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Saturday, April 13, 2024

A Decade of hits and misses in Bharatiya Economy

Compared with 2019, Bharat’s GDP has increased by about 16% in 2023 (assuming a 6% growth rate for 2023); despite this, employment has not increased. Bharat ranks 5th   In terms of the size of GDP (4,112 bn USD), very close to Japan which is the 4th raking country (4,291 bn USD). 

Unemployment rate fell to 8.7 percent in December, 23 from 8.9 percent in Nov, 23. Still it remained at fairly high levels. Unemployment rate of 8-9 percent is the new normal in Bharat. According to the CMIE Bharat’s workforce has remained virtually stagnant at a little over 400 million over the last five years, which means that the employment has not increased at all. Unemployment rate was 6.64% in Dec, 2018, 5.27% in 2019 and 8% in 2020, 5.98% in 2021, 7.33% in 2022 and 8.1% in 2023.

Between April 2020 and June 2023, a whopping 6 crore workers had migrated back to villages, a major reason for this being disruption to the livelihoods due to Covid-19. (Oxford study). Under- employed workers in agriculture in 2023 constituted 46% of the work force and contributed only 15% of Bharat’s GDP.

Women’s workforce participation rate is rising, but not for the right reasons. Before, Covid, 50% of women were self-employed. Post Covid it rose to 60% which is due to distress led increase in self-employment.

Demographic dividend could become a missed opportunity turning into a burden

Bharat, home to 1.4 billion people, has surpassed China to become the world’s most populous country, according to UN estimates. The UN estimates that Bharat’s population will not begin to decline for another four decades. Bharat is currently a services-orientated economy, with 30.7% of the labour force employed in the services sector, according to International Labour Organization (ILO) estimates. The nation had an unemployment rate of 9.3% in 2022, surpassing the global average of 6.8%, according to the World Bank.

According to the Economic Survey 2018-19, Bharat’s demographic dividend will peak around 2041, when the share of working-age, i.e. 20-59 years, the population is expected to hit 59%.  According to a new UN report, Bharat is experiencing a rapid increase in its elderly population, while the number of individuals below 15 is declining. By 2046, the number of elderly individuals in Bharat will surpass the number of children aged 0-14. The report highlights that there are 14.9 crore persons aged 60 years and above in 2022 (as on 1 July), comprising around 10.5% of the country’s population. But this is estimated to increase to 15% (around 22.7 crore) by 2036. By 2050, the share of older persons will go up to 20.8% (34.7 crore). By the end of the century, the elderly will constitute over 36% of the total population of the country. While the increasing unemployment poses challenge to the growing youth population in finding jobs, in due course of time due to demographic transition Bharat will face a challenge of taking care of its growing elderly population.

Therefore, there is an urgent need to have a strategic policy and action plan in place to align the GDP growth with job creation in order to address the problem of growing unemployment and leverage on the demographic dividend.

Investment cycle-

Shortage of demand led to slow down in the economy since demonetisation. That led to excess capacity in industry, low private investment and slow growth. Private investment, one of the pillars of economic growth, had been lacklustre for a long time. The data of economic survey, 2022-23 indicates that private investment has been shrinking since 2012. (Private sector investment as a share of GDP which was 27% in 2011-12 declined to 19.6 % in 2020-21. Even though, private investment reached an all-time high of Rs. 10.5 lakh crores in January-March, 2023 quarter, as a percentage of GDP it declined to 15%. One reason for cautious private investment is the lacklustre demand. Post Covid, Global markets have excess capacity and competition in export market is much more intense. Economic Survey 2022-23 data also indicates that since 1950 (except for a brief period in the 1980s) private investment has exceeded investment by the government as a percentage of GDP.

