STATE OF THE ECONOMY:

01
STEADY AS SHE GOES CHAPTER

BUDDHI IAS ACADEMY

India’s calibrated response to the pandemic on the economic front included three salient
components. The first has been the focus on public spending on infrastructure, which
kept the economy afloat by creating a strong demand for jobs and industrial output
and triggered a lagged yet vigorous private investment response. Stronger balance
sheets of the financial and non-financial private sector helped, aided by a decade of
supporting initiatives by the Government and the Reserve Bank of India. The second has
been partly a natural response of business enterprise and public administration amidst
adversities, i.e., digitalisation of service delivery. The public policy focus and nurturing
of processes and frameworks in digital technology greatly helped this irreversible and
transformational change. The third has been embodied in the Atmanirbhar Bharat
Abhiyan in terms of targeted relief to different sectors of the economy and sections of
the population, and structural reforms that assisted a firm recovery and increased the
medium-term growth potential.

Global troubles, supply chain disruptions, and vagaries of monsoons intermittently

stoked domestic inflationary pressures, which were, to a great extent, managed by
administrative and monetary policy responses. The fiscal balances of the general
government—central and State Governments taken together - have improved
progressively despite expansionary public investment. Tax compliance gains driven
by procedural reforms, expenditure restraint, and increasing digitisation helped
India achieve this fine balance. The external balance has been pressured by subdued
global demand for goods, but strong services exports largely counterbalanced this.
Global output is now somewhat more resilient than in 2022, inflationary pressures are
shrinking, and trade is set to recover, should there be no further geo-political shocks
or flare-ups. However, the chances of geopolitical disturbances and conflicts have only
gone up in recent times.

The net impact of these developments has been that the Indian economy recovered and
expanded in an orderly fashion in the last three years. The real GDP in FY24 was 20
per cent higher than its level in FY20, a feat that only a very few major economies
achieved, while also leaving a strong possibility for robust growth in FY25 and beyond.
Growth has been inclusive with a reduction in unemployment and multi-dimensional
poverty and an increase in labour force participation. Overall, the Indian economy
looks forward to FY25 optimistically, anticipating broad-based and inclusive growth.
Economic Survey 2023-24

GLOBAL ECONOMIC SCENARIO

1.1 After a year marked by global uncertainties and volatilities, the global economy achieved
greater stability in 2023. While uncertainty stemming from adverse geopolitical developments
remained elevated, global economic growth was surprisingly robust. As per the World Economic
Outlook (WEO), April 2024 of the International Monetary Fund (IMF)1, the global economy
registered a growth of 3.2 per cent in 2023, though marginally lower than in 20222 and average

Chart I.1: Growth: Context matters.

Macroeconomic and political situation of the global economy
2011 to 2019 average
5.2

8.7

6.8 3.7
3.5
3.5

3.2 3.5
0.5

2022 2023
2022 2023 2022 2023
Export volume growth of goods
Real GDP growth (%) CPI Inflation (%) and services (%)

2011 to 2019 average

1.8
1.6 2.2
1.5
157.6

121.7

95.2

-0.1
-0.6
2022 2023
2022 2023 2022 2023
Global Supply Chain Pressure
FDI Outflows (% of GDP) Geopolitical Risk Index
Index

Source: World Economic Outlook Database, April 2024, IMF, UNCTADstat database, Federal Reserve Bank of
New York, Economic Policy Uncertainty; Notes3,4

1 International Monetary Fund, World Economic Outlook, April 2024, page 10 (https://tinyurl.com/38cuxrbw)
2 International Monetary Fund, World Economic Outlook, October 2023, page 12 (https://tinyurl.com/y3xdpktk)
3 Geopolitical Risk Index is based on a tally of newspaper articles covering geopolitical tensions. Ten newspapers
are considered. The index is calculated by counting the number of articles related to adverse geopolitical events
in each newspaper for each month (as a share of the total number of news articles). A lower value indicates lower
risk.
4 Global Supply Chain Pressure Index readings measure standard deviations from the index’s historical average. A
higher value indicates increased supply chain pressure.

2
 State of the Economy

for 2011-19 but higher compared to the projection of 2.8 per cent as per the April 2023 WEO5.
The context in which the growth of 3.2 per cent in 2023 has been achieved is markedly different
compared to the 2011-19 period. Inflationary pressures have been significantly higher on
account of the persistence of core inflation. Global trade moderated due to rising geopolitical
tensions, cross-border restrictions and slower growth in advanced economies (AEs). The
muted trade growth occurred despite the easing of supply chain pressures. Further, geopolitical
developments and monetary policy changes across countries resulted in increased caution
among investors, culminating in moderation in foreign direct investment (FDI) flows.

Chart I.2: Global economy registers strong growth

2022 2023 (Apr-23) 2023 (Apr-24) 2011 to 2019 average

6
4.8
5 BUDDHI IAS ACADEMY
4 3.5
Per cent

3
1.9
2
1
3.5 2.8 3.2 2.6 1.3 1.6 4.1 3.9 4.3
0
World Output Advanced Economies Emerging Market and Developing
Economies
Source: World Economic Outlook Database, April 2024 and April 2023, IMF

1.2 Both emerging market economies (EMEs) and AEs achieved higher growth in 2023 than
projected a year ago. Almost all major economies have surpassed the pre Covid-19 pandemic
(hereinafter as pandemic) real gross domestic product (GDP) levels in 2023. However, growth
has been diverse across countries, raising prospects of increasing divergences. Some economies,
including India and China, have attained GDP levels 20 per cent higher in 2023 compared to
2019 levels. Among AEs, the US witnessed continued growth momentum. However, economic
activity remains subdued in the Euro area, although the magnitude of the downturn has eased.

1.3 The stark difference in the economic performance of countries has been on account
of domestic structural issues, uneven exposure to geopolitical conflicts and the impact of
monetary policy tightening. The economic shocks resulting from the Russia-Ukraine conflict
had an outsized impact on Europe, leading to subdued growth in large countries like Germany
and France. The US also faced high inflationary pressures and consequently raised the policy
rates substantially. But, the pass-through to outstanding household mortgages was limited on
account of the high share of fixed-rate mortgages and corporate debt being termed out at fixed

5 International Monetary Fund, World Economic Outlook, April 2023, page 9 (https://tinyurl.com/2empx2dn)

3
Economic Survey 2023-24

rates6, limiting the impact of higher policy rates on economic activity7. India registered a steep
decline in economic growth during the pandemic but recovered swiftly, aided by strong private
consumption and government impetus to infrastructure investment. China, on the other hand,
had only a slight moderation in growth during the pandemic on account of swift policy actions,
including a high vaccination rate8, but growth has slowed subsequently due to structural issues.
Japan, post-pandemic, went through subdued growth but is expected to turn around in 2024,
driven by a weak yen and improved consumer spending.

Chart I.3: All major economies have surpassed pre-pandemic GDP levels

Year in which crossed

pre pandemic GDP Ratio of GDP (constant prices,
(constant prices, national currency) in 2023 to
national currency) corresponding level in 2019
Brazil 2021 107
China 2020 120
France 2022 102
Germany 2022 101
India 2021 120
Indonesia 2021 112
Italy 2022 103
Japan 2023 101
Mexico 2022 104
South Africa 2022 101
Thailand 2023 100
United Kingdom 2022 102
United States 2021 108
Source: World Economic Outlook Database, April 2024, IMF, National Accounts Statistics, Ministry of Statistics
and Programme implementation; Note: In IMF data, for India 2021 represents 2021-22 (FY22)

1.4 Apart from GDP estimates, other indicators tracking the performance of the economy
also point towards growth resilience. Leading indicators suggest an upturn in global economic
activity. The JP Morgan global composite Purchasing Managers’ Index (PMI)9 registered an
uptick since October 2023 with quicker expansion across both manufacturing and service
sectors. The JP Morgan global manufacturing PMI has been improving and stood at a 23-month
high in May 202410.

6 Termed out is a financial concept used to describe the transfer of short-term debt to long-term debt, allowing
companies to improve their working capital and take advantage of lower interest rates.
7 de Soyres, F., Herrero, J. G. C., Goernemann, N., Jeon, S., Lofstrom, G., & Moore, D. (2024). Why is the US GDP
recovering faster than other advanced economies?.
8 People’s Republic of China: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the
Executive Director for the People’s Republic of China, IMF (https://tinyurl.com/5456sf94)
9 J.P.Morgan Global Composite PMI (https://tinyurl.com/3ddjnymx)
10 J.P.Morgan Global Manufacturing PMI (https://tinyurl.com/2uabuyb7)

4
 State of the Economy

Chart I.4: Global PMI also corroborates strong growth momentum

Composite Manufacturing Services
56

54

52
Index

50

48

46
Jan-23
Jul-22

Jan-24
Aug-22

Oct-22
Nov-22
Dec-22

Jul-23

Oct-23
Aug-23

Nov-23
Dec-23
Apr-22
May-22
Jun-22

Apr-23
Sep-22

Jun-23

Apr-24
Feb-23
Mar-23

May-23

Sep-23

Mar-24
Feb-24

May-24
Source: S&P Global, PMI Press Releases11

1.5 The escalation of the Red Sea crisis amid heightened geopolitical tensions in the
Middle East in October 2023 led to supply chain disruptions, sending ripples to global trade
and operations. The attacks on commercial shipping in the Red Sea led to increased global
transportation costs, reflecting the rerouting of cargo. However, the increase in supply chain
pressures was transient and modest. Similar sentiments were reflected in the softening of
risk perceptions. The geopolitical risk index, which spiked after the escalation of the conflict,
declined thereafter. However, geopolitical risks are still high and persistent and may worsen in
the coming months.

Chart I.5: Easing of global supply Chart I.6: Geopolitical risk perceptions
chain pressure have softened since October 2023

Global Supply Chain Pressure Index 330 Geopolitical Risk Index

4
280
3

2 230
Index
Index

1
180
0

-1 130

-2 80
Nov-22

Nov-23
Sep-23
May-22
Jul-22
Sep-22

May-23
Jul-23

Jan-24

May-24
Jan-22

Jan-23

Mar-24
Mar-22

Mar-23

Oct-22

Oct-23
Apr-22
Jul-22

Apr-23
Jul-23

Apr-24
Jan-22

Jan-23

Jan-24

Source: Federal Reserve Bank of New York Source: Economic Policy Uncertainty

1.6 As the supply chain pressures eased and energy and food price shocks triggered by the
Russia - Ukraine conflict faded out, headline inflation across countries declined. After peaking

11 PMI values range between 0 and 100. Value greater than 50 implies expansion. Values below 50 implies contraction.

5
Economic Survey 2023-24

in 2022, inflationary pressures declined considerably in 2023. However, inflation is still above
the target in many countries. The easing of supply-chain pressures in tradeable goods in 2023
led to sharp decline in goods inflation in various countries, reducing logistic challenges. Core
inflation remained sticky on account of services inflation and a strong labour market, especially
in most AEs.12

Chart I.7: Declining inflationary Chart I.8: Policy rates

pressures across countries remain high
12 World AEs EMDEs Apr-21 Apr-22 Apr-23 May-24
7
10
6
8 5
Per cent

6 4

Per cent
4 3
2
2
1
0
0
2019

2020

2021

2022

2023

2024

China UK India Japan US Euro

-1
Area
Source: World Economic Outlook Database, April 2024, Source: Central Bank Policy Rates, BIS Data Portal
IMF; Note: Data for 2024 is forecast
BUDDHI IAS ACADEMY

Chart I.9: Moderation in global commodity price indices

Source: Pink Sheet, World Bank; Note: Data as accessed on 1 July 2024.

1.7 The persistence of core inflation prompted many central banks to maintain policy rates at
a high level or further increase them in 2023, except in China, where the government focussed
on giving policy stimulus to revive the economy beset with troubles in the real estate sector.
Many central banks have hinted at the peaking of the interest rate hike cycle in recent monetary

12 BIS Quarterly Review, March 2024 Sectoral price dynamics in the last mile of postCovid-19 disinflation (https://
www.bis.org/publ/qtrpdf/r_qt2403.pdf)

6
 State of the Economy

policy review meetings. European Central Bank (ECB) became the first major central bank to
cut its policy rate, invoking the first rate cut in nearly five years. ECB lowered its benchmark
deposit rate by a quarter percentage point in June 2024. The Federal Open Market Committee
(FOMC) participants’ assessments also indicated rate cuts in 2024, though the projected
interest rate cut in the latest FOMC meeting (June 2024)13 is lower than that projected in
March 2023. Stronger-than-expected labour market data and persistent inflationary pressures
have been a major factor behind the Federal Reserve’s (the Fed) reluctance to lower rates. As
indicated in the FOMC Meeting statements, from early January 2024 onwards, communication
by the Fed increasingly pushed back to dispel excessive market optimism. However, market
pricing of various financial instruments indicates greater investor conviction in earlier and
deeper rate cuts. This is reflected in the inversion of the yield curve (short-term yields are
higher than long-term yields), implying investor expectation of future policy rate cuts. Financial
market participants have also eyed a much easier stance, as reflected in the significant easing
of National Financial Conditions in the US in 2023 compared to March 2022, when the Fed
began raising rates. Expansionary fiscal policy and the easing of financial conditions have, to
a degree, neutralised the monetary policy tightening of the Fed, leaving unanswered questions
on the future trajectory of inflation and the US dollar.

Chart I.10: Inversion of US yield curve Chart I.11: Financial conditions

reflecting enhanced expectation of have eased in the US
rate cut
Gap between US 10 and 2 year
National Financial Conditions
0.4 bond yield 0.1
Index
0.2
-0.1
0
-0.2
Per cent

-0.3
-0.4
-0.6 -0.5
-0.8
-1 -0.7
01-Jan-22

01-Jul-22

01-Jan-23

01-Jul-23

01-Jan-24
01-Sep-22

01-Sep-23
01-Nov-22

01-Nov-23
01-Mar-22
01-May-22

01-Mar-23
01-May-23

01-Mar-24
01-May-24

-1.2
Oct-22
Jan-23

Jan-24
Jul-22

Jul-23
Oct-23
Apr-22

Apr-23

Apr-24

Source: Federal Reserve Bank of St. Louis Source: Federal Reserve Bank of Chicago; Note14

1.8 On the fiscal front, global general government fiscal deficit (as a per cent of GDP) rose by
1.6 percentage points in 2023 compared to last year. This increase primarily stemmed from a
year-on-year (YoY) decline in revenues as windfall revenues from inflation for oil-producing

13 FOMC Projections materials, June 12, 2024 (https://tinyurl.com/2574674a)

14 The NFCI is constructed to have an average value of zero and a standard deviation of one over a sample period
extending back to 1971. Positive values of the NFCI have been historically associated with tighter-than-average
financial conditions and vice versa.

7
Economic Survey 2023-24

and commodity-exporting countries waned while expenditures remained largely stable (IMF
Fiscal Monitor, April 202415). Consequently, global public debt also inched up in 2023.

Chart I.12: Fiscal deficit edged up Chart I.13: Uptick in global debt
across countries in 2023
General Government Fiscal Deficit as a per cent of GDP in 2023
Change in Fiscal Deficit as a per cent of GDP in 2023 over 2022
10 99.4

Per cent of GDP

94.7
6 93.2
Per cent

4 91.3
2
0
84.2
-2
AEs

EMDEs

UK
World

US

China

South Africa
India
Brazil

2019 2020 2021 2022 2023

Source: Fiscal Policy in the Great Election Year, Fiscal Monitor, IMF, April 2024

1.9 Despite strong global economic growth, as per the WEO data, the global volume of exports
of goods and services registered a modest growth of 0.5 per cent in 2023 compared to 2022.
The slow growth was driven by lower demand in developed economies and weaker trade in East
Asia and Latin America (UNCTAD March Update 2024)16. High energy prices and inflation
weighed heavily on the demand for manufactured goods, resulting in a decline in world
merchandise trade volume for 2023. On the other hand, developments in the services trade were
more upbeat, partly offsetting the decline in goods trade (WEO, IMF Database, April 2024).
Recurring disruptions, especially since the Russia-Ukraine crisis and increased concerns about
supply-chain resilience also contributed to the slowdown. There is a reallocation of trade along
geopolitical lines, with rising cross-border trade restrictions. About 3,000 new restrictions on
trade were introduced in 2023, according to Global Trade Alert data (IMF, WEO, April 2024)17.

1.10 Concerns regarding geopolitical conflicts, high borrowing costs and global economic
fracturing were also reflected in weakening FDI flows. Global FDI flows declined in 2023
compared to 202218.

15 Fiscal Policy in the Great Election Year, Fiscal Monitor, IMF (https://tinyurl.com/bdfxk7c5)
16 Global Trade Update, March 2024, UNCTAD (https://tinyurl.com/pe87zewe)
17 World Economic Outlook, April 2024, International Monetary Fund, page 14 (https://tinyurl.com/38cuxrbw)
18 World Investment Report 2024, UNCTAD (https://tinyurl.com/2u48tsuc)

8
 State of the Economy

Chart I.14: Merchandise trade growth Chart I.15: Weakening

declines in 2023 FDI inflows
Volume of exports of goods and services
Volume of exports of goods 2022 2023
1500
15.0
1200
10.0

USD Billion
Growth (Per cent)

900
5.0
0.5 600
0.0
300
-0.4
-5.0
0
-10.0 World Developed Developing
2019 2020 2021 2022 2023 Economies Economies
Source: World Economic Outlook Database, April 2024, IMF Source: World Investment Report 2024, UNCTAD

A RESILIENT DOMESTIC ECONOMY

1.11 India’s economy carried forward the momentum it built in FY23 into FY24 despite a gamut
of global and external challenges. The focus on maintaining macroeconomic stability ensured
that these challenges had minimal impact on India’s economy. As a result, India’s real GDP grew
by 8.2 per cent in FY24, posting growth of over 7 per cent for a third consecutive year, driven by
stable consumption demand and steadily improving investment demand. On the supply side,
gross value added (GVA) at 2011-12 prices grew by 7.2 per cent in FY24, with growth remaining
broad-based. Net taxes at constant (2011-12) prices grew by 19.1 per cent in FY24, aided by
reasonably strong tax growth, both at the centre and state levels and rationalisation of subsidy
expenditure. This led to the difference between GDP and GVA growth in FY24.

Chart I.16: Carry-forward of momentum in economic growth

Nominal GDP (₹ lakh crore) Real GDP Growth (per cent) (RHS)
350 12
10
Nominal GDP (₹ lakh crore)

300
8
250 6
4
Per cent)

200
2
150 0
100 -2
-4
50
-6
0 -8
FY20 FY21 FY22 FY23 FY24
(2nd RE) (1st RE) (PE)
Source: Statement 13: Annual and Quarterly Estimates of GDP at Constant Prices, and Annual and Quarterly
Estimates of GDP at Current Prices 2011-12 Series, National Accounts Data, MoSPI; Note: RE – Revised Estimates,
PE – Provisional Estimates

9
Economic Survey 2023-24

1.12 The shares of the agriculture, industry and services sector in overall GVA at current prices
were 17.7 per cent, 27.6 per cent and 54.7 per cent respectively in FY24. GVA in the agriculture
sector continued to grow, albeit at a slower pace. Erratic weather patterns during the year
and an uneven spatial distribution of the monsoon in 2023 impacted overall output. This is
reflected in the marginal decline in total foodgrain output for FY24 of 0.3 per cent as per the
third advanced estimate of foodgrain production released by the Ministry of Agriculture and
Farmers’ Welfare (MoAFW).19

Chart I.17: Broad-based growth Chart I.18: Private consumption steady

as investment drives growth
Agriculture Industry 140 PFCE GFCF Exports

Per cent share in GDP (current

15 Services 120
Real GVA growth (per cent)

10 9.5 100
7.6 80

prices)
5
1.4
60
0
40
-5 20

-10 0

(1st RE)
(2nd RE)
FY20

FY21

FY24
FY20 FY21 FY22 FY23 FY24

(PE)
FY23
FY22
(2nd RE) (1st RE) (PE)

Source: Statement 12: Annual and Quarterly Estimates of GDP at Current Prices, 2011-12 Series, and Statement
13: Annual and Quarterly Estimates of GDP at Constant Prices, 2011-12 Series, National Accounts; Note: PFCE –
Private Final Consumption Expenditure. GFCF – Gross Fixed Capital Formation

1.13 Within the industrial sector, manufacturing GVA shrugged off a disappointing FY23 and
grew by 9.9 per cent in FY24. Manufacturing activities benefitted from reduced input prices
while catering to stable domestic demand. The input price advantage was reflected in the
subdued growth in the Wholesale Price Index (WPI) inflation, which led to a deflator of (-)1.7
per cent for the manufacturing sector during FY24. Manufacturers also passed on the reduction
in input prices to consumers, reflected in the sustained decline in the core consumer price
inflation. The strength of manufacturing is further corroborated by the strong performance of
the HSBC India PMI for manufacturing, which consistently remained well above the threshold
value of 50, indicating sustained expansion and stability in India's manufacturing sector.
Construction activities displayed increased momentum and registered a growth of 9.9 per cent
in FY24 due to the infrastructure buildout and buoyant commercial and residential real estate
demand.

1.14 Various high-frequency indicators reflect the growth in the services sector. Both Goods
and Services Tax (GST) collections and the issuance of e-way bills, reflecting wholesale and
retail trade, demonstrated double-digit growth in FY24. Financial and professional services

19 https://tinyurl.com/2eekevhu

10
 State of the Economy

have been a major driver of growth post the pandemic. Contact-intensive services—prominently
trade, transport, real estate and their ancillary services that were impacted the most during
the pandemic have emerged much stronger in the post-pandemic period, embedding greater
technology and digital content in them and transforming the nature of the service delivery
in India. The proliferation of global capability centres (GCCs) has also imparted resilience to
India's services exports, giving further thrust to the sector.

1.15 On the demand side, private consumption has been a crucial and steadfast cog in the
GDP growth. Private final consumption expenditure (PFCE) grew by 4.0 per cent in real terms
in FY24. Urban demand conditions remain strong, as reflected in various urban consumption
indicators such as domestic passenger vehicle sales20 and air passenger traffic21. It is also reported
that rural consumption growth has gradually picked up pace during the quarter ending March
2024.22 As per the Federation of Automobile Dealers Associations, two and three-wheeler and
passenger vehicle sales also registered an uptick in FY24.

