period.
• Government Response: President Droupadi Murmu’s announcement to expand PM SVANidhi to include street vendors in rural and semi-urban areas is seen as a positive step towards rejuvenating the informal sector.

Rural Consumption Slowdown

• Private Spending Decline: Private final consumption expenditure slowed to 4% in FY24 from 6.8% in FY23, indicating a slowdown in rural spending which contracted for the third consecutive quarter in Q4 FY24.
• Factors: The decline in rural spending is attributed to various factors including poor reservoir levels, farm exports, tractor sales, and fertilizer sales, alongside muted rural wage growth.

Foreign Direct Investment (FDI) Trends

• FDI Inflows: FDI equity inflows contracted by 3.5% in FY24, reaching a five-year low of $44.42 billion.
• Challenges: Factors such as high interest rates in advanced economies and limited absorptive capacity in domestic sectors contributed to the decline.
• Recommendations: Further liberalization in sectors like insurance, e-commerce, and multi-brand retail is suggested to attract more FDI. Redrafting the Bilateral Investment Treaty document could boost investor confidence.

Export Challenges

• Merchandise Exports: India’s merchandise exports declined by 3% in FY24 to $437.1 billion, with labor-intensive sectors like leather, gems and jewellery, textiles, and sports goods facing significant contractions.
• Measures Needed: Suggestions include extending schemes like the interest equalization scheme for MSMEs and creating dedicated funds for enhancing export capacities and promoting products.

Banking Sector Challenges

• Deposit Growth: The credit-deposit ratio indicates a widening gap due to slow growth in current and savings account (CASA) deposits.
• Term Deposits vs. CASA: While term deposits are growing at a robust rate, CASA growth is sluggish, particularly affecting public sector banks with only 5.2% growth in CASA deposits.

Conclusion

The economic challenges outlined underscore the need for targeted policy interventions in areas such as informal sector support, rural spending revival, FDI promotion, export enhancement, and banking sector reforms. Addressing these issues could pave the way for sustainable economic recovery and growth in India.