The current investment cycle is being driven by public capex, particularly post Covid-19. Investment rate is around 31% of GDP. Both investment and consumption are at around 92% of GDP in 2022 (World Bank) 

The share of Gross Fixed Capital Formation (GFCF) in the GDP has also been falling on a sequential basis in 2022-23. GFCF refers to the aggregate of gross additions to fixed assets (that is fixed capital formation) plus the change in stocks during the counting period. Fixed asset refers to construction, machinery and equipment. GFCF fell from 34.7 per cent in the first quarter (2022-23) to 34.2 per cent in the second, and further to 31.8 per cent in the third. Private Final Consumption Expenditure (PFCE), which denotes the expenditure on all goods and services, rose by just 2 per cent, from Rs 24.26 lakh crore in Q3 of 2021-22 to Rs 24.77 lakh crore in Q3 of 2022-23.

Slowdown in consumption growth

The Household Consumption Expenditure Survey (HCES) 2022-23 said monthly per capita consumption grew by roughly 1.5 times since 2011-12, in both rural and urban areas, with a narrowing of the urban-rural gap, and a drop in food’s share in the consumption basket.

Economists say that historically consumption growth has been nearly at the same level as GDP growth, or slightly lower. However, the current gap, is much wider, at nearly 5 percentage points.

As is evident from the above data, unless the slowdown in consumption growth is arrested and takes an upward movement which leads to growth in the demand, expecting an increase in private investment will only remain a wishful thinking.

Weak links in Bharat’s economy

Manufacturing began shrinking since 2016 onwards, falling to all time low of 13% of GDP in the next four years. It has just climbed back up to pre covid levels (17%). Employment in manufacturing fell as a share of total employment, from 12.8% in 2012 to 11.55 in 2018. It has finally managed to catch up to the 2012 level by 2022. The share of secondary sector in GDP has only marginally increased from 24.7% in 1991-92 to 27.3% in 2019-20, just before the Covid-19 pandemic.

Shift in the pattern of tax revenues

Corporate tax rates were lowered from 30% to 22% in 2019. Newly formed domestic companies benefited from an even lower rate of 15%. In 2019-20 and 2020-21 the country suffered a significant revenue loss of Rs.2.05 lakh crores on account of the tax cut to the corporates. 

In 2019-20 there was a decline (Covid lockdown effect) of 16% in total corporate tax collections, decreasing from Rs.6.63 lakh crore to Rs. 5.57 lakh crores. In FY21, the corporate tax collections decreased from Rs. 5.57 lakh crore to Rs. 4.58 lakh crore. This is in spite of the fact that both listed and unlisted companies recorded substantial net profits. This clearly indicates that the corporate sector has focused on cost control and profitability but not increasing the production as they already have excess capacity since post covid the actual production has come down due to decline in demand.

In the last 10 years, personal income tax collections increased by 117% while corporate tax collections increased only by 28%. Direct taxes as a share of the overall taxes had stood at 54.62 percent in FY23, 52.27 percent in FY22, 46.84 percent in FY21, 52.42 percent in FY 20 and 54.83 percent in FY 19.

Personal tax collections at Rs. 8.33 lakh cr have outnumbered corporate tax collections in FY23, which were around Rs. 8.25 lakh crs.  A deeper analysis of the data by the IT Dept shows that in FY 2019-20 6.47 Crores people filed IT Returns whereas only 3.57 Crore people paid income tax (i.e., 45% were zero tax returns). In FY 2022-23 7.4 Crore people filed IT Returns of which 5.16 Crore people had zero tax liability. (only 1.6% of population or 2.35% of working population paid income tax). 

The direct tax to GDP ratio is expected to reach a high of 6.5% in fiscal year 2023-24 (6.11% in 2022-23). The tax to GDP ratio in Bharat is 11.2% in 2022-23 and expected to be 11.6% in 2023-24. Tax revenue as % of GDP is 27.7% in USA, 39.3% in Germany, 46.1% in France in FY 2023 (Revenue Statistics 2023 Tax Revenue Buoyancy in OECD Countries). Bharat still has a long way to go to be in the league of the countries where the tax revenue as % of GDP is in the range of 25-40%.