Chart I.19: Vehicle sales in rural areas have recovered

smartly since the pandemic
3 Wheeler Passenger Vehicles 2 Wheeler (RHS)
16 140
14 120
12

Numbers in lakh
100
Numbers in lakh

10
80
8
60
6
40
4
2 20

- -
FY18 FY19 FY20 FY21 FY22 FY23 FY24

Source: Federation of Automobile Dealers Associations

1.16 Gross Fixed Capital Formation (GFCF) continues to emerge as an important driver
of growth, as indicated in its rising share of nominal GDP. India is in the midst of a private
capex upcycle that has been aided by government capital expenditure. As per Statement 1.11
of the National Accounts Statistics 2024 released by the Ministry of Statistics and Programme
Implementation (MoSPI), GFCF by private non-financial corporations increased by 19.8 per
cent in FY23. There are early signs that the momentum in private capital formation has been
sustained in FY24. As per data provided by Axis Bank Research, private investment across a
consistent set of over 3,200 listed and unlisted non-financial firms has grown by 19.8 per cent
in FY24.

20 https://tinyurl.com/y2xhx5bb
21 https://tinyurl.com/4x9udsdz
22 https://tinyurl.com/yjkpdsau

11
Economic Survey 2023-24

Chart I.20: Greater general Chart I.21: Steadily rising

government focus on building private corporate capex
productive capacities
Union Government State Governments 10
12
9

10 8
7
Capex (₹ lakh crore)

₹ lakh crore
6
5
6
4
4 3
2
2
1
0 -
FY20 FY21 FY22 FY23 FY24 FY19 FY20 FY21 FY22 FY23 FY24
Source: Tables no. 95 and 102, Handbook of Statistics Source: Axis Bank Research
on the Indian Economy, RBI, CGA23

1.17 Apart from private corporations, households have also been at the forefront of the capital
formation process. The growth in housing sales in cities has been particularly impressive,
indicating that urban households are diversifying the deployment of their savings. In 2023,
residential real estate sales in India were at their highest since 2013, witnessing a 33 per cent
YoY growth, with a total sale of 4.1 lakh units in the top eight cities. As per real estate research
firm Proptiger, new supply witnessed an all-time high, with 5.2 lakh units launched in 2023,
as against 4.3 lakh units in 2022. The momentum continued in Q1 of 2024, witnessing record-
breaking sales of 1.2 lakh units, clocking a robust 41 per cent YoY growth. New supply has
consistently exceeded one lakh units since Q2 of 2022, underscoring persistent demand-supply
dynamics in the housing market.

1.18 With cleaner balance sheets and adequate capital buffers, the banking and financial
sector is well-positioned to cater to the growing financing needs of investment demand. Credit
disbursal by scheduled commercial banks (SCBs) to industrial micro, small and medium
enterprises (MSMEs) and services continues to grow in double digits despite a higher base.
Similarly, personal loans for housing have surged, corresponding to the increase in housing
demand. However, credit offtake by large industries seems to be growing at a lower albeit stable
pace. These larger industries seem to be tapping the corporate bond market. Corporate bond
issuances in FY24 were up by 70.5 per cent, with private placement remaining the preferred
channel for corporates. Outstanding corporate bonds were up by 9.6 per cent (YoY) as of the
end of March 2024.

23 FY24 figures for the Union Government are Provisional Actuals released by CGA; FY24 figures for State
Governments are Budget Estimates and FY23 values are Revised Estimates.

12
 State of the Economy

Chart I.22: Increased household Chart I.23: Record housing sales

savings in the form of physical assets in top 8 cities 24
Saving in physical assets
40 20 160
Savings in physical assets as per
35 140
cent of GDP (RHS)

Housing sales (thousands)

30 15 120
100
₹ lakh crore

25

Per cent
20 10 80

15 60

10 5 40
5 20
0 0 0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
FY20 FY21 FY22 FY23 FY24

Source: Statement 1.9, National Accounts Statistics Source: Various Proptiger Reports25
2024, MoSPI
BUDDHI IAS ACADEMY
Chart I.24: SCBs catering to Chart I.25: Large corporates tapping
investment demand corporate bond markets

YoY growth in bank credit to New Issuances (RHS)

40 different sectors as of April '24 50 7
Outstanding Corporate Bonds
35
45 6
30
5
25 40
₹ lakh crore

₹ lakh crore
Per cent

20 4
35
15 3
10 30
2
5
25 1
0
Services
Non-Food

Housing
Industry
MSME

20 0
Credit

Mar-22

Mar-23

Mar-24
Dec-21

Dec-22

Dec-23
Jun-21
Sep-21

Jun-22
Sep-22

Jun-23
Sep-23

Source: Table 170, Sectoral Deployment of Bank Credit, Source: Outstanding Corporate bonds, SEBI
Handbook of Statistics on Indian Economy, RBI

1.19 Global trade growth slowed in 2023, leading to a marginal decline in merchandise exports
growth. As merchandise imports slowed more than exports and services trade recorded a
larger surplus compared to the year before, the drag exerted by net exports on GDP reduced.
The subdued contribution of exports was more than counterbalanced by the pick-up in fixed
investment, thereby continuing the trend of domestic stimulus seamlessly replacing external
stimuli.
24 The eight major cities referred to in the Proptiger reports are Ahmedabad, Bengaluru, Chennai, Delhi NCR,
Hyderabad, Kolkata, Pune, and Mumbai MMR.
25 https://www.proptiger.com/guide/news-views

13
Economic Survey 2023-24

1.20 FY24 also marked the year GDP reached levels projected by the pre-pandemic trajectory.
A trend analysis in Box I.1 details how the overall economy and most supply and demand-side
sectors have grown at a pace to erase any permanent losses in output and demand.

Box I.1: Growth in GDP, GVA, and their components ensure

no permanent losses in demand and output

A permanent output loss refers to a downward level shift in the observed variable due to the
loss in output capacity. This box item visualises the pre-pandemic and post-pandemic trends
in India's aggregate macroeconomic variables such as GDP, GVA, private consumption and
the subcomponents of GVA.

Chart I.26: A recovery to pre- Chart I.27: Gap from trend reducing
pandemic trajectory in GDP steadily

50 Deseasonalised GDP GDP Gap from Trend FY22 Gap (%, RHS)
FY23 Gap (%, RHS) FY24 Gap (%, RHS)
45 pre-pandemic trend
4.5 8%
40 4.0 7%
3.5 6%
₹ lakh crore

35
₹ lakh crore

3.0 5%
30 2.5
4%
2.0
25 3%
1.5
1.0 2%
20
0.5 1%
15 0.0 0%
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24

Dec-21

Dec-22

Dec-23
Jun-21
Sep-21

Jun-22
Sep-22

Jun-23
Sep-23
Mar-22

Mar-23

Chart I.28: No permanent losses Mar-24

Chart I.29: No permanent
in output capacity consumption losses
45 Deseasonalised PFCE
Deseasonalised GVA 26
40 pre-pandemic trend 24 pre-pandemic trend

35
22
₹ lakh crore

20
₹ lakh crore

30 18

25 16
14
20 12
15 10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24

14
 State of the Economy

Chart I.30: Investment has taken off Chart I.31: Industrial GVA growing
faster than pre-pandemic trajectory
16 Deseasonalised GFCF 14
Deseasonalised Industry GVA
14 pre-pandemic trend
12 pre-pandemic trend

12

₹ lakh crore
10
₹ lakh crore

10
8
8

6 6

4 4
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24

Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24
Chart I.32: Services GVA lagging
29
Deseasonalised Services GVA pre-pandemic trend

23
₹ lakh crore

17

11

5
Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Mar-24
Source: Chart I:25 to Chart I.31 are using calculations based on Statement 13: Annual and Quarterly Estimates
of GDP at Constant Prices, 2011-12 Series, National Accounts Data, MoSPI

In the analysis, six key macroeconomic variables at constant (2011-12) prices, i.e., GDP,
GVA, PFCE, GFCF, industry GVA, and services GVA of quarterly frequency, have been
deseasonalised using the X-12 ARIMA technique that decomposes variables into its trend,
seasonal, cyclical, and idiosyncratic components. The deseasonalised variables have been
visualised to understand where these variables stand vis-à-vis their pre-pandemic trend
projections. A trend line based on de-seasonalised data between June 2011 and March
2020 has been plotted and extended until March 2024. This trend reflects the approximate
projection of the variable in each quarter from June 2020 to March 2024 had the pandemic-
induced contraction of economic activity not occurred.

15
Economic Survey 2023-24

The visualisation reveals that GDP, GVA, private consumption, GFCF, and industrial GVA
have recovered quickly. We see that the compounded quarterly growth rate (CQGR) of these
variables is greater in the period Q3 FY21 – Q4 FY24 than the CQGR in the pre-pandemic
period of Q1 FY12 – Q4 FY20 (Table I.). This enabled a broad catch-up to the levels projected
by the pre-pandemic trends, thereby averting any permanent losses in demand/output. The
reasons for this are manifold. The pandemic-induced contraction presented an opportunity
for the deployment of a counter-cyclical fiscal policy that focussed on capital expenditure,
thereby positioning government-driven capital formation as a driver of growth. It also
enabled the implementation of multiple process reforms and the deployment of public digital
infrastructure that boosted the ease of doing business. The pandemic also accelerated the
adoption of digital technologies amongst the population and enhanced financial inclusion.
With the GST and the Insolvency and Bankruptcy Code (IBC) acting as tailwinds to the
economy, growth took off.

Table I.1: Faster growth since the pandemic-induced contraction

Compounded growth in GDP GVA PFCE Industrial Services GFCF
deseasonalised quarterly GVA GVA
series (in %)
Between Q1FY12 - Q4FY20 1.5 1.5 1.4 1.1 1.9 1.3
Between Q3FY21 - Q4FY24 1.9 1.8 1.7 1.4 2.1 2.0

GVA of the services sector is yet to reach the level projected by the pre-pandemic trend. The
granular data available until FY23 reveals that this is on account of the trade, hotel, road and
air transport sectors. These sectors, taken together, contributed about 28.5 per cent to total
real GVA in FY23 and were only one per cent above their levels in FY20.

Chart I.27 reveals that the gap between GDP and its pre-pandemic trend has been closing,
and GDP was only around 1 per cent below this trend on an annual average basis in FY24.
There is still some catching up left. The extant momentum in growth not only allows the
economy to catch up with its pre-pandemic trend without stoking inflationary pressures but
aids in surpassing it.

MACROECONOMIC STABILITY SAFEGUARDS GROWTH

1.21 For India, FY23 began with multiple challenges. Spillovers from the conflict in Europe
were stoking domestic price pressures and widening the current account deficit (CAD) through
increased oil prices. Central banks in several countries began raising policy rates to battle
inflationary pressures, leading to significant uncertainty in AEs and EMEs alike. However,
throughout FY23 and FY24, the focus on macroeconomic stability was vital in securing
economic growth amidst domestic and external vulnerabilities.

16
 State of the Economy

Improving Public Finances

Consolidation of Union Government Finances

1.22 Against the global trend of widening fiscal deficit and increasing debt burden, India has
remained on the course of fiscal consolidation. The favourable fiscal performance in 2023,
emerged as the cornerstone of India’s macroeconomic stability. The fiscal deficit of the Union
Government has been brought down from 6.4 per cent of GDP in FY23 to 5.6 per cent of GDP
in FY24, according to provisional actuals (PA) data released by the Office of Controller General
of Accounts (CGA). Strong growth in direct and indirect taxes on account of resilient economic
activity and increased compliance meant that the tax revenues generated exceeded the
conservative budgetary estimates. Additionally, higher-than-budgeted non-tax revenue in the
form of dividends from the RBI has buffeted revenue receipts. In combination with restrained
revenue expenditure, these buoyant revenues ensured lower deficits. A decomposition of the
fiscal deficit over the past few years reveals that with a narrowing revenue deficit, a larger share
of the fiscal deficit is being accounted for by capital outlay. This suggests that the productivity
of borrowed resources has improved.

Chart I.33: Steadily declining Chart I.34: Decomposition of fiscal

deficit ratios deficit shows increasing investment
orientation

9.2 Primary Deficit Miscellaneous Capital Receipts

Revenue Deficit 150 Net lending
Fiscal Deficit Capital Outlay
7.3 Revenue Deficit
Per cent of fiscal deficit

100
43.0
Per cent of GDP

5.6 33.3 17.4 33.8 35.9

47.6
5.7 50
70.0 71.4 79.7
65.1 61.6
46.3
2.6
0

2.0
-50
FY19 FY20 FY21 FY22 FY23 FY24
FY21 FY22 FY23 FY24 (PA) (PA)

Source: Budget At A Glance, Union Budget FY24 Source: Various Union Budget Documents, Union
(Interim), Union Government Accounts at a Glance – Government Accounts at a Glance – O/o CGA
O/o CGA

Buoyancy in revenues continues in FY24

1.23 Significant fiscal consolidation post-pandemic could be achieved largely due to buoyant
revenues. Revenue receipts of the union government consisting of tax revenue (net to centre)
and non-tax revenue (NTR) increased YoY by 14.5 per cent in FY24 (PA), with robust growth in
both tax and non-tax revenues.

17
Economic Survey 2023-24

Chart I.35: Consistent increase in Chart I.36: Increase in gross tax

revenue receipts driven by revenue to GDP ratio driven by
both tax and non-tax revenue strong direct tax growth
Gross Tax Revenue Direct Taxes Indirect Taxes
Non Tax Revenue
Tax Revenue (net to centre)
Revenue Receipts 11.5 11.3 11.7
30 10.2
10.0
25

Per cent of GDP

₹ Lakh crore

20
6.2 6.5
6.0
15 5.2
4.8
10 5.4 5.5 5.1 5.2
4.7
5
0
FY20 FY21 FY22 FY23 FY24
(PA) FY20 FY21 FY22 FY23 FY24 (PA)

Source: Budget at a Glance, Union Budget, FY22, FY23, FY24 Interim Budget, Union Government Accounts at a
Glance – O/o CGA

1.24 The growth in gross tax revenue (GTR) was estimated to be 13.4 per cent in FY24,
translating into tax revenue buoyancy of 1.4. The growth was led by a 15.8 per cent growth in
direct taxes and a 10.6 per cent increase in indirect taxes over FY23. Broadly, 55 per cent of
GTR accrued from direct taxes and the remaining 45 per cent from indirect taxes. The increased
contribution of direct taxes to GTR over the years has been in line with the government’s effort
to enhance progressivity in taxation. The efficiency of tax collection has increased over time,
reflected in the cost of collection of direct taxes declining from 0.66 per cent of gross collections
in FY20 to 0.51 per cent in FY2326.
BUDDHI IAS ACADEMY

Chart I.37: Tax revenues register steady increase

FY20 FY23 FY24 (PA)

12.0

10.0
₹ Lakh crore

8.0

6.0

4.0

2.0

0.0
Corporation Tax Taxes on income other Customs and Union GST
than corporation tax Excise Duties
Source: Budget at a Glance, Union Budget, FY22, FY23, FY24 Interim Budget, Union Government Accounts at a
Glance – O/o CGA

26 Income Tax Department, Consolidated Time Series Data, Financial Year 2000-01 to 2022-23, Central Board of
Direct Taxes (https://tinyurl.com/3chx8v83)

18
 State of the Economy

1.25 The increase in indirect taxes in FY24 was mainly driven by a 12.7 per cent growth in GST
collection. GST E-way bill generated has also registered an uptick post-pandemic. The increase
has been equally pronounced for both intra-state trade and inter-state trade. The increase in
GST collection and E-way bill generation reflects increased compliance over time.

Chart I.38: Robust E-way bill generation corroborates strong

economic growth momentum
Intra State Inter state
800
700
600
Millions

500
400
300
200
FY19

FY20

FY21

FY22

FY23

FY24
Source: GST Statistics (https://www.gst.gov.in/download/gststatistics)

1.26 Over the last seven years, GST has matured significantly through streamlining of
procedures and, in the process, enhancing tax buoyancy for the Union and State governments.
There have been calls for further rationalisation of rate structure to compress the number of
rates, elimination of rate inversions, introduction of broad-band rates for similar products and
expanding the tax base. Demands also relate to differentiating between serious and less serious
offences, spreading awareness among taxpayers regarding common mistakes, encouraging
voluntary compliance and expediting the resolution of disputes.27

1.27 Within non-debt capital receipts, the proceeds from the National Monetisation Pipeline
(NMP), which was announced in the Union Budget FY22, are gaining traction. The NMP listed
core assets of union government ministries and public sector enterprises with a potential of
₹6 lakh crore for monetisation over the four-year period of FY22 – FY25. During FY22 - FY24,
receipts worth ₹3.9 lakh crore have been recorded as against a target of ₹4.3 lakh crore.28 The
Ministry of Road Transport and Highways and the Ministry of Coal contributed ₹97 thousand
crore out of proceeds worth ₹1.6 lakh crore in FY24. The National Highways Authority of India
has identified and published an indicative list of 33 assets to be monetised in FY25. This will
help improve capital allocation by investors while aiding the government in its pursuit of fiscal
consolidation.

Trends in Central Government Expenditure

1.28 The government has followed a path of fiscal consolidation while continuing to protect
the vulnerable sections and investing in the productive capacity of the economy. Successive

27 https://tinyurl.com/2bam4ht8
28 https://tinyurl.com/d3cfceu3

19
Economic Survey 2023-24

budgets moderated the growth in revenue expenditure. While achieving the compression in
revenue expenditure as a per cent of GDP, the government also ensured that free food grains
are provided to 81.4 crore people in the country. At the same time, shares of total expenditure
allotted to capital spending were progressively enhanced, thereby improving the quality
of expenditure. Government expenditure in FY24 continued this trend whereby, as per the
provisional actuals, total expenditure declined to 15.0 per cent of GDP from 17.7 per cent in FY21.

Chart I.39: Prudent management of Chart I.40: Increasing union government

expenditure effective capex29 to GDP ratio
Effective Capex
FY20 FY21 FY22 FY23 FY24 (PA)
18 Effective Capex as % of GDP (RHS)
15.5 14 5
15 12
4
11.8
Per cent of GDP

12 10

₹ lakh crore
3

Per cent
8
9
6 12.5
2
6 10.5
3.6 3.2 4 8.4
2.1 6.6
3 1.4 5.0 5.2 1
2 4.5

0 0 0
Revenue Major Capital
FY18

FY19

FY20

FY21

FY22

FY23

FY24
(PA)
Expenditure Subsidies Expenditure

Source: Budget at a Glance, Various Union Budgets, Union Government Accounts at a Glance – O/o CGA

Chart I.41: Prioritising productive Chart I.42: Improving quality of

expenditure expenditure

45 Revenue Expenditure 0.27

Capital Expenditure
40 Total Expenditure
Ratio of Capex to Revex

35 0.21
0.19
Growth (per cent)

30
0.15
25 0.14 0.14
20
15
10
5
0
FY19

FY20

FY21

FY22

FY23

FY24
FY19

FY20

FY21

FY22

FY23

FY24

(PA)
(PA)

Source: Budget at a Glance, Various Union Budget Documents, Union Government Accounts at a Glance – O/o
CGA. Notes: Revex - Revenue Expenditure

29 Effective Capex includes capex and Grants-in-Aid for creation of capital assets.

20
 State of the Economy

Capex has lifted the productive potential of the economy; time for the private
sector to take the baton

1.29 The PA show that capital expenditure for FY24 stood at ₹9.5 lakh crore, an increase of
28.2 per cent on a YoY basis, and was 2.8 times the level of FY20. The Government’s thrust on
capex has been a critical driver of economic growth amidst an uncertain and challenging global
environment.

1.30 The focus of capex has been broad-based. Spending in sectors such as road transport
and highways, railways, defence services, and telecommunications delivers higher and longer
impetuses to growth by addressing logistical bottlenecks and expanding productive capacities.
Government capex has also begun to crowd in private investment, as discussed earlier in this
chapter. Additionally, the Government continues to disburse grants-in-aid for the creation of
capital assets to the states, thereby incentivising them to increase their productive spending.

1.31 At this juncture, it is important to note that while it remains the government’s responsibility
to facilitate the development of infrastructure and address logistical challenges, it is incumbent
upon the private sector to take forward the momentum in capital formation on its own and in
partnership with the Government. Between FY19 and FY23, the share of private non-financial
corporations in overall GFCF increased only by 0.8 percentage points from 34.1 per cent to
34.9 per cent. This was mostly driven by their fast-increasing share in the additional stock of
dwellings, other buildings and structures. Their share in addition to the capital stock in terms
of machinery and equipment, started growing robustly only since FY22, a trend that needs to
be sustained on the strength of their improving bottom-line and balance sheets in order to
generate high-quality jobs.

Table I.2: Broad-based deployment of Union Government capex

(Values in ₹ thousand crore)
Sector FY23 FY24 (PA) Growth
Road Transport and Highways 206.0 263.9 28.1%
Railways 159.3 242.6 52.3%
Defence Services (capital outlay) 142.9 154.3 7.9%
Transfer to States 92.7 122.9 32.5%
Telecommunications 54.7 59.4 8.5%
Housing and Urban Affairs 26.9 26.4 -1.6%
Atomic Energy 13.8 14.5 5.1%
Defence (Civil) 8.0 10.3 29.5%
Police 8.2 9.7 18.7%
Space 4.3 4.4 3.4%
Source: Statement 3 of Expenditure Profile, Union Budget 2024-25 (Interim), Union Government Accounts at a
Glance – O/o CGA

21
Economic Survey 2023-24

Revenue expenditure growth remains restrained

1.32 The PA show that total expenditure for FY24 is lower by ₹60.6 thousand crore as
compared to the budgeted estimates. However, these lower-than-budgeted estimates have not
resulted in compromises on important areas of revenue spending, such as rural development
and education, where allocation is significantly higher than budgeted estimates. Efficient
expenditure management, aided by lower borrowing costs, has led to a marginal downward
revision of budgeted expenditure on interest payments in FY24.

1.33 However, even though expenditure on interest payments is lower than budgeted, it
constitutes 30.4 per cent of the revenue expenditure in FY24 (PA). A commitment to fiscal
consolidation in the medium term, combined with revenues from asset monetisation and
privatisation, will be essential in reducing the share of interest payments in revenue expenditure
in order to generate more fiscal headroom.

1.34 Expenditure on major subsidies declined by 22.1 per cent on a YoY basis, led by a decrease
in fertiliser30 and food subsidies by 24.6 per cent and 22.4 per cent, respectively, in FY24. The
prices of fertilisers had steeply increased in FY23 due to the Russia-Ukraine conflict, prompting
a higher outlay for its subsidy. However, in FY24, the supply chains adapted, and as a result, the
prices of fertilisers have broadly returned to pre-conflict levels. This facilitated a lower outlay
on fertiliser subsidies. The additional food subsidy, instituted to protect vulnerable sections of
the population, has been gradually consolidating as well.

Overview of State Government Finances

1.35 State governments continued to improve their finances in FY24. Preliminary unaudited
estimates of finances for a set of 23 states31, published by the Comptroller and Auditor General
of India, suggest that the gross fiscal deficit of these 23 states was 8.6 per cent lower than the
budgeted figure of ₹9.1 lakh crore.32 This implies that fiscal deficit as a per cent of GDP for these
states came in at 2.8 per cent as against a budgeted 3.1 per cent. The quality of spending by state
governments improved, too, with state governments focusing on capex as well.

30 Fertiliser subsidy includes nutrient-based fertiliser subsidy and urea subsidy

31 The 23 major states are: Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Haryana,
Himachal Pradesh, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Punjab,
Rajasthan, Tamil Nadu, Telangana, Tripura, Uttar Pradesh, Uttarakhand, and West Bengal.
32 Budgeted figures available from e-STATES Database published by RBI in their report on State Finances – A
Study of State Budgets, December 2023 (https://tinyurl.com/ywv3wvdr)

22
 State of the Economy

Chart I.43: State Gross Fiscal Deficit Chart I.44: Improving quality of
under the 3 per cent of GDP mark states’ expenditure
3.9
2.6
Gross fiscal deficit of 23 states as

Capex of 23 states as per cent of

2.8
2.7 2.6
2.5
per cent of GDP

2.4
2.3

GDP
2.2
2.2
FY20

FY21

FY22

FY23

FY24

FY20 FY21 FY22 FY23 FY24

Source: State Accounts Report, CAG; Note – data for FY24 are preliminary actuals

BUDDHI IAS ACADEMY

Chart I.45: States’ debt burden is gradually easing

30.2
Outstanding liabilities of 23 states

28.4
per cent of GDP

27.5
27.1

25.8

FY20 FY21 FY22 FY23 FY24

Source: Statement 19: Total Outstanding Liabilities of State Governments, State Finances: A Study of Budgets, RBI

1.36 Charts I.46 through I.49 encapsulate states’ finances33. The Union Government’s transfers
to the states are highly progressive, with states with lower Gross State Domestic Product (GSDP)
per capita receiving higher transfers relative to their GSDP. On the revenue side, however,
the richer states, with certain exceptions, are able to mobilise a greater proportion of their
GSDP as taxes. The combined result of these dynamics on the receipts side is that poorer states
are enabled to incur greater public spending relative to their GSDP with the system of fiscal

33 Charts I.46 to I.49 are based on the averages of the respective variables for FY22 and FY23. The graphs have
been plotted for a total of 17 states, i.e., Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Jharkhand,
Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar
Pradesh, and West Bengal. GSDP and PC GSDP of Maharashtra for FY23 have been taken from the Economic
Survey of Maharashtra 2024

23
Economic Survey 2023-24

devolution that India has. Given the importance of public expenditure in stimulating growth
and development, this is sine qua non for addressing regional imbalances in the country.

Chart I.46: Progressive nature of Chart I.47: States’ tax efforts

transfers to states
y = -4.2917x + 15.513 8.5
20

Average Own tax revenue as % of

Average Transfers as % of GSDP

18 8
y = 0.1589x + 6.0449
16
7.5
14
12 7

GSDP
10
6.5
8
6 6

4 5.5
2
0 5
0 1 2 3 4
0 1 2 3 4
Average per capita GSDP
Average per capita GSDP
Chart I.48: Total Expenditure of States Chart I.49: Fiscal Deficit of States
35 6
Average fiscal deficit as % of GSDP

30
Average total expenditure as % of

5 y = 0.081x + 2.6209

25 y = -4.6032x + 26.869
4
20
3
GSDP

15
2
10

5 1

0 0
0 1 2 3 4 0 1 2 3 4
Average per capita GSDP Average per capita GSDP

Source: State Accounts Report, CAG

General Government Debt

1.37 In the years since the pandemic, the Union Government and the State Governments in
general have focussed on fiscal consolidation, which was reflected in the declining debt trajectory
of the government till FY23. The general government debt to GDP ratio increased slightly in
FY24 despite a declining primary deficit because monetary tightening led to a spike in interest
rates, while the decline in inflationary pressures resulted in a lower-than-budgeted nominal
GDP growth. However, with the increased prospects of monetary policy easing, along with an
uptick in WPI inflation and the government’s continued commitment to fiscal consolidation,
the debt ratio is likely to resume its declining trend.

24
 State of the Economy

Chart I.50: General Government liabilities to GDP ratio come

off their peak in FY21
Combined liabilities Domestic liabilities

90.0

85.0
Per cent of GDP

80.0

75.0

70.0

65.0
FY19 FY20 FY21 FY22 FY23 FY24

Source: Table 112, Combined Liabilities of Central and State Governments, Handbook of Statistics on Indian
Economy, RBI. Notes34

Chart I.51: Primary deficit declines, and, growth-interest

rate differential remains positive
Primary Deficit (per cent of GDP) Gap (Nominal GDP growth and cost of borrowing)

11

6
Per cent

1
FY20 FY21 FY22 FY23 FY24
-4

-9
Source: Primary Deficit - Database on Indian Economy, RBI; Nominal GDP growth - Provisional Estimates for
FY24, National Accounts Statistics, MoSPI; Cost of borrowing35 - RBI Database on Indian Economy, Budget at a
Glance.

1.38 Union Government debt is characterised by low currency and interest rate risks. This is
owing to the low share of external debt in the debt portfolio and almost all external borrowings
being from official sources. The gradual elongation of the maturity profile of the Union
Government’s debt is leading to reduced rollover risks. The proportion of dated securities

34 Data for combined liabilities for FY23 are Revised Estimates, and data for FY24 are Budget Estimates. Data for
GDP is RE for FY21, FY22, FY23 and PE for FY24.
35 The cost of borrowing is calculated as the total interest payments as a per cent of the average debt of period (t)
and (t-1).

25
Economic Survey 2023-24

maturing in less than five years has seen a consistent decline in recent years. The weighted
average maturity of the outstanding stock of dated securities of the Government has increased
from 9.6 years in end-March 2011 to 12.5 years in end-March 2024.36

1.39 The sustained improvement in fiscal metrics is beginning to have an impact on India’s
credit ratings. For the first time in 13 years, S&P Global Ratings upgraded India's sovereign
credit rating outlook from ‘stable’ to ‘positive’ in May 2024 on the back of robust economic
growth, sound economic fundamentals and improved composition of government spending.
S&P mentioned that cautious monetary and fiscal policy that diminishes general government
debt and interest burden while improving economic resilience could lead to a higher rating over
the next two years. The agency further indicated that such an update would require continued
commitment to fiscal consolidation in a manner that reduces general government deficits to
below 7 per cent on a structural basis. If that were to happen, India’s 10-year benchmark bond
yield will drop between 30 and 50 basis points. The drop in the benchmark borrowing cost
will cause interest rates to decline in general, leading to overall lower cost of borrowing for
households and businesses. That would be a fiscal stimulus in itself.

Moderation in inflation pressure BUDDHI IAS ACADEMY

1.40 Despite global supply chain disruptions and adverse weather conditions, domestic
inflationary pressures moderated in FY24. After averaging 6.7 per cent in FY23, retail inflation
declined to 5.4 per cent in FY24. This has been due to the combination of measures undertaken
by the Government and the RBI. The Union Government undertook prompt measures such as
open market sales, retailing in specified outlets, timely imports, reduced the prices of Liquified
Petroleum Gas (LPG) cylinders and implemented a cut in petrol and diesel prices. The RBI
raised policy rates by a cumulative 250 bps between May 2022 and February 2023. It also
managed liquidity levels efficiently and maintained consistent and coherent communication
with market participants. Even as higher policy rates are transmitted through the system, the
RBI continues to support growth with adequate liquidity, thereby ensuring that inflation is
headed to the target of 4 per cent on a durable basis. The effects of these measures are reflected
in the latest data on CPI inflation – headline CPI inflation of 5.1 per cent in June 2024, and core
inflation declined to 3.1 per cent. Consequently, India was the only country amongst its peers
to traverse a high-growth and low-inflation path in the period FY22 – FY24 (Chart I.53). This is
despite the fact that there were pressures on the food inflation front, driven by adverse weather
conditions.

36 Table 4.2 of PDMC quarterly report (January – March 2024) (https://tinyurl.com/mrxaf4kw)

26
 State of the Economy

Chart I.52: Declining core inflation Chart I.53: India a high-growth

but volatile food inflation and low-inflation economy
14.0 Headline Inflation
9
Core Inflation
12.0 Food Inflation India

(Avg. Growth - FY22 - FY24,%)

8

10.0 7
6
Per cent

8.0 UK Mexico
5 EMDEs
6.0 4
US Brazil
4.0 3 Russia
AEs
2
2.0 Germany
1
0.0
0
Aug-22

Aug-23
Apr-22

Oct-22

Apr-23
Jun-22

Oct-23

Apr-24
Jun-23

Jun-24
Dec-22
Feb-23

Dec-23
Feb-24

4 6 8 10
(Avg. Inflation - FY22 - FY24,%)

Source: Consumer Price Indices released by CSO, Source: IMF WEO database (April 2024), MoSPI
MoSPI

The financial system remains resilient

1.41 The RBI’s vigil over the banking and financial system and its prompt regulatory actions
ensure that the system can withstand any macroeconomic or systemic shock. Data from the
RBI’s Financial Stability Report of June 2024 show that the asset quality of SCBs has improved,
with the Gross Non-Performing Assets (GNPA) ratio declining to 2.8 per cent in March 2024, a
12-year low. The system-wide capital to risk-weighted assets ratio (CRAR) declined marginally
by 37 basis points (bps) over FY24 due to an RBI-mandated revision of risk weights but
remained well above the regulatory threshold. The profitability of SCBs remained steady, with
the return on equity and return on assets ratios at 13.8 per cent and 1.3 per cent, respectively, as
of March 2024. Macro stress tests also reveal that SCBs would be able to comply with minimum
capital requirements even under severe stress scenarios.

1.42 The RBI remains proactive in undertaking regulatory action. In a measure to regulate the
exuberant growth in the unsecured lending category and preserve financial stability, the RBI
tightened norms around this portfolio. Growth in unsecured loans was outpacing that in overall
credit. To tackle this problem, the RBI directed that consumer credit exposure for banks and
Non-Banking Financial Companies (NBFCs) will attract a risk weight of 125 per cent compared
to 100 per cent earlier. The risk weight for credit card loans by banks and NBFCs was fixed
at 150 per cent and 125 per cent, respectively, up from 125 per cent and 100 per cent earlier.
Prompt regulatory actions shield the banking and financial system from adverse developments
and instil confidence in market participants. The soundness of the banking system will facilitate
the financing of productive opportunities and lengthen the financial cycle, both of which are
necessary to sustain economic growth.

India’s external sector is safely navigating through uncertainties

1.43 On the external front, moderation in merchandise exports continued during FY24, mainly

27
Economic Survey 2023-24

on account of weaker global demand and persistent geopolitical tensions. However, a sharper
decline in India’s merchandise import growth, owing to declining commodity prices, resulted in
a lower trade deficit in FY24. However, India's service exports have remained robust, reaching
a new high of USD 341.1 billion in FY24. Exports (merchandise and services) in FY24 grew by
0.15 per cent, while the total imports declined by 4.9 per cent despite a strong domestic market
demand.37 Net private transfers, mostly comprising remittances from abroad, grew to USD
106.6 billion in FY24. As a result, the CAD stood at 0.7 per cent of the GDP during the year, an
improvement from the deficit of 2.0 per cent of GDP in FY23.

1.44 Supported by optimism surrounding India’s growth story, progressive policy reform,
economic stability, fiscal prudence and attractive investment avenues, India witnessed robust
FPI inflows in FY24 that helped fund the CAD and aided the RBI in building adequate forex
reserves. Net FPI inflows stood at USD 44.1 billion during FY24 against net outflows in the
preceding two years. Net FDI inflows, however, witnessed moderation largely as a part of the
global phenomenon of declining FDI flows on account of increased scepticism. Net FDI inflows
to India declined from USD 42.0 billion during FY23 to USD 26.5 billion in FY24. However,
gross FDI inflows moderated by only 0.6 per cent in FY24. The contraction in net inflows was
primarily due to a surge in repatriation/disinvestment.

Chart I.54: CAD narrowed to 0.7 per Chart I.55: FPI inflows aided in
cent of GDP in FY24 funding CAD and building forex
reserves
Goods Services 50
120
Transfers Income
Current Account 40
80
30
40
USD Billion

USD Billion

20
0
10
-40
0
-80
-10
-120
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -20
FY18

FY19

FY20

FY21

FY22

FY23

FY24

FY23 FY24

Source: Table 196, Handbook of Statistics on the Indian Source: Table 130, Handbook of Statistics on the Indian
Economy, RBI Economy, RBI

1.45 Overall, India’s external sector is being deftly managed with comfortable foreign exchange
reserves and a stable exchange rate. Forex reserves as of the end of March 2024 were sufficient
to cover 11 months of projected imports and more than 100 per cent of total external debt. The
Indian Rupee has also been one of the least volatile currencies among its emerging market peers
in FY24. India’s external debt vulnerability indicators also continued to be benign. External
debt as a ratio to GDP stood at a low level of 18.7 per cent as of end-March 2024. The ratio of
foreign exchange reserves to total debt stood at 97.4 per cent as of March 2024.
37 Table 132, Handbook of Statistics on the Indian Economy, RBI - https://tinyurl.com/yne8sbw7

28
 State of the Economy

Chart I.56: The ₹ was one of the most Chart I.57: Forex reserves sufficient to
stable currencies over Apr’23 – Jun’24 cover around 11 months of imports
660
British Pound -1.4
640
Mexican Peso 1.3
620
Indian Rupee 1.9

USD Billion
600
Euro 2.6
580
Chinese Renmimbi 5.0
560
Brazilian Real 10.1
540
Indonesian Rupiah 11.3
520
Japanese Yen 18.1
500

Nov-22

Nov-23
Jul-22

Jul-23
May-22

May-23

May-24
Sep-22

Sep-23
Jan-22
Mar-22

Jan-23
Mar-23

Jan-24
Mar-24
Depreciation (-)/Appreciation (+) (per
cent)

Source: Bilateral Exchange Rates, Bank for International Source: Table 205, Handbook of Statistics on the Indian
Settlements Economy, RBI

Reduction in macro vulnerability

1.46 In its pursuit of fiscal consolidation through efficient and prudent fiscal management,
the Government continues to stick to the fiscal glide path. The fiscal deficit of the Government
is expected to drop to 4.5 per cent of GDP or lower by FY26. This commitment has helped
keep the sovereign debt sustainable, thereby keeping sovereign bond yields and spreads in
check. All these factors have combined to keep the macroeconomic environment stable and
provide a platform for sustainable growth. This is reflected in the downward trajectory of the
macroeconomic vulnerability index – an index constructed by combining India’s fiscal deficit,
CAD and inflation.

Chart I.58: A reduction in macro-vulnerability despite

increased external uncertainty
CPI-Inflation (%) Macro-Vulnerability Index
24.8
21.9
18.4
20.0

12.3 11.3 14.9

10.05
9.1
6.16 5.36
3.59

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24*
Heightened Macro-vulnerability Macro-stability Pandemic & Global
Disturbance

Source: Calculated using data on CPI inflation published by MoSPI, current account deficit published by RBI, and
fiscal deficit published in the Union Budget documents. Notes38

38 Retail Inflation from FY09 to FY12 is based on CPI-Industrial Workers released by the Labour Bureau, FY13 to
FY24 is based on CPI-Combined released by MoSPI; Gross fiscal deficit data for FY24 for the Union Government
is Provisional Actuals, and for the state governments, it is a Budget Estimate.

29
Economic Survey 2023-24

Box I.2: Strengthening the Statistical System

A sound and dynamic statistical system is the cornerstone for an informed citizenry, data-
driven policies and decision-making. Official statistics play a pivotal role in addressing
societal challenges and promoting inclusive growth. The government is taking many
steps aimed at strengthening administrative and survey statistics, building capacities and
improving data quality and timeliness.

MoSPI, the cornerstone

MoSPI is the nodal ministry for the planned and integrated development of the Indian
statistical system. MoSPI anchors the core statistics by publishing GDP, price and
volume indices and countrywide surveys of macroeconomic and sectoral importance. The
Ministry has initiated various new surveys, namely, the annual survey of unincorporated
sector enterprises, a time-use survey and started a pilot for an annual survey of service
sector enterprises. MoSPI is also working towards increasing the frequency of PLFS data
and extending the generation of quarterly estimates for rural areas. Modern IT tools are
being adopted for improved data capturing and processing. To encourage greater use of
administrative data, a National Metadata Structure is also being developed. The Unified
Data Portal project has been envisaged by MoSPI with the objective of creating a centralised
database and storage system. Ministries are also taking initiatives to enhance the frequency
of various surveys to make more informed policy decisions. Given India’s 2047 goals, it
is important for development policy that (a) MoSPI is capacitated fully to produce and
integrate all required statistics with the desired quality, regularity and timeliness and (b)
the quality and timeliness of administrative and transactional data of the line Ministries are
brought to levels that fully facilitate timely course corrections.

Further steps to strengthen the statistical database

a) An extensive exercise for base revision of important economic statistics is being taken
up at MoSPI. The exercise to change the base year of CPI from 2012 to 2024 has been
initiated. An Advisory Committee on National Accounts Statistics has been set up to
decide on the base year for GDP. It is important that the base year of critical data series like
the GDP, different price indices and volume indices like Index of Industrial Production
(IIP) are updated to the most recent feasible year at the earliest. The ongoing efforts
to construct the producer price index for goods and services may be expedited to have
a greater grasp of episodes of cost-push inflation. State-level variants of indices like IIP
will help understand the emerging geographical patterns. Survey data to help understand
private sector capital formation at regular intervals will also help policy formulation.
b) The high-frequency price monitoring data for essential food items collected by different
departments may be linked in such a way that the build-up of prices at each stage from
the farm gate to the final consumer is quantifiable and monitorable. This will help
improve the effectiveness of administrative action by the Government to stabilise prices
of essential food items.

30
 State of the Economy

c) More than 1.3 crore entities are registered under GST and file returns. The granular GST
data, if made available, has great potential to analyse the health of businesses, screening
of loan applications, provide support for cash flow-based lending, and understand the
economies of different geographies deeply.
d) The XV Finance Commission observes, “The CAG, which is mandated to carry out the
role of accounts compilation and finalisation for almost all the States, as well as being the
auditor of both the Union and the States, is already in the process of establishing common
fiscal data standards. This would eventually ensure the availability of standardised data
through a public web portal for granular level fiscal statistics of the Union and the States,
both for historic audited fiscal data and high-frequency fiscal data for the current year in
downloadable database formats.”39 Granular time series, in database formats, of audited
accounts of the Union and the States will make fiscal analysis and policy much easier.
e) Regular indicators of the dynamics of production and employment in MSMEs are
essential, considering their potential for growth and job creation.
f) Information may be published on industry-wise gross disbursement of bank credit (as
opposed to the data on outstanding credit currently available), industry-wise monthly
gross financial flows through domestic and external equity and debt routes, and other
financing sources.
g) There is also a need to have a regular mechanism to aggregate the financial flows to
infrastructure and physical progress- sectorally and geographically differentiated-
achieved in different infrastructure sectors, at least on an annual basis.
h) The large volume of data generated by schemes such as Pradhan Mantri Jan Arogya
Yojana and Ayushman Bharat Digital Mission, which capture details such as hospital
admissions, patients’ medical history or demographic details. These can be used for
disease surveillance, preventive medication, etc.
i) The Labour Bureau is also tasked with conducting five surveys relating to workers and
employment. Ensuring rigour, timeliness and user-friendliness of data and making it
available in database formats will help analysis and policy40.
The thrust on evidence also necessitates that the process and impact evaluation capacities
in the Union and State Governments and universities are nurtured and driven towards
maturity in a time-bound manner.

INCLUSIVE GROWTH
Shift in the approach to welfare
1.47 India’s social welfare approach has undergone a shift from an input-based approach
to outcome-based empowerment. Saturation of basic necessities has been recognised as
imperative to achieve this, thus impelling an array of flagship initiatives. Government initiatives
like providing free-of-cost gas connections under PM Ujjwala Yojana, building toilets under

39 https://tinyurl.com/2dbutsvt
40 https://tinyurl.com/5xrrja3c

31
Economic Survey 2023-24

the Swacch Bharat Mission, opening bank accounts under Jan Dhan Yojana, building pucca
houses under PM-AWAS Yojana have improved capabilities and enhanced opportunities for
the underprivileged sections.

1.48 The approach also involves the targeted implementation of reforms for last-mile service
delivery to truly realise the maxim of “no person left behind”. These include the Aspirational
Districts Programme, launched in 2018, for focusing efforts on the most backward regions, the
success of which inspired the Aspirational Blocks Programme launched in 2023; the Vibrant
Villages Programme for border areas; and more recently, the Viksit Bharat Sankalp Yatra,
which saw the participation of 15 crore people in two months starting 15 November 202341. The
digitisation of healthcare, education and governance helps improve the gains for every rupee
spent. The Direct Benefit Transfer (DBT) scheme and Jan Dhan Yojana-Aadhaar-Mobile trinity
have been boosters of fiscal efficiency and minimisation of leakages, with ₹36.9 lakh crore
having been transferred via DBT since its inception in 2013 (DBT Portal.42).

Chart I.59: Beneficiaries under various government

welfare schemes since their inception

Jan Dhan Yojana- 51.6 crore beneficiaries

11.7 11.6
10.3

6.9
Crore

2.6

Swacch Bharat Jal Jeevan Mission PM Ujjwala Yojana Ayushman Bharat PM-AWAS Yojana
Mission (Toilets built) (tap water (gas connections Scheme (Hospital (pucca houses built)
connections) provided) admissions)
Source: Various PIB Press Releases BUDDHI IAS ACADEMY

1.49 On the employment front, according to the annual PLFS, the all-India annual
unemployment rate (persons aged 15 years and above, as per usual status) has been declining
since the pandemic. This has been accompanied by a rise in the labour force participation rate
and worker-to-population ratio. Even by the relatively strict standards of current weekly status,
employment has recovered from the pandemic in urban and rural areas. From the gender
perspective, the female labour force participation rate has been rising for six years, i.e., from
23.3 per cent in 2017-18 to 37 per cent in 2022-23, driven mainly by the rising participation of
rural women.