Critics argue that instead of giving tax concessions to the corporates amounting to Rs. 2.05 lakh crores post covid, it would have been worthwhile if the government had stepped up its expenditure on health and education. Our total expenditure on education is 2.9% of GDP (FY2022, according to economic survey 2022-23). Total budgeted expenditure on public health is 2.1% of GDP in FY23.  According to OECD Health Statistics 2023, the health expenditure to GDP ratio is 16.6% in USA, 12.7% in Germany and 12.1% in France. Whereas USA spends 6.4% of its GDP towards education (2020), Germany spends 4.53% (2021) and France 5.23%. China which is equally populous like Bharat spends 4.01 % of GDP towards education and 7.05% of GDP towards health.

Bank credit under Priority sector to MSMEs up 40% in FY23 from pre-covid level.

FYAmount (INR Lakh Crs)No of MSME Borrowers (in Lakhs)Year on year growth (%)
202016.13384.18  6.81

According to U K Sinha Committee Report in 2019, the demand for credit in the MSME Sector is around Rs.20- 25 lakh crore.  It can be inferred that a significant portion of credit is still being availed by MSMEs from unorganised sectors like private finance and money lenders. 

As of December 2022, approximately 1.31 crore MSME registered industries employed 9.31 crore people including 2.18 crore women employees. In November, 2023 the number of registered MSMEs rose to 4.06 crore and the people employed increased to 15.03 crores. data from the portal of Udyam).

Overall MSME revenue is expected to reach 1.36 times of the pre-pandemic (fiscal 2020) level in fiscal 2024. Margins are expected to be under pressure this fiscal but will cross pre-pandemic level in fiscal 2024. (CRISIL Research SME Report 2023).


             Estimated number of MSMEs in lakhs.  (activity wise)

 Activity categoryRuralUrbanTotalShare (%)
Manufacturing114.14 82.50196.6531
Electricity    0.03   0.01    0.030
Other services102.00104.85206.8533
Total 324.88309.00633.88100


The Emergency Credit Line Guarantee Scheme (ECLGS) was announced as part of the Aatma Nirbhar Bharat Package in May, 2020 to support eligible MSMEs and other business enterprises to meet their operational liabilities and resume businesses in view of the distress caused by the COVID-19 crisis. This scheme covers all the sectors of the economy. Under this, 100% guarantee is provided to Member Lending Institutions (MLIs) in respect of the credit facility extended by them to eligible borrowers. The scheme was in place till 31.03.2023 with a target of Rs. 5 lakh crore. The ECLGS was implemented by Department of Financial Services (DFS), Ministry of Finance.

As reported by DFS, under ECLGS as on 31.03.2023, total 1.19 crore guarantees amounting to Rs. 3.65 lakh crore have been issued. Out of the total, 1.13 crore Guarantees amounting to Rs. 2.41 lakh crore have been provided to MSMEs.  State Bank of India (SBI) came out with a research report dated 23.01.2023 on ECLGS authored by its Group Chief Economic Advisor. It has been reported that almost 14.60 lakh MSME accounts were saved due to ECLGS scheme (including restructured), of which about 98.30 % of the accounts were in Micro and Small categories, were saved.

The above data indicates that post Covid-19 our MSME sector is on the path of revival and recovery. There is a need to give further policy push for the growth in MSME sector since this sector can help the country in job creation and growth in demand significantly and expansion in private capital investment to some extent. 

Loan write offs

Banks have written off Rs 14.56 lakh crore between 2014-15 and 2022-23. The share of large industries and services in the written-off amount is Rs 7,40,968 crore or 48.36%. The amount recovered during the period is a mere Rs 2.05 lakh crore or 14.07% of the write-offs. 

The amount of provision on account of non-performing assets for the period 2010 to 2015 was Rs 2.43 lakh crore, which rose to a whopping Rs 21.49 lakh crore for the period 2017 to 2022. This shows that the write-off exercise not only entailed a relief to big borrowers but also involved the transfer of a share of profits towards provisioning for bad loans. 