41 15 Crore Participants in Two Months Viksit Bharat Sankalp Yatra draws huge crowds across many states, 17 Jan
2024 (https://tinyurl.com/55xae4b3)
42 https://dbtbharat.gov.in/

32
 State of the Economy

Chart I.60: Declining unemployment rate and improvement in labour

force participation rate and worker population ratio
LFPR WPR UR (RHS)
70 7
60 6
50 5
Per cent

Per cent
40 4
30 3
20 2
10 1
0 0
2017-18

2018-19

2019-20

2020-21

2021-22

2022-23
Source: Annual Report, PLFS, July 2022 - June 2023, MoSPI

1.50 As a result of the systematic focus on addressing individual deprivations, the incidence of
poverty has reduced remarkably. This is reflected in the steep decline in the headcount ratio of
multidimensionally poor between 2015-16 and 2022-23, as per NITI Aayog’s discussion paper
on multidimensional poverty in India43.
1.51 The initiatives in the social sector have also translated into rising consumption spending,
as evident from the results of the latest Household Consumption Expenditure Survey (HCES)
2022-23. The HCES throws many reassuring findings on inclusive growth in the past decade.
The monthly per capita consumption expenditure (MPCE) in 2022-23 increased in real terms
in both rural and urban areas over 2011-12. The difference between rural and urban MPCE also
declined in percentage terms.

Chart I.61: Reduced rural-urban Chart I.62: Population that is

inequality multidimensionally poor has declined
Rural Urban Urban-Rural Difference (RHS) Headcount Ratio
7000 88.2 100
Per cent of population who are

83.9 90 24.85%
6000
multidimensionally poor

71.2 80
Average MPCE (₹)

5000 70
60 14.96%
Per cent

4000
50 11.28%
3000 40
2000 30
20
1000
10
0 0 2015-16 2019-21 2022-23
2009-10 2011-12 2022-23 (Projected)

Source: Survey on Household Consumption Source: Multidimensional Poverty in India since 2005-
Expenditure: 2022-23, MoSPI; Note44 06- A Discussion Paper, Niti Aayog

43 NITI Aayog’s discussion paper, ‘Multidimensional Poverty in India since 2005-06’, 2023 (https://tinyurl.
com/4yvmrcax)
44 Urban-rural difference is calculated as the difference a percentage of rural MPCE.

33
Economic Survey 2023-24

OUTLOOK
1.52 The Indian economy recovered swiftly from the pandemic, with its real GDP in FY24
being 20 per cent higher than the pre-COVID, FY20 levels. This meant a CAGR of 4.6 per cent
from FY20, despite a 5.8 per cent decline in FY21 inflicted by the pandemic. Analysis in this
chapter shows that the current GDP level is close to the pre-pandemic trajectory in Q4FY24.
During the decade ending FY20, India grew at an average annual rate of 6.6 per cent, more or
less reflecting the long-run growth prospects of the economy. This is the background against
which we can see the prospects for FY25.

1.53 IMF projects the global economy to grow at 3.2 per cent in 2024, with risks being broadly
balanced. The average annual global growth was 3.7 per cent during the decade ending FY20.
Inflationary pressures have moderated in most economies with declining global commodity
prices and easing of supply chain pressures. However, core inflation remains sticky and driven
by high service inflation. Many central banks have hinted at the peaking of the interest rate hike
cycle. The ECB has already cut the policy rate, while the Fed has hinted at reducing the rate in
2024. If the services inflation across economies moderates faster, that may allow central banks
to bring forward the monetary policy easing cycle earlier than currently anticipated. A likely
reduction in policy rates by central banks of AEs, especially the Fed, will open the space for
central banks of EMEs to follow the lead, bringing down the cost of capital.

1.54 On the downside, any escalation of geopolitical conflicts in 2024 may lead to supply
dislocations, higher commodity prices, reviving inflationary pressures and stalling monetary
policy easing with potential repercussions for capital flows. This can also influence RBI’s
monetary policy stance. The global trade outlook for 2024 remains positive, with merchandise
trade expected to pick up after registering a contraction in volumes in 2023. Conversely,
increased fragmentation along geopolitical lines and renewed thrust on protectionism may
distort merchandise trade growth, impacting India’s external sector. Global financial markets
have scaled new heights, with investors betting on global economic expansion. However, any
corrections in the elevated financial market valuations may have ramifications for household
finances and corporate valuation, negatively impacting growth prospects. Hiring in the
information technology sector had slowed down considerably in FY24, and even if hiring does
not decline further, it is unlikely to pick up significantly. However, leveraging the initiatives
taken by the government and capturing the untapped potential in emerging markets, exports of
business, consultancy and IT-enabled services can expand. Despite the core inflation rate being
around 3 per cent, the RBI, with one eye on the withdrawal of accommodation and another on
the US Fed, has kept interest rates unchanged for quite some time, and the anticipated easing
has been delayed.

1.55 Domestic growth drivers have supported economic growth in FY24 despite uncertain
global economic performance. Improved balance sheets will help the private sector cater to
strong investment demand. A note of caution is warranted here. Private capital formation after
good growth in the last three years may turn slightly more cautious because of fears of cheaper

34
 State of the Economy

imports from countries that have excess capacity. While merchandise exports are likely to
increase with improving growth prospects in AEs, services exports are also likely to witness
a further uptick. A normal rainfall forecast by the India Meteorological Department and the
satisfactory spread of the southwest monsoon thus far are likely to improve agriculture sector
performance and support the revival of rural demand. However, the monsoon season still has
some ways to go. Structural reforms such as the GST and the IBC have also matured and are
delivering envisaged results. Considering these factors, the Survey conservatively projects a
real GDP growth of 6.5–7 per cent, with risks evenly balanced, cognizant of the fact that the
market expectations are on the higher side.

********

35
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MONETARY MANAGEMENT
AND FINANCIAL
INTERMEDIATION:
STABILITY IS THE
02
WATCHWORD CHAPTER

India’s banking and financial sectors have displayed a stellar performance in FY24.
Double-digit and broad-based growth in bank credit, gross and net non-performing
assets at multi-year lows, and improvement in bank asset quality highlight the
government’s commitment to a healthy and stable banking sector. Capital markets
are becoming prominent in India’s growth story, with an expanding share in capital
formation and investment landscape on the back of technology, innovation, and
digitisation. Indian stock market was among the best-performing markets, with India’s
Nifty 50 index ascending by 26.8 per cent during FY24, as against (-)8.2 per cent during
FY23. The market capitalisation of the Indian stock market has seen a remarkable
surge, with the market capitalisation to GDP ratio being the fifth largest in the World.
Supported by regulatory measures and the vision to achieve ‘Insurance for all by 2047’,
India is poised to emerge as one of the fastest-growing insurance markets over the next
five years. The pension sector witnessed a robust increase in subscribers and assets
under management.

While the outlook for India’s financial sector appears bright, some areas will require
focused attention going forward. The significant increase in retail investors in the
stock market calls for careful consideration. This is crucial because the possibility of
overconfidence leading to speculation and the expectation of even greater returns, which
might not align with the real market conditions, is a serious concern. For a developing
economy such as India, the financial sector needs to support the banking sector and fill
the gap in capital required for the economy's growth. Therefore, the financial sector
should expand at a pace that is in lockstep with economic growth. In particular, India
can ill-afford the economy's over financialisation at its current development stage.

The increased retail participation in financial markets and familiarity with financial
products are beginning to grow in line with India’s emergence as the world’s fifth-largest
economy. Therefore, firms operating in banking, insurance, and capital markets must
keep the interests of the consumers in mind and improve their service quality through
fair selling, disclosure, transparency, reliability, and responsiveness. Their internal
appraisal and incentive systems must be in alignment with these considerations. It is in
their interest and in the interest of the nation that they optimise their commercial goals
over the long run.
Economic Survey 2023-24

INTRODUCTION

2.1 The Indian economy's financial and banking sectors have shown strong performance
despite continuous geopolitical challenges. The Central Bank maintained a steady policy rate
throughout the year, with the overall inflation rate under control. The effects of the monetary
tightening following the Russia-Ukraine conflict are evident in the lending and deposit interest
rates increase among banks. Bank loans saw significant and widespread growth across various
sectors, with personal loans and services leading the way.

2.2 Capital markets have also shown impressive results, with India's stock market
capitalisation to GDP ratio ranking fifth globally.1 The presence of a robust Digital Public
Infrastructure (DPI) and the greater involvement of banks and microfinance institutions
(MFIs) have contributed to improved financial inclusion. The insurance and pension sectors
are also doing well, as indicated by their expanding coverage.

2.3 Against this backdrop, the chapter is divided into two parts-Monetary developments and
financial intermediation. The monetary developments part presents the monetary and liquidity
conditions of the economy.

2.4 The financial intermediation part offers a discussion on the state of various financial
institutions and financial market instruments that form part of the financial market milieu in
India. Section I of this part presents the performance of the country's banking sector, which
is the most critical pillar of the financial intermediation landscape. Section II highlights the
Government’s mechanism for dealing with distressed assets and how the Insolvency and
Bankruptcy Code, 2016 (IBC/Code) has emerged as a game-changer in resolving insolvencies.
Section III discusses the Government’s approach towards financial inclusion with increased
emphasis on digital financial inclusion and data protection. Section IV highlights the role of
MFIs in facilitating financial inclusion and promoting inclusive growth. Section V discusses the
securities markets, which have come a long way to become an alternative and efficient means
of resource mobilisation for the corporate sector and the Government. The global stature of
India’s securities markets in using technology and best practices in regulations is a matter of
pride. Section VI concerns the International Financial Services Centre, Gujarat International
Finance Tec-City (IFSC GIFT City) and how it is emerging as a global financial and IT service
hub. Sections VII and VIII present the developments in the insurance and pension sectors.
Section IX discusses the government’s mechanism to ensure regulatory coordination and
overall financial stability, highlighting the role of the Financial Stability and Development
Council (FSDC). Section X provides an overall conclusion and the outlook for the financial
sector while mentioning the key challenges to tackle going forward.

1 As per the World Federation of Exchanges (WFE)

38
 Monetary Management and Financial Intermediation

MONETARY DEVELOPMENTS

2.5 Monetary policy plays a crucial role in determining the economic conditions of a country
through its influence on macroeconomic indicators such as economic growth, inflation, and
investments. The primary objective of monetary policy is to maintain price stability while
keeping in mind the objective of growth. Various instruments of monetary policy, viz. cash
reserve ratio (CRR) and statutory liquidity ratio (SLR) of banks, open market operations of
the Central Bank, and imposition of credit ceilings, etc., are used by the central bank in the
direction of this overall objective. This section of the chapter presents the recent monetary
developments in the economy, focussing on the emerging liquidity conditions and monetary
policy transmission in terms of lending and deposit rates of banks.

Monetary and Credit Conditions

2.6 Monetary and credit conditions evolved in line with the monetary policy stance during
the year, supporting domestic economic activity. The Monetary Policy Committee (MPC)
maintained the status quo on the policy repo rate at 6.5 per cent in FY24. It focused on
withdrawing accommodation to ensure that inflation gradually aligns with the target while
supporting growth. With the cumulative policy repo rate hike of 250 basis points (bps),
undertaken between May 2022 and February 2023, working its way through the economy,
the MPC kept the policy repo rate unchanged at 6.5 per cent since February 2023, but with
readiness to undertake appropriate and timely policy actions if the situation so warrants.

2.7 Important factors impacting the evolution of monetary and credit conditions during
FY24 were the withdrawal of ₹2,000 banknotes May 2023 2, the merger of HDFC, a non-bank
with HDFC Bank (July 2023), and the temporary imposition of the incremental CRR (I-CRR)
(August 2023). The expansion in reserve money and currency in circulation (CiC) moderated
due to the return of a predominant part of ₹2,000 banknotes to the banking system as deposits.
As per the Reserve ank of India R I , the total value of ₹2,000 banknotes in circulation has
declined from ₹3.56 lakh crore as of 19 May 2023 when the withdrawal of ₹2,000 banknotes
was announced to ₹7,5 1 crore as of 2 une 2024, indicating that 97. 7 per cent of the ₹2,000
denomination banknotes have returned to the banking system.3 This and an increase in term
deposit rates contributed to an acceleration in aggregate deposits and broad money (M3). The
growth in CiC moderated to 4.1 per cent from 7. per cent YoY in the last year, reflecting the
impact of the withdrawal of ₹2,000 banknotes.

2. Reserve Money M0 recorded a year-on-year YoY growth of 6.7 per cent as of 29 March
2024, compared to 9.7 per cent in the previous year. M0, ad usted for the first-round impact of

2 ide circular dated 19 May 2023 https www.rbi.org.in cripts PressReleaseDisplay.aspx prid 55707, R I announced
the withdrawal of ₹2000 banknotes from circulation since i about 9 of the ₹2000 denomination banknotes were issued
before March 2017 and are at the end of their estimated life-span of 4-5 years; (ii) the total value of these banknotes in circulation
has declined from ₹6.7 lakh crore at its peak as of 31 March 201 37.3 of Notes in Circulation to ₹3.62 lakh crore, constituting
only 10. of notes in Circulation as of 31 March 2023 iii this denomination is not commonly used for transactions, and iv
the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public.
3 R I press release dated 1 uly 2024, ithdrawal of ₹2000 Denomination anknotes – tatus , https www.rbi.org.in
cripts PressReleaseDisplay.aspx prid 5 199

39
Economic Survey 2023-24

changes in the CRR, recorded a 6.7 per cent growth compared with 7.4 per cent a year ago. The
increase in M0 was mainly driven by net foreign assets NFA during FY24.

Chart II.1: Moderation in growth in Reserve Money (M0)

Reserve Money CRR Adjusted Reserve Money Currency in Circulation
16

12
YoY growth (per cent)

0
05, Aug, 22

28, Oct, 22

18, Aug, 23
24, Jun, 22

10, Nov, 23
13, May, 22

26, May, 23
01, Apr, 22

14, Apr, 23
16, Sep, 22

07, Jul, 23
09, Dec, 22

29, Sep, 23

22, Dec, 23

02, Feb, 24
20, Jan, 23

03, Mar, 23

15, Mar, 24
ource Reserve Money Components and ources, Publications, eekly tatistical upplement, R I

2.9 The growth in road Money M3 , excluding the impact of the merger of HDFC with
HDFC Bank (with effect from 1 July 2023), was 11.2 per cent (YoY) as of 22 March 2024,
compared to 9 per cent a year ago. n the components side4, aggregate deposits (AD), the most
significant component, contributed most to the expansion of M3. Amongst sources, bank credit
to the commercial sector significantly contributed to the increase in M3, with a share of 67.1 per
cent as of 22 March 2024, supplemented by net bank credit to the overnment. share of 29.4
per cent)5

Chart II.2: Growth in Broad Money (M3)

Broad Money (M3) Aggregate Deposits Currency with Public
16
12.9
YoY growth (per cent)

12
9.5

8 6.5
4.3
4

0
Sep 23,22
Apr 08,22

Apr 21,23

Jul 14,23

Feb 09,24
Jul 01,22

Dec 16,22

Dec 29,23

Mar 22,24
Jan 27,23

Mar 10,23

Aug 25,23

Oct 06,23

Nov 17,23
Aug 12,22

Nov 04,22

Jun 02,23
May 20,22

ource Money tock Components and ources, Publications, eekly tatistical upplement, R I

4 Components of road Money Currency with the Public Aggregate Deposits Demand Deposits with anks Time Deposits
with banks ther deposits with Reserve ank
5 ources of road Money Net ank Credit to overnment ank Credit to Commercial ector Net Foreign xchange Assets of
anking ector overnment s Currency iabilities to the Public- anking ector s Net Non-Monetary iabilities

40
 Monetary Management and Financial Intermediation

Chart II.3: Higher Money Multiplier in FY24, indicating

higher liquidity in the market
Money Multiplier Money Multiplier adjusted for Reverse Repo
5.6 5.4

5.2 5.3

4.8
Ratio

4.4

4.0
Jul 01,22

Sep 23,22

Jul 14,23

Feb 09,24
Apr 08,22

Dec 16,22

Apr 21,23

Dec 29,23
Jan 27,23

Mar 10,23

Mar 22,24
Aug 12,22

Nov 04,22

Jun 02,23

Aug 25,23

Nov 17,23
Oct 06,23
May 20,22

ource Money tock Components and ources, Publications, eekly tatistical upplement, R I
Reserve Money Components and ources, Publications, eekly tatistical upplement, R I

2.10 As of 22 March 2024, the Money Multiplier (MM) was 5.4 against 5.2 a year ago.
Adjusted for reverse repo amounts, analytically akin to banks’ deposits with the Central Bank,
the adjusted MM was marginally lower at 5.3 as of March 2024.6

Liquidity conditions and trends in policy rates

2.11 The RBI’s liquidity management involved two-way operations in response to shifts in
liquidity conditions. During FY24, 17 fortnightly Variable Rate Reverse Repo (VRRR) auctions
and seven Variable Rate Repo (VRR) auctions were undertaken as the primary operation. In
addition, 49 fine-tuning operations 25 RRR and 24 RR were conducted intermittently,
modulating liquidity conditions in alignment with the monetary policy stance. Amidst tightened
liquidity conditions, banks also took recourse to the marginal standing facility (MSF). Given
the extensive deployment of surplus funds under the standing deposit facility (SDF) and
simultaneous recourse to the MSF, reversal of liquidity facilities under both the SDF and the
MSF was allowed even during weekends and holidays, effective 30 December 2023.7

2.12 Taking cognisance of risks that excess liquidity can pose to price and financial stability
and the increase in the surplus li uidity, inter-alia, due to the return of ₹2,000 banknotes to
the banking system, the RBI announced a temporary I-CRR of 10 per cent on 10 August 2023 .
The I-CRR, which impounded about ₹1.1 lakh crore from the banking system, was reviewed
on eptember 2023 and discontinued in a phased manner, ending 7 ctober 2023. The
impounded amount was thus released to the banking system ahead of the festival season in line
with the announcement on the Developmental and Regulatory Policies of 10 August 2023. As
a result of these actions, the banking system's liquidity moderated, becoming a deficit in mid-
September, which persisted during FY24.
6 Money Multiplier (MM) refers to the amount of M3 a bank generates with each rupee of M0 available to them. It depicts the
relationship between the monetary base and the economy’s money supply, indicating how fast the money supply will grow from
the bank’s lending activity. Higher the value of the MM, the higher the liquidity in the market and vice versa.
7 This measure will be reviewed after six months or earlier if needed.
R I overnor s tatement 10 August 2023, para 1 , https www.rbi.org.in cripts PressReleaseDisplay.aspx prid 56175

41
Economic Survey 2023-24

Moderation in liquidity conditions

Chart II.4a: Liquidity conditions Chart II.4b: Policy corridor and
overnight call money rate
Variable Rate Reverse Repo Daily SDF Weighted Average Call Rate
Variable Rate Repo MSF Repo Rate
Net LAF 7.5 SDF Rate 7.4
MSF Rate
2.5
7.0

Per cent
₹ lakh crore

0.5

6.5
-1.5 6.5

6.3
-3.5 6.0
08-Jun-23

13-Aug-23

18-Oct-23
20-Nov-23

27-Feb-24
06-May-23

11-Jul-23
03-Apr-23

15-Sep-23

31-Mar-24
23-Dec-23
25-Jan-24

02-Jun-23

30-Oct-23
03-May-23

02-Jul-23
01-Aug-23
31-Aug-23

29-Nov-23
03-Apr-23

30-Sep-23

27-Feb-24
29-Dec-23

28-Mar-24
28-Jan-24
ource i uidity perations by R I, Publications, eekly tatistical upplements

Monetary policy transmission

2.13 Lending and deposit rates of scheduled commercial banks (SCBs) increased further
during FY24, reflecting the lagged impact of the policy rate hikes during May 2022-February
2023, the external benchmark-based lending rate system of loan pricing and the moderation
of surplus liquidity. During the current tightening cycle, i.e., from May 2022 to May 2024,
the external benchmark-based lending rate and the one-year median marginal-cost-of-funds-
based lending rate increased by 250 bps and 175 bps, respectively. The transmission of hike in
policy rates to lending and deposit rates is given in Table II.1.

Table II.1: Pick-up in transmission to domestic lending and deposit rates

May-22 to May -24 Apr-23 to Mar-24
A R- utstanding Rupee oans 1.14 0.11
WALR-Fresh Rupee Loans 1. 0.05
ADTDR- utstanding Rupee Deposits 1.90 0.73
WADTDR-Fresh Rupee Deposits 2.44 0.14
ource ending and Deposit Rates of C s, R I Press Release various issues
Note A R eighted average lending rate
ADTDR eighted average domestic term deposit rate

FINANCIAL INTERMEDIATION
2.14 Financial development and economic growth are inextricably linked, and financial
intermediation is the pathway through which the former translates into the latter. Financial
intermediation helps in the efficient allocation of limited resources. Renowned economist Joseph
Schumpeter believed that the services provided by financial intermediaries, viz. mobilising

42
 Monetary Management and Financial Intermediation

savings, extending credit, storing assets, growing them, managing risk, and facilitating
transactions, were essential for technological innovation and economic development.9 Financial
intermediation also facilitates and encourages the inflows of foreign capital. Empirical studies10
show that efficient and developed financial markets can lead to increased and inclusive economic
growth by improving the allocation and utilisation of savings and ensuring access to finance to
all sections of society, including vulnerable groups and small and medium-sized firms.

2.15 Financial development parameters should not only be sound, but they also ensure
the system's financial stability as a whole. This requires indicators such as Capital to Risk
(Weighted) Assets Ratio (CRAR) , liquid assets to deposits, and short-term credit to be within
manageable limits. Further, an essential part of financial sector development is implementing
robust policies for regulation and supervision of all the financial market entities, market players,
and financial instruments. Coordinating amongst Regulators is paramount in this regard.

Performance of the banking sector and credit availability

2.16 The soundness and resilience of India’s banking sector have been underpinned by
ongoing improvements in asset quality, enhanced provisioning for bad loans, sustained capital
adequacy, and a rise in profitability. Credit growth remains robust, mainly driven by lending
to services and personal loans. As mentioned in para 2.9-2.10, deposit growth has also gained
momentum due to the transmission of previous rate increases, resulting in the repricing of
deposits and higher accretion to term deposits. Lending by non-banking financial companies
N FCs accelerated, led by personal loans and loans to the industry, and their asset uality has
improved.

Chart II.5: Double-digit growth in credit disbursal by SCBs

Gross Bank Credit YoY growth in Bank Credit
180 24
Gross bank credit (₹ lakh crore)

YoY growth in bank credit (per

150 20.2 19.8
20
120
19.0
15.9
cent)

90 15.0 16

60
165
139 12
30
137 164 168
0 8
Jun-23

Aug-23

Oct-23

Nov-23
Apr-23

May-23

Jul-23

Sep-23

Feb-24
Dec-23

Apr-24

May-24
FY22

FY23

Mar-24
Jan-24

ource Deployment of ank Credit by Ma or ectors, Handbook of tatistics on Indian conomy, Table No. 170, R I
Note: Data includes the impact of merger of a non-bank with a bank

9 chumpeter, oseph A. The Theory of conomic Development, Cambridge, MA Harvard niversity Press, 1911 .
10 Arestis, P., Demetriades, P. 1997 . Financial development and economic growth Assessing the evidence. The conomic
ournal, 107 142 , 7 3–799 A iakpono, M. . 2011 . Financial development and economic growth Theory and a survey of
evidence. tudies in conomics and conometrics, 35 1 , 15–43. Calder n, C., iu, . 2003 . The direction of causality
between financial development and economic growth. ournal of Development conomics, 72 1 , 321–334.

43
Economic Survey 2023-24

2.17 Bank credit growth has sustained momentum during FY24, with broad-based growth
across sectors. Credit disbursal by C s stood at ₹164.3 lakh crore, growing by 20.2 per cent at
the end of March 2024, compared to 15 per cent growth at the end of March 2023. The trend is
continuing in FY25, as reflected in a 19 per cent and 19. per cent YoY growth in bank credit in
April and May 2024.

Sectoral credit growth

2.1 rowth in credit to agriculture and allied activities was in double digits during FY24.
Agricultural credit had increased nearly 1.5 times from ₹13.3 lakh crore in FY21 to ₹20.7 lakh
crore in FY24. The Kisan Credit Card (KCC) scheme has played a pivotal role in providing
timely and hassle-free credit to farmers, with over 7.4 crore operative KCC accounts at the end
of 2023.11 Increased credit disbursal to the agricultural sector continued in April and May 2024
with bank credit to agriculture and allied sectors growing by 19.7 per cent and 21.6 per cent
YoY, respectively

2.19 Industrial credit growth picked up in H2 of FY24, registering .5 per cent growth in
March 2024, compared to 5.2 per cent a year ago, driven by an increase in bank credit to small
and large industries. The boost in credit disbursal to Micro, Small and Medium Enterprises
(MSMEs) has been supported by the availability of collateral-free loans with a 100 per cent
credit guarantee under the Emergency Credit Linked Guarantee Scheme (ECLGS). Further,
the availability of enriched and timely credit data and rapid implementation of digital lending
infrastructure have significantly contributed towards enhancing lender confidence Box II.1
discusses the measures undertaken by the Government to ensure credit availability to MSMEs
and their success. In the future, the development of new technologies, such as the pen Credit
nablement Network C N 12, are expected to boost credit flow to the MSME sector.

Box II.1: Enhancing the flow of bank credit to MSMEs through formalisation

Improving credit flow to the MSME sector at low cost has been a policy priority of the
Government and RBI. Various initiatives have been undertaken in this regard. These are
elaborated below13 -

Introduction of Trade Receivables Discounting System (TReDS): TReDS

is a digital platform that facilitates the discounting of MSMEs' trade receivables
through multiple financiers- anks and N FCs- to meet li uidity and working capital
re uirements. Cumulatively, 9 .9 lakh invoices amounting to ₹2.9 lakh crore have been
discounted on TReDS platforms, as of 31 March, 2024 supporting MSMEs for better
liquidity and working capital management.

11 PI Press Release of Ministry of Finance dated 27 December 2023, https shorturl.at w

12 C N is a decentralised open credit network that codifies the flow of credit between borrowers, lenders, and credit distributors
under a common set of standards. It is expected further to strengthen the digital public infrastructure of the country
13 This box write up is based on information data from the Ministry of M M and DYAM Portal, https www.msme.gov.in ,
https udyamregistration.gov.in

44
 Monetary Management and Financial Intermediation

Change in definition of MSMEs: From 1 July 2020, MSMEs are defined as per a
composite criterion of turnover and investment in plant and machinery/equipment.
This is envisaged to bring a large number of entrepreneurs under the ambit of the formal
banking sector, which will facilitate the flow of credit to the industry at subsidised rates.

Registration of MSMEs on Udyam Portal: The Ministry of MSMEs launched the

Udyam Registration Portal (URP) on 1 July 2020 and since then has established itself
as an essential enabler for ease of doing business, as it is free of cost, simple and online.
This was done to bring entrepreneurs under the ambit of the formal banking sector,
which will facilitate the flow of credit to MSMEs at subsidised rates. However, one
challenge with URP is the registration of Informal Micro Enterprises (IMEs) which are
si eable in number. As per the 73rd National ample urvey, 6.3 crore unincorporated
non-agricultural entities existed in FY16, primarily micro-enterprises. Since IMEs do
not have a PAN T, they cannot register on RP and avail themselves of the benefits
of Government programmes. To formalise such enterprises, the Ministry of MSME,
in collaboration with the Small Industries and Development Bank of India (SIDBI),
launched the Udyam Assist Platform (UAP) on 11 January 2023. Through formalisation,
informal micro enterprises will be linked to various facilities such as access to markets and
credit etc. As of une 2024, 1. 6 crore IM s have been onboarded on AP. More than
4.5 crore enterprises have been registered on URP and UAP as of 3 June 2024.

e am of Credit uarantee cheme (C ) for s: In the Union Budget FY23,

the revamp of the CGS for Micro and Small Enterprises (MSEs) was announced with a
re uired infusion of funds to facilitate an additional credit of ₹2 lakh crore for M s.
Accordingly, the C was revamped with an infusion of ₹9,000 crore in the corpus of
Credit Guarantee Fund Trust for MSEs. Subsequently, the credit limit under the said
scheme was enhanced from ₹2 crore to ₹ 5 crore, with a minimum annual guarantee
fee of as low as 0.37 per cent per annum. Conse uently, credit guarantees worth ₹3 lakh
crore were approved during FY23 and FY24 against the target of ₹2 lakh crore in four
years. During FY23, out of the guarantees of ₹1.04 lakh crore, ₹16,373 crore and ₹2,750
crore were extended to women and SC/ST-owned enterprises, respectively. Guarantees
worth ₹2.02 lakh crore were extended in FY24, out of which ₹32,223 crore and ₹5,393
crore were extended to women & SC/ST-owned enterprises, respectively.

To ensure credit availability to IMEs, w.e.f 14 February 2024, the Ministry of MSME made
a special provision under the existing CGS for MSEs providing that IMEs registered on UAP
can avail of credit up to ₹20 lakh without primary security and with 5 per cent guarantee
coverage and a reduced annual guarantee fee. Additionally, initiating legal action is not
required for financial institutions to invoke the guarantee.

45
Economic Survey 2023-24

2.20 Bank credit disbursal to the services sector remained resilient despite a slowdown in
credit growth to N FCs. ithin the services sector, credit disbursal to the commercial real
estate and trade sub-sectors improved in H2 of FY24. Personal loans and N FCs have the
largest share of credit disbursed by banks. Within personal loans, housing loan growth remained
range-bound during FY24, with signs of improvement in April and May 2024.

Chart II.6: Broad-based growth in bank credit across sectors

Agriculture Services Personal Loans Industry (RHS)
35 10

YoY growth in bank credit (per

YoY growth in bank credit (per

9.4
30 28.7
8
25 23.2

cent)
cent)

20 21.6
6
15

10 4
Jun-23

Aug-23

Oct-23

Nov-23
Apr-23

May-23

Jul-23

Sep-23

Feb-24

Apr-24

May-24
FY22

FY23

Mar-23

Dec-23

Jan-24

Mar-24
ource Deployment of ank Credit by Ma or ectors, Handbook of tatistics on Indian conomy, Table No. 170, R I
Note: Data includes the impact of merger of a non-bank with a bank

2.21 Credit disbursal for housing loans increased from ₹19.9 lakh crore in March 2023 to
₹27.2 lakh crore in March 2024. Credit growth in personal loans can be attributed to the
significant digitalisation of the ecosystem with increased use of credit bureaus for faster
decisions, data collation and validation and e-commerce transactions. However, personal loan
growth moderated after December 2023 due to increased capital requirements for unsecured
personal loans, credit cards and lending to N FCs by the R I from 100 per cent to 125 per cent.14, 15

Improvement in asset quality of banks

2.22 There has been a significant enhancement in the asset quality of banks, led by improved
borrower selection, more effective debt recovery and heightened debt awareness among large
borrowers.16 In addition to regulatory capital and liquidity requirements, qualitative metrics
such as enhanced disclosures, robust code of conduct, and transparent governance structures
have also improved banking performance.

2.23 The gross non-performing assets NPA ratio of C s continued its downward trend,
reaching a 12-year low of 2. per cent at the end of March 2024 from its peak of 11.2 per cent in
FY1 . ower slippages and a reduction in outstanding NPAs through recoveries, upgradations

14 R I notification, Regulatory measures towards consumer credit and bank credit to N FCs , dated 16 November 2023, https
rbi.org.in cripts Notification ser.aspx Id 12567 Mode 0
15 As per the RBI Annual Report 2023-24
16 Ibid 15

46
 Monetary Management and Financial Intermediation

and write-offs led to this decrease. The improvement in SCBs’ asset quality has been broad-
based. The NPA ratio of the agriculture sector remains high at 6.5 per cent at the end of
March 2024, but it has recorded persistent improvement during H2 of FY24. The NPA ratio
in the personal loans segment improved across all categories. Asset quality improved across all
significant sub-sectors within the industrial sector, barring vehicles and transport equipment.
ower NPAs and high provisions accumulated in recent years contributed to a decline in net
NPAs.

Chart II.7a: Decline in GNPAs of SCBs Chart II.7b: CRAR well above the
required norms
11.2 17.2

Capital-to-risk (weighted) assets

16.8 16.8
GNPAs as % of gross advances

16.3
9.3 9.1
8.2

ratio (per cent)

7.5 7.3 14.8
14.3
5.8 13.7 13.9
13.3
4.3 12.9
3.9
2.8
Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Mar-24

Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24
ource Handbook of tatistics on Indian conomy, ource Handbook of tatistics on Indian conomy,
Money and anking, ross and Net NPAs of C s- Money and Banking, Distribution of SCBs by CRAR,
Group-wise, RBI RBI

2.24 As SCBs bolstered their capital base by capitalising reserves from higher profits and
raising fresh capital, their CRAR increased to 16. per cent at the end of March 2024. As of the
end of March 2024, all banks met this as well as the CET-1 ratio17 re uirement of 13.9 per cent,
well above the regulatory minimum.

2.25 The net interest margin NIM of C s remained robust at 3.6 per cent in March 2024.
With growing net interest income and other operating income and as the need for additional
provisions fell, their profit after tax rose by 32.5 per cent (YoY) in March 2024, in spite of a
large increase in operating expenses. Profitability indicators remained strong, with return on
equity (RoE) and return on assets (RoA) ratios touching decadal highs in March 2024. Lagged
effects of transmission of monetary policy rate increases and shifts in liquidity conditions led to
a 100 basis points increase in the cost of funds as against the 75 basis points rise in the yield on
assets in FY24. The yield on assets further improved due to the rise in interest rates.

2.26 It is important to note that in its annual report on ‘Trend and Progress of in Banking in
India 2021-22 , R I observed that a high NIM is negatively correlated with financial stability.
till, the threshold above which a high NIM is antithetical to financial stability is 5 per cent. The
17 Common Equity Tier 1 refers to the sum of common shares (equivalent for non-joint stock companies) and stock surplus,
Why ?
retained earnings, other comprehensive income, qualifying minority interest and regulatory adjustments

47
Economic Survey 2023-24

NIM of C s is well below that. It peaked at 3.9 per cent in 1 of FY24, after which it moderated
to 3.6 per cent as of March 2024.

Consistent improvement in performance indicators

Chart II.8a: Return on assets Chart II.8b: Return on equity
(Annualised) (Annualised)

Return on equity (Per cent)

Return on assets (per cent)

10.8 3.6 4 0.8 7.6 10.1 12.3 13.8

0.8 0.3 0.3 0.1 0.7 0.9 1.2 1.3
-2.7 -1.8
-0.2 -0.2

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Mar-24
Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Mar-24

ource Chapter II of the R I Financial tability Report, Financial Institutions oundness and Resilience
(various issues)

Chart II.9: High net interest margin of SCBs

4.0
3.9
Net interest margin (Per cent)

3.8

3.6 3.6
3.6
3.5

3.4 3.4
3.4
3.3

3.2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY20 FY21 FY22 FY23 FY24

ource R I

2.27 India’s banking sector has shown remarkable resilience. The macro-and micro-prudential
measures by RBI and the Government have enhanced risk absorption capacity in recent years,
improving the banking system's stability. The RBI’s Basic Statistical Returns 2 (Deposits with
C s reveal that as of March 2024, 56.9 per cent of India s deposits are with Public ector
Banks (PSBs). 61.1 per cent of total deposits are owned by households considered sticky retail
customers; therefore, deposit withdrawals in this category, in case of an adverse event, are
likely to remain limited. Second, for the top 10 Indian banks in asset size, loans constitute more

48
 Monetary Management and Financial Intermediation

than 50 per cent of their total assets, making banks immune to the rising interest rate cycle.
Third, after a phase of recapitalisation and cleaning up of bank balance sheets during the past
years, there is a visible improvement in various banking indicators. The CRAR for the top 10
C based on asset si e has been well above asel III Norms. Fourth, interest rate cycles have
been quite prominent in India, aligning with RBI's financial conditions and goal to maintain
economic stability and manage inflationary pressures. The exposure to regular interest rate
cycles has made Indian banks well-equipped to handle the cycles.

2.2 ased on the analysis mentioned above, it is seen that the Indian banking system remains
sound and resilient, backed by high capital adequacy ratio, improved asset quality and robust
earnings growth. The trend of improvement in the profitability of SCBs, which began in FY20,
continued for the fifth consecutive year in FY24. This has been aided by higher income and
lower provisions and contingencies.

Dealing with distressed assets

2.29 The ability to resolve stress in the market is a measure of an economy’s soundness,
and the ability to do so in the face of an economic slowdown is an essential indicator of the
economy’s resilience. The last decade saw Indian commercial banks face a crisis due to the
significant burden of NPA. As of March 2016, the NPA ratio of the public sector banks was
14.5 per cent. The other side of this was the plateauing of the bank debt, which fuelled an
increase in corporate leverage, leading to the twin-balance sheet problem. Maximum stress was
in the industry and infrastructure sectors.

2.30 The Government has paid close attention to resolving stress in banks and corporations
over the past decade. Measures such as strengthening the banking regulatory framework,
amending the recovery laws, enacting comprehensive insolvency and bankruptcy legislation,
and establishing a public sector asset reconstruction company were implemented. These
measures have nursed the credit sector back to sound health, and the NPA ratio shrunk to 2.
per cent in March 2024.

2.31 The emergence of stress in the market due to the operation of market forces and the
subsequent business/venture failures is a sign of an active and dynamic economy. Since banks
form the most significant and predominant source of finance for businesses in India, banks
need to be equipped to deal with the flow of distressed assets, and the markets need to be
equipped to channel investments into the reconstruction and revival of such assets.

2.32 Banking regulations provide for monitoring and timely identification of stressed assets,
and RBI has taken several measures to strengthen its prudential framework. Regulations also
provide measures to address stress at its initial stages through restructuring and rescheduling
loans. The broad contours of these options form a part of banks' risk management tool kit.
Banking regulations form the first line of defence and measures to address stress. The RBI
updates them in response to market needs and economic conditions.

49
Economic Survey 2023-24

Conventional channels of recovery and reconstruction

2.33 The recovery routes viz., Debt Recovery Tribunals (DRTs) and the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act,
2002, form the second line of measures available to address stress. During FY23, around 45
per cent of the reduction in NPAs of C s was contributed by recoveries and upgradations.1

2.34 The Asset Reconstruction Companies (ARCs)19 regulated under the SARFAESI Act are
emerging as an alternative channel for investors, including FPIs , to access the NPAs distressed
assets held by banks. During FY23, 2 ARCs were operating in the market.20 Such acquisition is
done by issuing security receipts (SRs), and ARCs are mandated to take at least 15 per cent of the
SRs issued or 2.5 per cent of the total SRs issued, whichever is higher. The regulatory framework
has allowed the ARCs to participate as resolution applicants under the IBC process subject to
certain conditions. It has thereby allowed harnessing the synergies and complementarities
of the two market channels of asset reconstruction. During FY23, 9.7 per cent of the previous
year s stock of C s NPAs was sold to ARCs, compared to only 3.2 per cent in FY22. The
number of SRs ultimately redeemed increased during FY23, indicating enhanced recovery
through this mode.

2.35 The prere uisites for an efficient market for the NPAs are that it should be deep,
competitive and have adequate liquidity. The market has to have enough investors to ensure
that the price discovery of the NPAs is efficient. It has to have ade uate li uidity to support
acquisition from the banks and support asset’s turn-around. Apart from direct measures taken
to reduce the NPAs, the overnment is building systemic strength in the market with market-
based interventions to improve liquidity and competition by establishing a bad bank and
encouraging the insolvency and bankruptcy ecosystem.

2.36 The Securities and Exchange Board of India (SEBI) has implemented several measures
to improve liquidity in the market for distressed assets. FPIs are permitted to invest in
debt instruments issued by companies undergoing resolution and in SRs issued by ARCs.
No minimum investor limit or residual maturity re uirement is imposed on FPIs for these
investments. These measures have led to an increase in FPI investment in SRs issued by ARCs
from around ₹10,000 crore to ₹14,4 2 crore during FY2221. SEBI also opened a particular route
in 2022, the Special Situation Fund, a sub-component of the Alternative Investment Funds, to
participate in the distressed asset market. It allowed these investment vehicles to invest in SRs
issued by ARCs and to act as resolution applicants under the IBC process subject to certain
conditions. With increased access to funds, market participants are likely to invest in more
NPAs distressed assets, and the recovery rate for banks is expected to be higher.

1 R I Report on Trend and Progress of anking in India 2022-23, Page 0, https shorturl.at d t1
19 ARCs are entities registered with the RBI and are permitted to acquire financial assets, including loans, advances, bonds,
guarantees and letters of credit from banks/financial institutions for reconstruction
20 https tinyurl.com 56vmwnkv
21 R I Report on Trend and Progress of anking in India 2021-22, https shorturl.at yx9n4

50
 Monetary Management and Financial Intermediation

Increasing competition in the distressed asset market

2.37 To deepen the distressed asset market further, the Government, in July 2021, set up the
National Asset Reconstruction Company td. NARC and India Debt Resolution Company
td. IDRC . NARC ac uires assets from banks, and the overnment guarantees back the
SRs issued against these assets. The India Debt Resolution Company Ltd (IDRCL) has an
exclusive arrangement with NARC to resolve assets ac uired by the latter. The IDRC is
mandated to identify the appropriate resolution strategy for the asset and to aid NARC in
optimal resolution outcomes. The assets ac uired by the NARC clear the bank balance sheets
immediately, freeing capital for further lending.

2.3 NARC has so far ac uired 1 accounts with loan exposure of around ₹92,000 crore22,
which includes the acquisition of the ailing Srei Infrastructure Finance Ltd and Srei Equipment
Finance td as resolution applicants. hile offers on assets worth ₹1.25 lakh crore are at
different stages of ac uisition, due diligence, and evaluations for assets of around ₹40,000
crore are underway. The establishment of a government-backed company for the aggregation
and resolution of distressed assets will further improve liquidity and competition in the market.

Addressing distressed assets through insolvency resolution

2.39 The I C has been recognised as an effective solution for the twin balance sheet problem,
where banks are under the stress of NPAs while corporates are overleveraged and unable to
repay their debt. The Code provides for addressing financial distress early in time. It mandates
the insolvency professional to conduct the insolvency process and run the operations of the
distressed corporate debtor. At the same time, the committee of creditors steers the resolution
process and all significant decisions, thus reducing further erosion of value during the process
itself. By design and operation, the Code balances the needs of all stakeholders. IBC has provided
an avenue for corporate debtors to resolve their debt and get an honourable exit from failed
business endeavours, thus promoting ease of doing business and encouraging entrepreneurship.
The Code has established itself as an effective solution for addressing banks' stress by aiding
in significantly reducing NPAs and helping rescue failing corporate debtors. It has offered
fresh impetus to the recovery segment of the financial markets and the reconstruction of
failed distressed assets in the real sector. In the eight years since 2016, 31,394 corporate
debtors involving a value of ₹13.9 lakh crore have been disposed of including pre-admission
case disposals) as of March 2024. The loss of control immediately after admission into the
resolution process has led debtors to settle with creditors as soon as the applications are filed
with the National Company aw Tribunal NC T . A singularly notable fact is that ₹10.2 lakh
crore of underlying defaults were addressed at the pre-admission stage.23 This change in debtor

22 Data of the Department of Financial Services

23 ource I I newsletter, anuary-March 2024, https ibbi.gov.in uploads publication 21aa7620a9e 09f7a20b432eec 9 b.
pdf

51
Economic Survey 2023-24

behaviour has been a big boon for banks and other lending institutions. The Code has created
an optimal incentive-disincentive mix to facilitate above-board and transparent dealings in
creditor-debtor relations.

Remarkable progress in cases resolved under the IBC

and realisation by creditors
Chart II.10a: Number of resolved cases Chart II.10b: Realisation by creditors
through approved resolution plans
% of Realisation of admitted claims
269 % of Realisation against Fair Value
% of Realisation against Liquidation Value (RHS)
Number of resolved cases

120 280
189

Per cent of Realisation

Per cent of Realisation

85
240
144 80
132
119
200
75 40 32
160
162
19
0 120
FY18

FY19

FY20

FY21

FY22

FY23

FY24
FY18 FY19 FY20 FY21 FY22 FY23 FY24

ource uarterly newsletter released by the Insolvency and ankruptcy oard of India I I various issues

2.40 The Code uses the corporate insolvency resolution processes (CIRPs) to identify the best
means to resolve a distressed asset. It has facilitated the successful closure of 4,131 CIRPs until
March 2024. 3,171 corporate debtors have been rescued, of which 947 cases have been resolved
through approved resolution plans, which brought in a realisable value of ₹3.36 lakh crore. In the
resolved cases, the creditors recovered approximately 32 per cent of their claims. This amounted
to a recovery of 5 per cent of the fair value and 162 per cent of the li uidation value of assets.

2.41 The impact of IBC on the health of the financial markets is evident as it is the dominant
recovery route for SCBs today.24 As per the RBI’s Report on Trends and Progress of Banking
in India, 2022-23, the IBC held a share of 43 per cent of the total amount recovered by SCBs in
FY23. In the six years since FY1 , the I C has enabled over ₹3 lakh crore recovery for the C s,
more than what they have recovered through the Lok Adalats, DRTs, and the SARFAESI Act.