Since its establishment, only 14% of NPA accounts referred to the Insolvency and Bankruptcy Code (IBC), 2016 were resolved through resolution plans. This led to a recovery of 31% of the amount which was due but only with the sacrifice of 69%. The IBC has clearly not proved to be the promised panacea for the NPAs.

According to data collated by Transunion Cibil, a credit information company, there was a notable increase in the number of wilful defaulter accounts at all ‘credit institutions’ between March 2018 and March 2022. During this period, the count of such accounts rose from 20,066 to 31,026, for loan defaults of Rs 1 crore and above. This signifies a 64.67% uptick in the number of accounts.

The above data reveals that there are lacune in policies and gaps in implementation that led to a liberal loan write offs, casual approach in recovery of NPAs and turning a blind eye to wilful defaulters. It is time to address these issues by revising the policies and modifying the laws to make them more effective.

It is a fact the demonetisation in November, 2016 was not successful in unearthing the quantum of black money that was promised by the ruling party at the centre. However, the GST that was introduced in 2017 was more successful compared to demonetisation in expanding the formal economy and enhancing the tax compliance by the small and medium traders. Shift from cash transactions to digital mode post Covid-19 has been very significant compared to post demonetisation.


In 2017 Niti Aayog set a target to double the farmers’ income by 2022 and obviously this set target was not achieved. The average monthly income per agricultural household which was Rs.6,426 in 2014 increased to Rs. 10,218 in 2019. (Source: NSS Report No. 576 SAS (70th Round -2013) and NSS Report No. 587, SAS (77th Round-2019), MoSPI.). The NABARD All India Rural Financial Inclusion Survey (NAFIS) shows that average agriculture household income was a Rs 8,931 per month in 2016-17. Therefore, we have a long way to go in order to ensure doubling the farmers’ income.

Small and marginal farmers with less than two hectares of land account for 86.2% of all farmers in Bharat, but own just 47.3% of the crop area (10th agriculture census 2015-16). Whereas, semi-medium and medium land holding farmers own between 2-10 hectares of land constitute 13.2% of all farmers, but own 43.6% of crop area. The average debt of small holding farmers has risen fivefold in a decade, while farming incomes have not increased proportionately.

Learnings from Covid -19 in Agriculture

During the Covid -19 pandemic many farmers, particularly those who were cultivating perishable commodities like fruits and vegetables had found an opportunity in the crisis by using online networks to eliminate the middlemen and directly sell their produce to the consumers at remunerative prices. Harvesting Farmer Network is one such network that emerged during the lockdown which helps the farmers around the country sell crops and make better profits, as middlemen are either eliminated or reduced, which in turn also benefits the consumers who get fresh produce at relatively lower prices directly from the farmers. This initiative gives a message that one can always find solutions to several problems through out of box thinking.

The three farm laws which the union government had subsequently withdrawn were aimed at bringing in a new format of middlemen (in addition to the existing middlemen in agriculture), i.e., corporate middlemen. This only provides more backward linkages i.e., from market to farm, whereas farmers need forward linkages i.e., from farm to markets through elimination of the middlemen. Drawing lessons from Covid how farmers could enhance their farm incomes through Harvesting Farmer Network by eliminating the middlemen as mentioned above, there is a need to step up the efforts to expand the digital agriculture initiatives like e-NAM, AGMARKNET, under National e- Governance Plan in Agriculture (NeGP-A) to eliminate the middlemen and give direct market access to farmers to enhance their incomes. 

Let us hope that the new government that comes to power shortly (which ever political party it is) post general elections will critically look at the above hits and misses and takes appropriate policy measures for necessary course correction.


  1. Economic Survey, 2018-19.
  2. India Aging Report, 2023 by United Nations Fund for Population Activities.
  3. Household Consumption Expenditure Survey (HCES) 2022-23.
  4. (CRISIL Research SME Report 2023.

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Dr. B.N.V. Parthasarathi
Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 16 years of teaching, research and consulting. 200 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 38 short stories 50 articles and 2 novels published in Telugu. Email id: [email protected]


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