2.42 More significant to the real sector is that over 3,000 businesses have emerged out of the
CIRP, with continued business operations extending the productive use of resources trapped
due to financial distress in these corporate debtors. A study conducted by the Indian Institute
of Management, Ahmedabad, reports25 that the resolved firms that went through the resolution
process under the Code have witnessed a significant improvement in their performance in

24 It is important to note that the foremost objective of the Code is resolution of stressed corporate debtors. Recovery of claims is
only incidental to the process of resolution.
25 IIM Ahmedabad report, ffectiveness of the Resolution process From utcomes in the Post-I C Period , https ibbi.gov.in
uploads resources 59f737b213b4700cc1642 aefd62 69a.pdf

52
 Monetary Management and Financial Intermediation

terms of increase in tangible assets and average capex in the post-resolution period compared
to the pre-resolution period, the aggregate market valuation of resolved firms rose from around
₹2 lakh crore in the pre-resolution phase to ₹6 lakh crore in the post-resolution phase. There
is a substantial increase in total employment and around a 50 per cent increase in the average
employee expenses in the resolved firms (listed) in the three years post-resolution. It is hard to
find another policy measure that has created winners.

2.43 As of March 2024, the total CIRPs ending in liquidation were 2,476. Around 77 per cent
of these corporate debtors were defunct at the beginning of the process and were, on average,
valued at 7 per cent of the outstanding debt. The liquidation process provides a last window of
opportunity for the revival of the asset through a going concern Sale/Compromise/Arrangement
to maximise the value rescued. Around 50 businesses have been rescued at this last resort. 5 6
firms were dissolved at the end of the liquidation process, releasing whatever resources were
needed for alternate uses.

2.44 Nine of the twelve large accounts26 referred by the RBI for resolution under the IBC
have been resolved. The resolution plans for these corporate debtors yielded 54 per cent of the
claims admitted. These debtors included steel and power majors such as Electrosteel Steels
Ltd., Bhushan Steel Ltd., Monnet Ispat & Energy Ltd., Essar Steel India Ltd., Bhushan Power
& Steel Ltd., etc., and their resolutions played a significant role in the revival of the steel sector.
The framework under Section 227 of the IBC provides for the resolution of financial service
providers, and, at present, N FCs, including Housing Finance Companies with asset si e of ₹500
crore or more, are covered. The framework has enabled the resolution of Dewan Housing Finance
Corporation Ltd., Srei Equipment Finance Limited and Srei Infrastructure Finance Limited under
this framework. In each case, the creditors have recovered around 42 per cent of the claims.
Box II.2 discusses the role of the IBC process in resolving financial stress of real estate companies.

Box II.2: Role of IBC in reviving stalled real estate projects and strengthening
homebuyers’ rights

Before 2016, the only remedy available for homebuyers whose housing projects were stalled
for various reasons was through the Consumer Forums established under the Consumer
Protection Act of 19 6. In FY24, over 5,50027 cases were filed with the National Consumer
Dispute Redressal Commission, and almost 21 per cent were related to the housing sector.
However, the number of cases resolved through the consumer redressal route has been
minimal. It was estimated that 4.1 lakh dwelling units in real estate projects across the
country involving ₹4.1 lakh crore were under stress.2

26 The first set of corporate debtors referred by RBI for resolution under the IBC.
27 C NF N T Dashboard at https cms.nic.in ncdrcusers eb dashboard.do method loadDash oardPub as reflected on 21
May 2024
2 Model uilding ye- aws 2016 Towns and Country Planning rganisation, Ministry of Housing and rban Affairs, https
mohua.gov.in/upload/uploadfiles/files/report(1).pdf

53
Economic Survey 2023-24

The year 2016 saw the enactment of the Real Estate (Regulation and Development) Act
2016 (RERA Act). This provided a dedicated grievance redressal mechanism to the
aggrieved homebuyers and a means to rein in errant real estate contractors and companies.
Subsequent enactment of the IBC in the same year opened another channel and has been the
most favoured among the three available remedies. As of March 2024, over 1500 real estate
companies were admitted into the insolvency resolution process under the IBC, accounting
for 21 per cent of total admissions. ne in four cases settled after admission was also from
this sector. f the 91 corporate debtors resolved, 133 were real estate companies, forming
15 per cent of the companies resolved.

Insolvency resolution of real estate companies posed a unique set of challenges for the
standardised corporate insolvency process. Real estate companies have multiple projects
spread across geographies, projects at different stages of construction, and diversified
business models. The large number of homebuyers across these projects meant claims from
thousands of homebuyers who needed to be included in the process. The judiciary, the
Government, and the market have recognised these difficulties and moved in cohesive steps
to improve outcomes for these projects. The availability of two new remedial routes led to
discord and friction in the system.

The Insolvency aw Committee, in its March 201 29 report took cognisance of the peculiarity
of the real estate sector. It recommended that the amount raised from homebuyers be
considered financial debt as it formed a significant contribution to finances raised and had
the commercial effect of borrowing. This led to substantial changes in the CIRP by making
homebuyers a distinguished class of creditors and a part of the Committee of Creditors,
enabling their direct participation in decision-making. A system to organise and derive
decisions, through consensus of majority voting of the thousands of homebuyers, was also
worked out to introduce insolvency professionals as authorised representatives. Further
amendments enabled insolvency to be initiated by a joint application of not less than 100
allottees or not less than 10 per cent of the total number of allottees under the same project,
ensuring that frivolous applications are not filed. As clarity emerged on the use of IBC as a
remedy for homebuyers, it was also laid out that resolution plans approved for real estate
projects should necessarily be compliant with the RERA Act, thereby restoring primacy to
the sectoral law and the sectoral regulator in its domain for optimal oversight of the sector.

By way of innovation in economic law, the judiciary paved the way for solutions in resolving
real estate corporate debtors. As a class of creditors, it enabled homebuyers to act as resolution
applicants. It approved what was termed a “reverse CIRP”, where the corporate debtor could
take measures to complete the project even as the resolution process was underway. The
judiciary has allowed project-specific resolution plans, targeting the affected project alone
under the same corporate debtor. This measure relieved the corporate debtors and allottees
of different projects, and the market has responded positively.

29 Ministry of Corporate Affairs report of the Insolvency aw Committee, March 201 , https ibbi.gov.in uploads resources
I RReport2603 0304201 .pdf

54
 Monetary Management and Financial Intermediation

Several real estate companies have successfully resolved and enabled the progress of stalled
projects. In the case of Value Infracon India Private Limited, the resolution process yielded
creditors 98 per cent of the claim value and 189 per cent of the asset’s liquidation value.

In the cases of Ashiana Landcraft Realty Private Limited and Anudan Properties Private
Limited, the resolutions yielded around 2.5 times the liquidation value of the assets. Large
corporate debtors in the sector, like Jaypee Infratech Limited, have been resolved with a
recovery of 88 per cent for creditors, and assets have been acquired at over 114 per cent of
liquidation value.30

Even as the pace of resolutions picked up under the IBC, there was still a need to channel/
redirect investments into these stressed projects. To address this vital gap, the Government
set up the Special Window for Affordable and Mid-Income Housing (SWAMIH) with a target
corpus of ₹12,500 crore in 2019. It is a professionally managed Alternative Investment
Fund (AIF) aimed at providing priority debt financing for the completion of stalled housing
projects, including corporate debtors and projects undergoing the resolution process under
the Code. As of April 2024, the SWAMIH Fund has delivered 32,000+ homes and the
delivery of 20,000 homes every year for the next three years is being targeted.

The impact of seamless resolutions and progress of cases under IBC and improvement
in liquidity through the AIF is reflected in the healthy balance sheets of banks, thereby
enhancing their ability to lend further.

2.45 The Government has taken several measures to improve the insolvency ecosystem. It has
strengthened the NCLT regarding infrastructure, increasing its strength by filling vacancies and
proposing an integrated IT platform. The regulations have been amended to keep in line with
the needs of the markets and the advances in judicial pronouncements. The IBC has established
itself as an indispensable component of the asset recovery and reconstruction market. In the
process, it has forever changed the credit market landscape in the country for good.

Financial inclusion is within reach; digital financial inclusion is the

next goal
2.46 Financial inclusion is not just a goal but also a means to an end as an enabler for sustainable
economic growth, reduction of inequality and elimination of poverty. The United Nations (UN)
has positioned financial inclusion as a prominent enabler of other development goals in the
2030 Sustainable Development Goals (SDGs). Academic evidence states that financial inclusion
can enhance overall economic growth and facilitate the achievement of different SDGs.

2.47 The Government has prioritised delivering financial services to the last mile. Given
the low levels of financial inclusion and formal identification in 2008, the magnitude of the
challenges facing India a little over a decade ago was immense. According to the World Bank’s
Global Financial Inclusion Database, India has made remarkable progress in its financial
inclusion goals over the past ten years. The number of adults with an account in a formal
financial institution increased from 35 per cent in 2011 to 77 per cent in 2021. There has been
30 As per data as reflected in the summary of outcomes released by IBBI, https://ibbi.gov.in/en/claims/cd-summary

55
Economic Survey 2023-24

an increase in the percentage of adults saving in a financial institution and borrowing from
formal sources. There is a decline in the access gap between the rich and the poor. Further,
the gender divide in terms of financial inclusion has also narrowed. While progress has been
made on gender in financial inclusion, India’s youth are seeing the same benefits (Table II.2).
Compared to South Asian and world averages, it is seen that India’s performance is better in
specific indicators (Table II.3).

2.48 Based on the bank account data and the relationship with GDP per capita, one rough
estimate is that it would have taken 47 years to achieve 80 per cent of adults with a bank account
had India solely relied on traditional growth processes.31
Table II.2: India’s performance across indicators of financial
inclusion and financial education

S.No. Indicators of Financial Inclusion 2011 2021

1. Adults with an account at a formal financial institution (%, age 15+) 35 77
2. Made or received a digital payment (% age 15+) 22* 35
3. Borrowed from a formal financial institution, older (% age 15+) 8 12
4. Account, poorest 40% (% age 15+) 27 78
5. Account, richest 60% (% age 15+) 41 77
6. Account, female (% age 15+) 26 78
7. Account, male (% age 15+) 44 78
8. Youth (age 15-24 years) made or received digital payment 19* 30
Source: World Bank’s Global Financial Inclusion Database
Note: *data is for 2014, as data for 2011 is not available

Table II.3: A cross-country comparison of financial inclusion

and financial education parameters

Adults with an Adults saving at a Borrowed from a

account at a formal financial institution formal financial
financial institution (% ages 25+) institution, older
(%, age 15+) (% age 25+)
World 76 29 32
South Asia 68 11 12
Brazil 84 23 42
China 89 45 42
India 78 13 13
Indonesia 52 20 15
South Africa 85 37 20
Source: World Bank’s Global Financial Inclusion Database, Data for 2021 (latest available)

2.49 More recently, there has been a shift in focus of the financial inclusion strategy in the
country, from ‘every household’ to ‘every adult,’ with added emphasis on the usage of accounts
31 BIS Papers No 106: The design of digital financial infrastructure: lessons from India by Derryl D’Silva, Zuzana Filková, Frank
Packer and Siddharth Tiwari, Monetary and Economic Department, December 2019, (https://www.bis.org/publ/bppdf/
bispap106.pdf)

56
 Monetary Management and Financial Intermediation

by enhancing direct benefit transfer (DBT) flows through these accounts, promoting digital
payments using RuPay cards, UPI etc. The RBI launched UPI123Pay in March 2022 as an option
to make UPI payments for feature phones, and the National Payments Corporation of India
(NPCI) introduced UPI Lite, an on-device wallet service provided by select banks that allows
low-value transactions up to ₹200 through the BHIM app. These innovations are steps towards
accelerating the digital adoption process in India by creating a more prosperous and inclusive
ecosystem that can accommodate larger sections of the population. India is also collaborating
with several countries to bring more efficiency to national and cross-border payment systems.

2.50 RBI has been collaborating bilaterally with various countries to link India’s Fast
Payments System (FPS), i.e., UPI, with their respective FPSs for cross-border Person to Person
(P2P) and Person to Merchant (P2M) payments. The RBI joined Project Nexus, a multilateral
international initiative to enable instant cross-border retail payments by interlinking domestic
FPSs. The Nexus aims to connect the FPSs of four ASEAN countries (Malaysia, Philippines,
Singapore, and Thailand) and India, who would be the founding members and first mover
countries of this platform. An agreement to this effect was signed by the BIS and the central
banks of the founding countries on 30 June 2024.32 The platform is expected to go live by 2026.
Once functional, Nexus is expected to play an important role in making retail cross-border
payments efficient, faster, and more cost-effective.

2.51 The main components of the RBI’s strategy for financial inclusion have been a target-based
approach, market development, strengthening infrastructure, innovation, and technology,
last-mile delivery, consumer protection and financial literacy and awareness.33 Following this
strategy, the progress on financial inclusion so far is presented below:

Progress on financial inclusion in India

78% account
ownership in 2021

~52.6 crore bank

24.6 ATMs per lakh
accounts under
adults in 2022
PMJDY
Progress on
Financial Inclusion
>5.5% population,
> 1.3 lakh bank i.e., 7.7 crore people
branches have credit card

14.3 Commercial
Bank per lakh
adults

Source: Pradhan Mantri Jan Dhan Yojana (PMJDY) website, PIB and RBI
Note: Data as of July 2024

32 BIS press release dated 1 July 2024, ‘Project Nexus completes comprehensive blueprint for connecting domestic instant
payment systems globally and prepares for work towards live implementation’, https://www.bis.org/press/p240701.ht m
33 The RBI launched a National Strategy for Financial Inclusion 2019-2024, with the vision to help expand and sustain the
financial inclusion process at the national level through a broad convergence of actions involving all the stakeholders in the
financial sector. The strategy aimed to provide affordable access to formal financial services, broaden and deepen financial
inclusion, and promote financial literacy and consumer protection.

57
Economic Survey 2023-24

Digital Financial Inclusion

2.52 A key enabler of this financial inclusion drive has been the digitalisation of the financial
system, which has catalysed the transformation of the financial services landscape worldwide.
With financial services now available on tap on digital devices, the next big challenge is to
ensure ‘Digital financial inclusion (DFI).’ DFI involves arranging cost-effective digital means to
reach currently financially excluded and underserved citizens with a range of formal financial
services suited to their needs. The essential components of DFI include the availability of digital
transactional platforms to enable customers to make or receive payments and devices to enable
such transactions. These retail agents have digital devices and additional financial services via
a digital transactional platform.

2.53 While measures were afoot towards digitisation of financial services in India, the
COVID-19 pandemic gave further momentum to the process when the most vulnerable and
excluded citizens were severely affected. The Government, accordingly, encouraged innovation
and developed a well-stacked digital infrastructure and technology-led system. This has evolved
into an inclusive, cost-efficient, and responsible DPI.

2.54 With the objective of India emerging as a fintech nation, the Government has launched
many flagship schemes such as the Digital India Mission, Make-in-India, etc. Greater emphasis
has been given to the creation of DPI such as Aadhaar, e-KYC, Aadhaar-enabled Payment
System, UPI, Bharat QR, DigiLocker, e-sign, Account Aggregator, Open Network for Digital
Commerce, etc. These DPIs can be utilised on a shared basis by different players to ensure
optimum outcomes. Their usage has brought transparency, scale operation and timely delivery
of financial services to the public.

2.55 India's robust DPI has played a pivotal role in enabling the country's digital transformation,
providing citizen-centric and transparent governance services. India’s fast-growing population,
world-class DPI, and proactive regulations have underpinned the Fintech industry's growth.
India is among the fastest-growing fintech markets in the World, hailing as the third-largest
growing fintech economy.

India’s Digital Public Infrastructure: Churning the wheels of the economy

Volume of UPI > 29.6 crore
>116.7 crore mobile transactions in FY24- users on
subscribers 13116.5 crore DigiLocker
Value - ₹199.9 lakh Network
crore infrastructure
Common
Service
Centres DigiLocker
Mobile 35.5 km Optical Fibre
Cable laid
> 5.7 Lakh CSCs UPI
functional AADHAAR
UMANG

139.7 crore
> 1984 e-services on Aadhaar cards
UMANG generated

Note: Figures as of July 2024,

Source: Dashboard of respective schemes/programmes

58
 Monetary Management and Financial Intermediation

2.56 Advances in DFI have enabled millions of people in the formal and vast informal economy
to accept payments, settle invoices, and transfer funds anywhere in the country with just a
few screen taps. These advances are built on the India Stack, a comprehensive digital identity,
payment, and data-management system. India Stack consists of three interconnected layers that
provide a digital identity to every Indian while facilitating easy, cost-free, mobile-first digital
transactions. The three critical components of India Stack34 are the Identity Layer, payment
layer and data governance layer. Regarding the identity layer, Aadhaar has been instrumental
in transforming India's authentication ecosystem. It has facilitated the KYC process, reducing
the cost of conducting e-KYC from USD 12 to 6 cents, extending banking to millions of Indians
and improving financial inclusion. In the case of the payment layer, the UPI has revolutionised
the country's payment system. The success of UPI has been enhanced by the expansion of
smartphone usage in India, with more than 116.5 crore smartphone subscribers as of 31 March
2024.35 The value of transactions conducted on the UPI platform has increased multifold from
₹0.07 lakh crore in FY17 to ₹200 lakh crore in FY24.36 The data governance layer focuses on
ensuring ownership and control over the user data to its rightful owners.

2.57 Digital credit can be a powerful agent for sustainable and inclusive growth by empowering
individuals and firms to cultivate economic opportunities. According to the International
Monetary Fund (IMF) research, an increase in digital financial inclusion in payments leads to
a 2.2 per cent rise in average economic growth, likely driven through the consumption channel
and higher formalisation.37

Microfinance institutions: facilitating financial inclusion

‘Access to formal finance can boost job creation, reduce vulnerability to economic shocks and
increase investment in human capital. With adequate access to financial services, individuals
and firms can rely on costly informal sources of finance to meet their financial needs and
pursue growth opportunities. At a macro level, greater financial inclusion can support
sustainable and inclusive socio-economic growth for all.’
- National Strategy for Financial Inclusion 2019-24, RBI

2.58 Microfinance refers to providing financial services, including small-value loans to

households, small businesses and entrepreneurs who lack access to formal banking services. It
is an effective tool for financial inclusion, which involves sustainably providing microfinance
and related services to enable the poor and the marginalised to achieve social equity and
empowerment. Microfinance has been playing an essential role in meeting low-income
households' credit needs by providing affordable doorstep services. They have also played a

34 World Bank’s blog, ‘India digital transformation could be a game-changer for economic development’, dated 2DFI0 June 2023,
https://shorturl.at/Z2rL9
35 Telecom Regulatory Authority of India (TRAI) report, ‘Telecom Subscription Data as of 31 March 2024’, page no. 6, https://
www.trai.gov.in/sites/default/files/PR_No.23of2024_0.pdf.
36 National Payment Corporation of India, https://www.npci.org.in/what-we-do/upi/product-statistics
37 IMF Working Paper, June 2021, ‘Is Digital Financial Inclusion Unlocking Growth’, https://tinyurl.com/2russwem

59
Economic Survey 2023-24

role in extending other financial services like insurance, remittance, financial literacy, etc.
Microfinance has emerged as one of the most important tools for fostering financial inclusion.

2.59 The evolution of the MFI sector in India has been substantially facilitated by the
supportive regulatory framework of RBI coupled with the formulation of an Industry Code of
Conduct by the Self-Regulatory Organisations (SROs), such as Sa-Dhan38 and MFIN.39 The
New Regulatory Framework for Microfinance Loans issued by the RBI for the microfinance
sector on 14 March 2022 ensures that all entities operating in the microfinance space are
subject to the same regulations, creates a level playing field and safeguards the interest of the
borrowers.

2.60 Globally, the Indian microfinance sector is the second largest after China in terms of
number of borrowing customers in India, which are about three times that of the next biggest
market, i.e., Indonesia. The Indian microfinance coverage (Self-Help Groups (SHGs) and Joint
Liability Group (JLG)) is more than 50 per cent of households and 10 per cent of the Indian
population.40

Table II.4: India has the second-largest microfinance sector

Country Savers Borrowers Outstanding
(millions) (millions) loans (USD
billion)
Bangladesh (June 2022) 66.4 44.6 17.4
Cambodia (December 2022) 2.7 2.1 9.7
Philippines (December 2020) – 17.0 7.6
Indonesia (December 2019) – 56.8 2.1
Pakistan (March 2023) 98.1 9.25 1.8
India (March 2023)
SHGs 161 83 23.5
MFIs – 73 44.0
Source: Data from different sources such as industry associations, central bank websites, and academic publications

2.61 As per the 2023 Bharat Microfinance Report, MFIs operate in 28 States, five UTs, and
646 plus districts in India. Two hundred and thirteen MFIs operate in India as of FY23, with
a branch network of 25,790, engaging 2.2 lakh employees. Together, they have reached out to
over 532 lakh clients with a total loan outstanding of ₹1.8 lakh crore under micro-credit.41 The
addition of new clients reflects the continuing inclusion efforts of the sector and offers hope
for the remoter and underserved geographies. As of 31 March 2023, the number of clients with
38 Sa-Dhan was recognised by the RBI as an SRO for the microfinance sector in the year 2015 to administer industry regulations,
tools and performance standards for effective monitoring of MFIs, their compliance with regulations and the Code of Conduct
in the best interest of clients. As an SRO, Sa-Dhan has been at the forefront of formulating and administering industry
regulations, tools, and performance standards for effective monitoring of MFIs, their compliance with regulations and the
Code of Conduct in the best interest of clients.
39 https://mfinindia.org/
40 Inclusive Finance India Report, 2023, Access Development Services, https://inclusivefinanceindia.org/wp-content/
uploads/2023/12/IFI-Report-2023.pdf
41 Bharat Microfinance Report, 2023, Sa-dhan, https://rb.gy/hnq8z0

60
 Monetary Management and Financial Intermediation

loans outstanding with MFIs, including those overdue over 179 days, was 571 lakhs. Out of
these, the active clients (excluding the clients having overdue over 179 days) served by MFIs
stood at 532 lakhs, posting a YoY growth of 19 per cent.

2.62 Though MFIs serve both rural and urban poor, they are oriented more towards rural areas
in India. Urban borrowers dominated for a while.There is a definite shift thereafter towards the
rural sector, and it has continued for the last four years. The present share of the rural clientele
is at 74 per cent.

Chart II.11: Rising share of rural MFI borrowers

Rural share of MFI Borrowers Urban share of MFI Borrowers
80 74
67
Rural and urban share of MFI

70
borrowers (per cent)

60 55

50

40 33

30 26
23

20
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23
Source: The Bharat Microfinance Report 2023, Sa Dhan (page 16, Figure 2.8)

2.63 Microfinance is mostly a woman-focused activity. Women constitute 98 per cent of

the total clients of MFIs. Further, it also serves other weaker and marginalised sections like
scheduled castes (SC), scheduled tribes (ST) and minorities in a significant way. The SC/ST
borrowers constitute a substantial 23 per cent of the clients.

Chart II.12: Rise in loan disbursement by MFIs

2
1.8

1.5
₹ lakh crore

1.1 1.1
1.1
1
0.8 0.8
0.7
0.6 0.5
0.5 0.4
0.3

0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23

Source: The Bharat Microfinance Report 2023, Sa Dhan (page 28, Figure 2.18)

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Economic Survey 2023-24

2.64 Disbursement of loans by MFIs recorded steady growth throughout, except in some years
due to external events like the COVID-19 pandemic, etc. During FY23, the microfinance sector
bounced back strongly, achieving an aggregate disbursement of ₹1.8 lakh crore, 55 per cent
higher than the previous year.

2.65 The performance and profitability ratios of MFIs during FY23 provide a picture of good
health and improving prospects of the industry. The industry managed to trim operating costs
while retaining finance costs at more or less the same level as in previous years. The total assets
of the MFIs stood at ₹1.5 lakh crore at the end of FY23, 30 per cent higher than the previous
year. The sector has been going from strength to strength for the last few years, except for one
or two years in between owing to some external events. In FY23, RoA and RoE stood at 2.5
per cent and 12.2 per cent for all MFIs, reflecting an improvement over the previous year. As
per the RBI regulatory norms, NBFC-MFIs need to maintain at least 15 per cent of their risk-
weighted assets in the form of capital. The capital adequacy of Indian MFIs is largely well above
the prescribed norms, with the median CAR for FY23 at 26.5 per cent.

2.66 During FY23, good progress in enhancing portfolio quality has been achieved by the
MFIs, as they have been able to rein in defaults, improve recoveries, and deal with chronic
cases through settlements and write-offs. The Performance and Accountability Reporting
(PAR) 30+ ratios for MFIs are moving towards pre-COVID levels but are still short of the lowest
delinquency ratios achieved in FY19. The CRIF-Highmark analysis shows that, during FY23,
MFIs were able to reduce forward flows of impaired loans42 from one bucket to the next in
the case of 30, 60, and 90-day PAR. However, the forward flows in the 91 to 180-day buckets
increased for MFIs and banks.43

2.67 The success of the microfinance sector in rural India can be measured using several
indicators. The most extensive microfinance programme, the SHG-Bank Linkage Programme
(SHG-BLP), has captured the post-pandemic recovery through the number and amount of SHGs
with loans outstanding with banks over FY22 and FY23. During FY23, the credit disbursement
under SHG-BLP was ₹1.5 lakh crore, registering a growth of 45.6 per cent. The number of
SHGs credit linked during FY23 increased to 43 lakh from 34 lakh in FY22. As of March 2023,
the banking system held SHG savings to the tune of ₹58,893 crore with a growth of 24.7 per
cent, with average savings per SHG amounting to ₹43,940.44 The improvement in the RBI’s
Financial Inclusion Index from 60.1 in March 2023 to 64.2 in March 2024 indicates the strides
being made in the area of access, usage, and quality of the financial sector in India.45

42 An impaired loan is a loan that is not performing according to the original terms of the agreement.
43 Volume XXIII of CRIF Quarterly publication on Microfinance lending, ‘MicroLend’, March 2023, https://www.crifhighmark.
com/media/2921/crif-microlend-vol-xxiii_mar-2023.pdf
44 Status of Microfinance in India 2022-23, https://shorturl.at/Blzyn
45 The FI-Index has been conceptualised as a comprehensive index incorporating details of banking, investments, insurance,
postal, as well as the pension sector in consultation with the Government and respective sectoral regulators. The FI-Index
comprises three broad parameters (weights indicated in brackets) viz., Access (35 per cent), Usage (45 per cent), and Quality
(20 per cent), with each of these consisting of various dimensions, which are computed based on a number of indicators.

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 Monetary Management and Financial Intermediation

Trends in indian capital markets

2.68 Despite heightened geopolitical risks, rising interest rates and volatile commodity prices,
Indian capital markets have been one of the best performing among emerging markets in FY24,
reflecting India’s bright economic stature. Capital markets are becoming prominent in India’s
growth story, with an expanding share in capital formation and investment landscape on the
back of technology, innovation, and digitisation. The following sections present the significant
trends in primary markets, secondary markets, and institutional investment in India.

Primary Markets

2.69 Amid healthy domestic economic performance and a favourable investment climate,
primary markets remained robust during FY24, facilitating capital formation of ₹10.9 lakh
crore (which approximates 29 per cent of the gross fixed capital formation of private and public
corporates during FY23), compared to ₹9.3 lakh crore in FY23. Of the total amount mobilised
in FY24, 78.8 per cent was raised through debt issuances. Fund mobilisation through all three
modes, viz., equity, debt, and hybrid, increased by 24.9 per cent, 12.1 per cent and 513.6 per
cent, respectively, in FY24 compared to the previous year.

2.70 The number of initial public offers (IPOs) increased by 66 per cent in FY24 from 164 in
FY23 to 272 in FY24, while the amount raised grew by 24 per cent (from ₹54,773 crore in FY23
to ₹67,995 crore in FY24). SME platforms at the exchanges witnessed heightened activities
during FY24 as the number of IPOs/FPOs (Follow-on Public Offers) of SMEs increased by 1.6
times (from 125 in FY23 to 196 in FY24), while the corresponding fund raised rose by more
than two and half times over the previous year (from ₹2,333 crore in FY23 to ₹6,095 crore
in FY24). As per E&Y Global IPO trends report, Indian exchanges were global leaders in IPO
listings. India’s share consistently rose to 17 per cent in 2023 from 6 per cent and 11 per cent in
2021 and 2022, respectively.46 Reflecting the buoyant market conditions, Qualified Institutional
Placements (QIPs)47 emerged as a critical equity fundraising mechanism for the corporates
during FY24. Resource mobilisation through rights issues more than doubled to ₹15,110 crore
during FY24, compared to ₹6,751 crore in the previous year.

Public debt issuances

2.71 The corporate debt market in India is going from strength to strength. During FY24, the
value of corporate bond issuances increased to ₹8.6 lakh crore from ₹7.6 lakh crore during the
previous financial year. The number of corporate bonds public issues in FY24 was the highest
for any financial year so far, with the amount raised (₹19,167 crore) at a four-year high. Private
placements remained the preferred channel for corporates, accounting for 97.8 per cent of
total resources mobilised through the bond market. Increasing investor demand and the rise in
46 E&Y Press Release on ‘Indian stock exchanges rank first in the world in terms of the number of IPOs in 2023’ dated 19 February
2024, https://shorturl.at/Lj6Z3
47 QIP was introduced by SEBI in 2006, under which Indian listed companies can raise funds by issuing equity shares, fully or
partially convertible debentures, or any other securities as mentioned under the notification by SEBI in this regard. Listed
companies can raise capital without meeting the legal requirements like submitting the pre-issue filings to SEBI.

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Economic Survey 2023-24

the cost of borrowing from banks have made these markets more attractive for corporates for
funding requirements. The quantum of outstanding corporate bonds increased by 5.5 per cent
YoY to ₹45 lakh crore (i.e., 15.5 per cent of GDP) at the end of March 2024.

REITs and InvITs

2.72 During FY24, ₹39,024 crore was raised by Real Estate Investment Trusts (REITs) and
Infrastructure Investment Trusts (InvITs), more than five times compared to FY23, supported
by the Government's thrust on infrastructure development.

Secondary Markets

India among the best-performing markets

2.73 After enduring a highly turbulent global environment in FY23, global stock markets
recovered and performed well during FY24. All the major markets, except China and Hong
Kong, delivered better returns during the period compared to the previous year. Indian stock
market was among the best-performing markets, with India’s Nifty 50 index ascending by 26.8
per cent during FY24, as against (-)8.2 per cent during FY23. FY24 saw stellar performances
from the US, Brazilian and Japanese markets among the global markets. There was evidence of
an AI-led tech stock surge, with the tech-heavy US Nasdaq index rising by 34 per cent during
FY24 after delivering heavy losses in FY23.

Chart II.13: Remarkable performance of the Indian Stock Market

40
26.8 FY23 FY24
30
20
Return

10
0
-10
-20 -8.2
-30
Nifty 50

CAC, France
DAX, Germany
Dow Jones, USA
Ibovespa, Brazil

Nikkei, Japan

TAIEX, Taiwan

Straits Times,

FTSE, South Africa

Shanghai Composite,
MSCI, World

FTSE 100, UK

MSCI EM

MSCI BIC
Nasdaq, USA

KOSPI, Korea

Hang Seng, Hong Kong

Singapore

China

Source: Refinitiv for Index Values

2.74 The exemplary performance of the Indian stock market compared to the world and
emerging markets over the years can be primarily attributed to India’s resilience to global
geo-political and economic shocks, its solid and stable domestic macroeconomic outlook, and
the strength of the domestic investor base. Mirroring the positive outlook on Indian markets,
India’s weight in the MSCI-EM index has increased to 17.7 per cent at the end of FY24 from 13.7
per cent at the end of April 23, the second-highest share among the EMs in the index.

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 Monetary Management and Financial Intermediation

2.75 The market capitalisation of the Indian stock market has seen a remarkable surge over
the years. Significant interest from domestic and global investors in the Indian stock market as
an attractive investment destination and sustained IPO activity placed the Indian market fifth
in the world by market capitalisation in FY24. India’s market capitalisation to GDP ratio has
improved significantly over the last five years to 124 per cent in FY24, compared to 77 per cent
in FY19, far higher than that of other emerging market economies like China and Brazil. It is
essential to strike a note of caution. The market capitalisation to GDP ratio is not necessarily a
sign of economic advancement or sophistication. Financial assets are claims on real goods and
services. If equity market claims on the real economy are excessively high, it is a harbinger of
market instability rather than market resilience.

2.76 The value traded increased across all segments in the exchanges, except currency
derivatives during FY24, with increased investors' participation and positive market trends.
Commodity derivatives turnover rose by 87 per cent in FY24, driven by an increase in turnover
of options contracts of the energy segment.

Table II.5: Market capitalisation to GDP ratios across countries (percentage)

India China Brazil Japan South United United

Korea Kingdom States
Dec-19 77 60 65 121 89 106 159
Dec-20 95 79 68 129 122 92 197
Dec-21 113 80 50 136 127 108 208
Dec-22 105 65 42 126 96 91 158
Dec-23 124 61 44 147 114 71 179
Note: *GDP figures are taken from the World Federation of Exchanges (WFE), and market capitalisation is calculated
as the sum of the market capitalisation of NASDAQ and NYSE
Source: CEIC Database, World Bank, WFE

2.77 Box II.3 discusses the initiatives undertaken to strengthen the capital markets through
the use of technology, which have played a significant role in enhancing their performance and
efficiency.

Box II.3: The synergy of technology and Indian capital markets: Driving
growth and efficiency

Indian capital markets have witnessed a broad-based expansion across various sub-markets,
with the country's equity market capitalisation reaching ₹415 lakh crore (USD 5 trillion) in
May 2024, placing it fifth in the global rankings.

The proliferation of technology has been a critical catalyst in transforming economies

worldwide, and the Indian capital markets have been no exception. The sector has
continuously transformed over the past few years, leveraging technological advancements
to facilitate growth and efficiency.

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Economic Survey 2023-24

Technology plays a role in meeting the market regulator SEBI's three goals: market
regulation, investor protection, and market development.

Individual investors today are over 9.5 crore and have nearly 10 per cent direct ownership
of the market through its almost 2500 listed companies. This translates to around ₹36 lakh
crore of wealth as of March 2024, apart from indirect ownership in equity mutual funds
that have ₹28 lakh crore in assets under management (AuM). In this manner, technology
allows exchanges to help allocate capital to firms and millions of market investors to invest
in companies they have never visited and participate in their long-term success and wealth
creation. Overall, the market capitalisation in India has risen by over 100 times in the last
three decades.

Technological advancements such as India Stack and regulatory measures have fuelled
an unprecedented surge in retail investor participation and activity. The prevalence and
proliferation of user-friendly trading apps, mobile-friendly educational resources, and
financial market guidance have democratised access to the capital markets.48 The seamless
use of technology has empowered investors to open trading and demat accounts online
within minutes, trade from the comfort of their homes, access investment reports, and
raise queries online efficiently. Initiatives such as the SEBI Complaints Redress System
(SCORES), a platform for investor grievance resolution, and Securities Market Trainers
(SMARTs) a program for investor education, have been instrumental in safeguarding the
interests of market participants, particularly first-time investors.

Technology has also played a crucial role in market development. India's unique digital
architecture has imbued the capital market regulator with the confidence to switch to the
"T+1 settlement regime” comfortably, a feat followed by very few countries worldwide.49
The introduction of “Interoperability” among clearing corporations (CCs) created a one-
to-many relationship between stock exchanges and CCs that reduced trading costs via
better margin utilisation and capital resources of the participants.50 Indian capital markets
have also adopted on a pilot basis the “Application Supported by Blocked Account” facility
in the secondary market, which allows investors to block funds in their bank until trade
confirmation. A recent initiative of the National Securities Depository Limited (NSDL) titled
NSDL-CAS has further eased the investors' lives by presenting an aggregated view of assets
held in demat format across multiple accounts and mutual fund folios.51
Beyond growth, investor safety, and market development, business continuity today has
become a critical aspect of capital markets. Initiated in 2022, the “Disaster Recovery (DR)

48 Explained: What's driving increased retail participation in the Indian stock market? Livemint (2024), link available at: https://
tinyurl.com/3xetmuvt
49 Indian equity markets have even transitioned to same-day settlement cycles ("T+0") in a limited manner, becoming the first
nation to do so. The transition to shorter settlement cycles has increased efficiency and reduced settlement risk.
50 Interoperability among clearing corporations, PWC (2019)
51 Enhancing Investor Centric Services through Technology and Education, AIBI Summit (2022)

66
 Monetary Management and Financial Intermediation

45” framework allows the continuation of trading using existing connectivity parameters in
case of unforeseen events with minimal switching time.52 In consultation with SEBI, stock
exchanges and brokers have implemented various measures to address technical glitches in
stockbrokers' electronic trading systems, such as the "LAMA (Log Analytics and Monitoring
Application) reporting" API, a monitoring platform to overview the IT structure and perform
analytics thereof.53 Additionally, clearing corporations like NSCCL and ICCL54 have worked
on two-way portability to be operated as a "SaaS" (Software as a Service) model to manage
unforeseen software failures.55
While the synergy of technology and capital markets has unlocked significant benefits,
evolving challenges must be addressed. Privacy concerns, cybersecurity risks, and the
rising digital divide in the population are some issues that require attention. Nonetheless,
regulators have been steadfast in their approach, realising that unlocking the maximum
potential from the marriage of technology and capital markets is essential for the overall
growth and development of the Indian economy.

Retail Participation in the Capital Market

2.78 The Indian capital markets have seen a surge in retail activity through direct (trading in
markets through their accounts) and indirect (through mutual funds) channels in the last few
years. The individual investor's share in the equity cash segment turnover was at 35.9 per cent
in FY24. The number of demat accounts with both depositories rose from 1,145 lakh in FY23
to 1,514 lakh in FY24. The impact of this influx of individual investors in the market is also
reflected in new investor registrations with the exchanges, their share in total traded value,
net investments, and ownership in the listed companies. For instance, the registered investor
base at NSE has nearly tripled from March 2020 to March 2024 to 9.2 crore as of 31 March
2024, potentially translating into 20 per cent of the Indian households now channelling their
household savings into financial markets.

Mutual Funds (MFs): Accelerating the financial savings and retail participation in capital
markets

2.79 A rise in retail participation was more substantial and steadier through the indirect
channel via mutual funds. FY24 has been a spectacular year for MFs as their AuM of the MFs
increased by ₹14 lakh crore (YoY growth of 35 per cent) to ₹53.4 lakh crore at the end of FY24,
boosted by mark-to-market (MTM) gains and expansion of the industry. The total number of
folios increased from 14.6 crore at the end of FY23 to 17.8 crore at the end of FY24. Barring
income/debt-oriented schemes, all categories of MF schemes witnessed net inflows. Inflows
into growth/equity-oriented and hybrid schemes accounted for more than 90 per cent of net

52 https://www.nseindia.com/trade/disaster-recovery-faqs
53 LAMA reporting: Failure is not an option, ITRS Blog (2023), https://www.itrsgroup.com/blog/new-year-operational-risk
54 National Securities Clearing Corporation Limited; Indian Clearing Corporation Limited
55 NSE Clearing Archives dated 29 March, 2023, https://archives.nseindia.com/content/circulars/COM56205.pdf

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Economic Survey 2023-24

inflows into MFs. Among the passive schemes, exchange-traded funds (ETFs) (other than gold
exchange-traded funds) witnessed a 37 per cent rise in net assets in FY24.

2.80 The MF segment presently has about 8.4 crore systematic investment plan (SIP) accounts56
through which investors regularly invest in schemes. Annual net SIP flows have doubled in the
last three years, from ₹0.96 lakh crore in FY21 to ₹2 lakh crore in FY24. Total SIP AuM is
approximately 35 per cent of the AuM of the MF industry for equity-oriented schemes. This
has pushed up ownership of MFs in Indian equities to 9.2 per cent as of 31 December 2023,
compared to 7.7 per cent as of 31 December 2021.

Chart II.14: SIP investment on a rising trajectory

10.7

8.3
6.8
6.3
5.8
5.2

1.6 2
1.2

FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24

SIP AUM SIP Contribution No. of SIP Accounts
(₹ lakh crore) (₹ lakh crore) (crore)

Note: Outstanding SIP accounts and SIP AuM are reported at the end of each financial year. SIP contribution
pertains to yearly gross contribution through SIP accounts.
Source: Association of Mutual Funds in India (AMFI)

2.81 Some of the factors that facilitated the entry of investors in the pandemic period and
beyond included seamless technological integration, Government measures towards financial
inclusion, growth of digital infrastructure, rapid smartphone penetration, a rise of low-cost
brokerages, the pursuit of generating income from alternative sources and lower returns
generated by traditional asset classes such as real estate and gold. However, retail investors have
cashed in their gains in financial markets and been investing in real assets. It is smart portfolio
diversification. A conducive economic environment in the form of lower interest rates, sustained
post-COVID-19 recovery, elevated inflation, and a supportive policy backdrop also boosted the
retail accumulation of capital market assets. Further, continuous investor awareness programs
focusing on the rights and responsibilities of investors have contributed to the continuing
growth of individual participation in securities markets. In August 2023, SEBI introduced
the Online Dispute Resolution, which combines online conciliation and online arbitration to
resolve disputes arising in the securities market. Another significant measure introduced in
FY24 was the centralised mechanism for reporting and verification in case of demise of an
investor, thereby smoothening the transmission process to the legal heirs. Enhanced Investor

56 A SIP is a systematic approach to investing in mutual funds that involves allocating a small pre-determined amount of money
for investment in the market at regular intervals.

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 Monetary Management and Financial Intermediation

Protection Fund57 and Settlement Guarantee Fund58 and shortening of the settlement cycle
have improved the perception of safety and security in the Indian markets. Nonetheless, it is
essential to ensure that retail investors do not mistake these funds as mechanisms to underwrite
their losses and provide a backstop.

2.82 The number of unique tax IDs registered on the NSE rose from 2.7 crore in FY19 to 9.2
crore in FY24. The enhanced participation of retail investors in the Indian capital market is
hugely welcome and lends stability to the capital market. It has also enabled retail investors
to earn higher returns on their savings. Most of the new retail investors are likely young and
may have a higher risk appetite. It is also reflected in the interest that retail investors have
shown in derivatives trading, especially expiration-day trading. While derivatives are hedging
instruments, they are mostly used as speculative instruments by investors worldwide. India is
likely no exception.

2.83 Derivatives trading holds the potential for outsized gains. Thus, it caters to humans'
gambling instincts and can augment income if profitable. These considerations are likely
driving active retail participation in derivatives trading. However, globally, derivatives trading
loses money for the investors, for the most part. Raising investor awareness and continuous
financial education is essential to warn them of the low or negative expected returns from
derivatives trading. A significant stock correction could see losses that are more considerable
for retail investors participating in capital markets through derivatives. Investors’ behavioural
response would be to feel ‘cheated’ by unseen more considerable forces. They may not return to
capital markets for a long time. That is a loss to them and the economy.

2.84 The financialisation of economies has not ended well, even for advanced economies. The
global financial crisis of 2008 is an obvious example. Developing countries face debilitating
crises when financial market ‘innovations’ and growth run ahead of economic growth. The Asian
crisis of 1997-98 set back the high-flying economies of the region for a long time. Therefore,
India needs to have an orderly and gradual evolution of the financial market.59

2.85 All stakeholders – market participants, market infrastructure institutions, regulators,

and the Government must ensure that capital markets play their theoretically assigned role of
directing savings to their most productive investments. It is not just in the national interest. It
is an act of self-interest, too.

Social Stock Exchanges: Leveraging finance from a social stand-point

2.86 Box II.4 discusses the role of the Social Stock Exchange (SSE) in bridging the financing
gap by providing alternative fund-raising instruments for achieving socio-development goals.

57 The Investor Protection Fund compensates the investors to the extent of funds found insufficient in the defaulters' account to
meet the admitted value of the claim, subject to a maximum limit of ₹25 lakh per investor per defaulter/expelled member in
respect of claims arising on expulsion/declaration of default of members.
58 The objective of the Settlement Guarantee Fund is to guarantee the settlement of all transactions of the members of the
exchange inter-se through the stock exchange.
59 For further details, please see: Nageswaran, V. & Natarajan, Gulzar. (2019), ‘The Rise of Finance: Causes, Consequences and
Cures’. Cambridge University Press.

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Economic Survey 2023-24

Box II.4: Social Stock Exchanges in India: Making progress

Indian securities markets, over the years, have been characterised by momentous strides
in expanding the retail footprint in finance, innovative fund-raising, and regulatory solid
scrutiny of stock exchange platforms. To leverage this transparency and rigour of equity
markets for social good, in the Union Budget of FY20, the Government proposed to initiate
steps towards creating a SSE under the regulatory ambit of SEBI for listing social enterprises
and voluntary organisations working for the realisation of a social welfare objective so that
they can raise capital as equity as well as, debt in the country.

Need for Social Stock Exchange: The SSE aims to bridge the financing gap by providing
alternative fund-raising instruments for achieving socio-development goals. SSE is a
separate segment of the existing stock exchange, which can help social enterprises like non-
profit organisations (NPOs) and non-government organisations (NGOs) raise funds from
the public through the stock exchange mechanism. In this way, SSE is expected to stimulate
the ecosystem of outcome-driven philanthropy in India in a transparent and regulated
environment. SSE also offers a platform for constructive engagement of NGOs and other
enterprises working in the area of social projects related to health, education, livelihood
generation, etc., to directly raise funds from the private sector, corporate entities and
individuals (including High Net Worth Individuals (HNIs)) and contribute to development
goals. With the increasing global appetite for socially responsible investments, SSE bridges
this gap and brings the capital markets closer to the masses for meeting various social
welfare objectives.

Operationalisation of SSEs: The contributions towards the social sector projects listed
on SSE are made through a unique security, known as Zero Coupon, Zero Principal (ZCZP)
instrument as the nature of funding is akin to a donation and, as such, does not promise
any payment of coupon or return of the principal amount. To scale up this ecosystem, the
Government has recently extended tax exemption under section 80G of the Income Tax Act,
1961, to the contributions made through ZCZPs on SSE. Another noteworthy feature of

SSE is that fund-raising on this platform is tied to specific projects undertaken by eligible
NPOs. These NPOs are mandated to declare their year-wise milestones that are targeted to
be achieved with funds raised from the public. In this regard, the SEBI (Issue of Capital and
Disclosure Requirements (ICDR)) Regulations, 2018 identifies broad activities for which
these potential projects can be undertaken, in areas such as eradication of hunger, poverty,
malnutrition, and inequality; promotion of healthcare, education, livelihood for rural and
urban poor; disaster management; and environmental sustainability, among others.

To be listed on SSE, NGOs/NPOs must disclose their past social audit reports, verifying
proven expertise and commitment to executing social sector projects. As eligibility criteria,
the regulatory framework requires that the NGOs/NPOs have at least 3 years of field
experience in executing social sector projects. Further, to ensure accountability of fund-

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raisers to fund-providers, entities raising funds on SEE must disclose detailed information
about their social and environmental performance in an Annual Impact Report within 90
days from the end of the financial year, duly audited by a social auditor.60 Thus, through its
rigour, transparency, and scrutiny, the SSE platform ensures that donations reach credible
entities, inspiring confidence in the ecosystem and paving the way for its scalability as we
advance.
Progress so far: After the rollout of the regulatory framework for SSE by SEBI, National
Stock Exchange (NSE) and Bombay Stock Exchange (BSE) obtained SEBI's in-principal
approval to set up a separate segment of SSE. As of April 2024, 51 NPOs are registered on
the BSE, and 50 (11 undergoing renewal) are registered on the NSE. Nine NPOs have raised
funds on SSE, amounting to a total of ₹ 12.4 crore. These projects span social projects in
education, livelihood generation, skill development, etc.61

Gift IFSC: emerging as a dominant gateway for global capital inflows

into india
2.87 The IFSC in GIFT City, Gujarat, is envisaged to be a unique international financial
jurisdiction located inside onshore India, set up with a dual objective of onshoring India-
centric international financial services business as well as serving as a preferred gateway for
channelising global capital flows into and out of the country. Over the last few years, GIFT
IFSC has made great strides in achieving both of these objectives. The initiative is a shining
example of India’s firm commitment to undertake deep, bold and ambitious financial sector
reforms to attract the global financial services business and gradually become a global leader in
international finance.

2.88 The uniqueness of the IFSC as a distinct financial jurisdiction emanates from three
fundamental factors. First, the IFSC has been designated as a non-resident zone under the
Foreign Exchange Management Act, which means that entities set up in the IFSC are outside
the capital control restrictions and, therefore, can conduct business in any of the eleven notified
foreign currencies.62 Second, the IFSC has been brought under the regulatory purview of a
dedicated and unified financial regulator, i.e. IFSCA (International Financial Services Centres
Authority), which has been set up under an Act of Parliament. This regulatory intervention by
the Government has significantly bolstered the attractiveness of IFSC among global investors
and financial institutions, as they now have to deal with only one Authority for all approvals
and licenses. Third, through successive Union Budgets, the Government has provided a
separate tax regime for the IFSC, which is at par with what is available in other leading global
financial centres. The competitive tax regime has ensured that financial services institutions

60 A financial auditor audits financial statements and transactions, keeping in mind the objective of issuing an opinion on the state
of financial affairs, whereas a social auditor looks at the impact caused on society by the organisation, covering environmental,
social and economic aspects. SEBI defines a social auditor as an individual registered with a self-regulatory Organisation (SRO)
under the purview of the Institute of Chartered Accounts of India (ICAI).
61 As per SEBI
62 US Dollar (USD) Euro (EUR) Japanese Yen (JPY) UK Pound Sterling (GBP) Canadian Dollar (CAD) Australian Dollar (AUD)
Swiss Franc (CHF) Hong Kong Dollar (HKD) Singapore Dollar (SGD) UAE Dirham (AED) Russian Ruble (RUB)

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Economic Survey 2023-24

operating from IFSC are not at a disadvantage. The contribution of GIFT IFSC in transforming
the country's financial industry landscape can be better appreciated by looking at some key
business activities in GIFT IFSC.

2.89 Banking sector: The Banking ecosystem in GIFT IFSC is rapidly evolving with a
healthy mix of foreign and domestic banks, primarily catering to the foreign currency borrowing
requirements of Indian corporates and public sector enterprises through external commercial
borrowing, trade finance, etc. Transactions under these heads, previously booked from foreign
financial centres such as Singapore, Dubai, Hong Kong, etc., are now being booked out of GIFT
IFSC. As of March 2024, the total asset size of IFSC Banking Units (IBUs) crossed USD 60
billion, and the cumulative value of transactions undertaken by IBUs crossed USD 795 billion.63

2.90 Funds Industry: The robust funds industry in GIFT IFSC has a transformative impact
in catalysing global capital inflows into India, including the start-up ecosystem. In the last three
years, there has been rapid growth in Fund Management Entities (FMEs) and AIFs registered
with IFSCA. As of March 2024, the cumulative FMEs and funds registered rose from 39 and
33 as of September 2022 to 114 and 120, respectively, as of March 2024. Previously, the
pooling of international capital for investments in India was structured through funds (private
equity, venture capital, hedge funds, etc.) set up in offshore jurisdictions. Now, with enabling
regulations, a competitive tax regime, and beneficial cost of operations, GIFT IFSC is emerging
as a preferred jurisdiction for the pooling of global capital by foreign and Indian fund managers.

2.91 Aircraft & ship leasing and financing: The aviation industry in India is on the cusp
of unprecedented growth, with a strong order book of more than 1500 + aircrafts placed by
Indian airlines and a projected demand for over 2,200 aircrafts by 2042. Currently, most aircraft
operated by Indian airlines are leased from offshore lessors that have access to competitive
capital costs. The aircraft leasing and financing business, the most profitable segment in the
aviation value chain, was entirely residing in foreign jurisdictions. Recognising the immense
potential of the aircraft leasing and financing business, IFSCA introduced the enabling leasing
framework, and the Government supported the endeavour by providing several tax incentives.
In three years, green shoots have been visible in IFSC, with more than 28 aircraft lessors already
registered, which have leased more than 120 + aviation assets, including commercial aircraft,
helicopters, aircraft engines and ground support equipment. Interestingly, Air India has also
commenced leasing its wide-bodies aircraft from the IFSC Zone.

2.92 Considering the critical role of the maritime and shipping industry, the Government and
IFSCA have taken significant steps to develop a robust ship leasing and financing ecosystem
in GIFT IFSC. The initial focus is to bring back Indian shipping companies who are leasing/
owning ships out of foreign jurisdiction. With an enabling regulatory framework, the ship
leasing ecosystem is gaining traction. As of 31 March 2024, the number of ship leasing
companies registered with IFSCA has risen to 11, underscoring the financial centre's rising
appeal for maritime business. Furthermore, these companies have acquired and leased four

63 Data sourced from IFSC GIFT City

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 Monetary Management and Financial Intermediation

assets from GIFT IFSC. Going forward, IFSCA intends to work with IFSC Banking Units (IBUs)
to develop a vibrant ship and aircraft financing ecosystem and contribute towards increasing
Indian ownership of assets.

2.93 Foreign universities initiative: The IFSC, being an offshore jurisdiction, is also
uniquely positioned to become an ‘international higher education hub’ by attracting top-
quality global universities keenly exploring India due to its talent and demographic profile.
This opportunity was outlined in the Union Budget FY23, wherein it was stated that ‘World
Class Foreign Universities and Institutions will be allowed in the GIFT City to offer courses
in Financial Management, Fintech, Science, Technology, Engineering and Mathematics, free
from domestic regulations, except those by the IFSCA to facilitate the availability of high-end
human resources for financial services and technology’. In this endeavour, IFSCA achieved a
significant milestone in FY24 when Deakin University from Australia became the first foreign
university to be granted final registration for their International Branch Campus in GIFT IFSC
under IFSCA (Setting up and operation of International Branch Campus and Offshore Education
Centre) Regulation, 2022. Additionally, the University of Wollongong from Australia became
the second foreign university to receive in-principal approval for their International Branch
Campus in GIFT IFSC. The entry of two foreign universities in GIFT IFSC has paved the way
for other globally reputed universities to look at this opportunity and contribute to the rise of
an educated and skilled India.

2.94 There are several ongoing reforms to establish IFSC as a reputed international financial
centre towards achieving the dual mandate of development and regulation of financial services.
IFSCA is in the process of implementing robust regulatory and supervisory systems backed by
best-in-class technology. The announcements made in the Union Budget FY24, such as a single
window IT system for registrations and delegating powers under the SEZ Act to IFSCA to avoid
dual regulations, will enhance the ease of doing business. The IFSC is expected to emerge as a
preferred gateway for global capital flows into and out of the country.

Developments in the insurance sector

Moderation in global insurance markets

2.95 Global economic slowdown and inflation have raised challenges for insurers. The cost
of capital is rising with more robust investment returns. Reserve adequacy has emerged as
a critical consideration as a prolonged period of favourable development wanes due to the
current and recent shocks of high inflation and the COVID-19 pandemic. Despite having a large
buffer, the pace of industry reserve releases has slowed. In the existing environment, many
uncertainties prevail, such as delayed settlements, which emerge as a more significant problem
in periods of high economic and social inflation. The shift of inflation from goods to services
has impacted liability exposures. In the future, lower claims once disinflation sets in and higher
returns on interest rate-sensitive investments are expected to support profitability.

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2.96 Considering the abovementioned factors, global insurance markets have witnessed a
contraction in 2022 compared to the previous year. As per the Swiss Re Institute report on
World Insurance 202364, total global insurance premiums contracted by 1.1 per cent in real
terms in 2022, compared to a growth of 3.4 per cent in 2021. However, the non-life insurance
sector witnessed an increase of 0.5 per cent in 2022, though lower than the 2.6 per cent growth
registered in 2021, driven by rate hardening in commercial lines in developed markets. In the
life insurance segment, global premiums contracted by 3.1 per cent in 2022, compared to a
growth of 4.5 per cent in 2021.

India is poised to emerge as one of the fastest-growing insurance markets in the

coming decade

2.97 Economic growth, an expanding middle class, innovation, and regulatory support
have driven insurance market growth in India. In FY23, premium growth moderated slightly
compared to the previous year, reflecting still-in-process adjustments to the post-COVID-19
era. Overall insurance penetration65 in India moderated slightly to 4 per cent in FY23, from 4.2
per cent in FY22. During the same period, insurance penetration in the life-insurance segment
declined from 3.2 per cent in FY22 to 3 per cent in FY23, while it remained flat at 1 per cent for
the non-life insurance segment. Overall insurance density66 increased from USD 91 in FY22 to
USD 92 in FY23. In the life insurance segment, it rose from USD 69 in FY22 to USD 70 in FY23
and remained stable in the non-life insurance segment.67

2.98 As per the Swiss Re Institute Report,68 Life premium growth in India is estimated to
slow to 4.1 per cent in FY23 (higher than the historical average of 3.2 per cent during 2012-
2021) from 5.9 per cent in FY22 as memories (i.e., risk awareness) of the pandemic faded and a
recent change in tax norms for high-ticket policies69 weighed on new premium growth. Owing
to these factors, new business premiums, after growing by 40 per cent in the first quarter of
FY22, contracted in the fourth quarter (7 per cent). The momentum continued in FY23 as well,
with new business premiums in the second quarter declining by 21.2 per cent, mainly due to a
contraction in the group insurance business.

Status of Non-Life Insurance segment

2.99 Non-life premium growth moderated slightly from 9 per cent in FY22 to an estimated
7.7 per cent in FY23 (lower than the historical average of 8 per cent during 2012-2021) as the
market stabilised after the pandemic. Growth in almost all lines of business slowed last year

64 Swiss Re Institute Report, World Insurance Market 2023, https://t.ly/64ENQ

65 Insurance penetration refers to the ratio of the insurance premiums written in a particular year to GDP
66 Insurance density refers to the ratio of insurance premium to population, i.e., insurance premium per capita and is measured
in US Dollar.
67 Swiss Re Institute Report, ‘India’s Insurance Market: Growing Fast with Ample Scope to Build Resilience’, https://t.ly/tagPh
68 Ibid
69 Under this regulation, any proceeds from a life insurance policy with an annual premium exceeding ₹5 lakh are subject to
taxation. As a result, section 10(10) of the Income Tax Act, previously offering exemptions, no longer applies to policies with
premiums surpassing this threshold.

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as the industry stabilised after the pandemic. The sector faces headwinds such as economic
slowdown, high interest rates, and elevated retail and medical inflation.

2.100 Health accounts for around 35 per cent of sector premiums written in FY23. With an
estimated increase of 11 per cent in premiums, health saw the fastest growth amongst all non-
life lines in FY23. Increased health awareness, supportive government policies, rising medical
costs and innovations in Insurtech have supported this growth. Although price and income
constraints may limit demand for the lower income groups, the expanding middle class and
increased discretionary spending are expected to support overall growth. Further, to provide
health insurance to low-income households, Ayushman Bharat Pradhan Mantri Jan Arogya
Yojana (AB-PMJAY) and State government extension schemes are in place. Recently, AB-
PMJAY achieved a milestone of generating 34.2 crore Ayushman cards across India, with 49.3
per cent of them held by females. In the medium term, health premiums are projected to grow
by 9.7 per cent annually in 2024-28, with regulatory initiatives to improve the attractiveness of
insurance offering some support.

2.101 Agriculture insurance is another line of business, accounting for around 12 per cent of
the non-life insurance market. The agriculture insurance is estimated to register a flat growth
in FY23 due to a sharp decline in premium rates in the Kharif cropping season. The decline
was more than offset by increased insured land area and farmer enrolments during the season.
Agriculture premiums will likely rise from 2024 onwards, with an average real premium growth
of 2.5 per cent over the medium term, supported by improvements in insurance infrastructure
such as mobile applications and remote sensing for crop loss monitoring. The Government has
launched various initiatives to address current concerns around crop insurance. These include
the launch of new technological initiatives such as the YES-Tech Manual, WINDS portal, and
enrolment app AIDE/Sahayak to assess crop damage via satellite-based advanced technologies,
and with door-to-door enrolment initiatives making cover more accessible.

2.102 The Government and Insurance Regulatory and Development Authority of India (IRDAI)
have taken several steps to support industry growth. Paramount among these is the mission
“Insurance for all by 2047”, launched in November 2022, to ensure that every citizen and
enterprise has appropriate insurance cover/solution. Three major initiatives, Bima Sugam,70
Bima Vahak,71 and Bima Vistaar72 are expected to be launched, aiming to raise insurance
penetration, particularly in semi-urban areas, rural towns, and villages.

2.103 The IRDAI approved amendments to the reinsurance regulations to position India
as a global reinsurance hub. Fundamental changes include reducing Foreign Reinsurance
Branches’ (FRB) minimum capital requirement to USD 6.1 million from USD 12.2 million and
streamlining the regulator’s order of preference of cession by Indian insurers to reinsurers to

70 “Bima Sugam” is an online portal to facilitate the buying of insurance, portability facilities, the ability to change insurance
agents and the settling of life, motor and health claims directly with insurers
71 “Bima Vahak” is a women-centric insurance distribution channel
72 “Bima Vistaar” is a social safety net accessible to all through the Bima Sugam platform

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Economic Survey 2023-24

four from six levels. Reinsurance formats have been simplified, and the International Financial
Service Centre Insurance Offices’ (IIOs) framework has been aligned with that of the IFSCA
rules for better competitiveness.

2.104 A comprehensive regulatory review has been undertaken, transitioning from a rule-
based approach to a principle-based architecture while establishing a resilient and robust
risk management framework. Streamlining the operations, 167 circulars and 82 returns have
been repealed, while 78 regulations have been amended, consolidated, and reduced to 28.
The regulatory clearance processes for insurance products have also been replaced from the
erstwhile requirement of prior approval under the ‘File and Use’ regime, with all the products
under the general and health insurance and the majority of the life insurance products being
required to follow ‘Use and File’ procedures which facilitate insurers to launch the products
quickly considering the market dynamics.

2.105 Various regulatory stipulations have also been removed for product offerings under all
the segments, focusing on the health insurance segment to provide enhanced coverage and
choice to customers. Further, to empower policyholders with a deeper understanding of their
insurance coverage, issuance of a concise Customer Information Sheet (CIS) to the policyholders
has been made compulsory for all types of insurance policies.

2.106 Further, to make the industry future-ready and align with global standards, significant
progress has been made towards the implementation of the Risk-Based Supervisory Framework,
Risk-Based Capital Framework, and International Financial Reporting Standards. The IRDAI
facilitates coordinated efforts between insurers and state governments through state insurance
plans to take insurance services to the last mile and even the remotest parts of the country.

2.107 These reforms and sustained economic growth are expected to facilitate the continued
development and advancement of the insurance sector supported by robust economic growth,
an expanding middle class, innovation, and strong policy support. There are favourable
projections for the Indian Insurance market. The Swiss-Re Institute January 2024 report73
projected that over the next five years (2024-28), total insurance premiums in India will grow
by 7.1 per cent in real terms, well above the global (2.4 per cent), emerging economies (5.1
per cent) and advanced economies (1.7 per cent) market averages. At this rate, India will have
the fastest-growing insurance sector amongst the G20 countries. Insurance penetration as a
per cent of GDP is projected to grow from 3.8 per cent in FY23 to 4.3 per cent by FY35. The
growth in life business (premiums up 6.7 per cent in 2024-28) is likely to be supported by rising
demand for term life cover by the middle class, the country’s young population and increasing
industry adoption of Insurtech. Non-life premiums are projected to grow at an annual average
of 8.3 per cent during 2024-28, driven by economic growth, improvement in distribution
channels, government support and a favourable regulatory environment. Further, over the next

73 https://tinyurl.com/mryvwj9m

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decade (2024-34), total premiums are expected to more than double (inflation-adjusted), and
insurance penetration will increase from 3.8 per cent presently to 4.5 per cent in 2034.

2.108 For the anticipated rise in insurance penetration to materialise, the industry has to
become more customer-friendly. According to the Annual Report of IRDAI for FY2374, the
centralised grievance portal received over two lakhs of complaints during the year. If the Life
Insurance Corporation of India is excluded, over 50 per cent of the complaints against life
insurers were about unfair business practices, a euphemism for mis-selling. Further, 66 per
cent of the complaints against general insurers were about claims, including delayed and denied
settlements. The industry has to think and work for the long term. Insurance penetration will
not rise. Data for FY23 showed a decline in insurance penetration. When it comes to financial
products, globally, ‘soft-touch’ regulations have seldom worked over a sustained period in
delivering customer satisfaction and value for money.75 Globally, the private financial sector
has repeatedly shown itself to be adept at selective or misinterpretation of principles-based
regulations to its benefit.

Developments in the pension sector

2.109 The demographic structure of most countries is changing significantly as birth rates
continue to fall. This development has significant consequences for pay-as-you-go pension
arrangements, which rely on the next generation of taxpayers to fund the pensions paid to
previous generations. In the recent past, the re-emergence of inflation has also damaged the
community’s confidence in the ability of pension programs to deliver adequate retirement
benefits over the longer term. Although inflation has declined in some economies, its persistence
has highlighted this risk to current and future retirees. At the same time, there is an ongoing
global shift away from defined benefit (DB) to defined contribution (DC) arrangements, in which
individuals carry all risks relating to investment returns, inflation and, often, longevity. Very
few systems have solved the dilemma of moving from an individual-based DC accumulation
system to a post-retirement system that provides adequate and secure income to retirees while
providing them the same flexibility available during their working years.

2.110 An ongoing challenge facing many pension systems is the inclusion of gig workers and
those in the informal labour market. In many economies, the labour market is fracturing;
therefore, the stable or structured employer-employee relationship is disappearing. In such
circumstances, pension arrangements must become more individually focused and less reliant
on third parties.76

74 https://tinyurl.com/98vs72dc
75 ‘Insurance industry needs a regulatory shake-up’, Business Line, 10th February 2024 (https://www.thehindubusinessline.com/
opinion/insurance-industry-needs-a-regulatory-shake-up/article67829954.ece)
76 International Labour Organisation, ‘Non-Standard Employment Around the World: Understanding challenges, shaping
prospects’, https://tinyurl.com/3uah4a4n

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Economic Survey 2023-24

Performance of India’s Pension Sector

2.111 According to the 15th Annual Mercer CFA Institute Global Pension Index (MCGPI)77,
India’s overall global pension index value improved from 44.5 in 2022 to 45.9 in 2023,
primarily due to an improvement in adequacy and sustainability sub-indices. India's pension
system comprises an earnings-related employee pension scheme, a defined contribution
Employee Provident Fund (EPF) and supplementary employer-managed pension schemes that
are essentially by way of DC. Changes in workforce dynamics, employment, and family patterns
have brought formal sources of retirement to the forefront. While there is improvement in the
net pension replacement rate and participation in private pension plans, which is reflected
in the value of adequacy and sustainability sub-indices, the coverage of the Indian workforce
under private pension plans is yet to be enhanced.78 The Government has launched various
schemes as part of the universal social security programme to benefit the unorganised sector.

2.112 India's pension sector has expanded since the introduction of the National Pension Scheme
(NPS) and, more recently, the Atal Pension Yojana (APY). The total number of subscribers
stood at 735.6 lakh as of March 2024, registering a YoY growth of 18 per cent from 623.6 lakh
as of March 2023. The total number of APY subscribers (including its earlier version, NPS Lite)
increased from 501.2 lakh as of March 2023 to 588.4 lakh as of March 2024. APY subscribers
account for around 80 per cent of the pension subscriber base.79

2.113 Disaggregated data of the Pension Fund Regulatory and Development Authority of
India (PFRDA) shows that APY subscribers have witnessed an improvement in gender mix,
with female subscriber share rising from 37.2 per cent in FY17 to 48.5 per cent in FY23. The
age mix is increasing also in favour of the younger cohort in the age group of 18-25, from a
share of 35 per cent in FY17 to 46.7 per cent in FY23 However, the bulks, about 92 per cent,
of APY accounts are for a pension amount of ₹1,000 per month, followed by 4.7 per cent for
₹5,000. The overwhelming share of ₹1,000 pension in APY could be due to several factors, the
predominant cause being that the target population is low-income households where day-to-
day consumption expenditure takes precedence over savings.80

2.114 The population's pension coverage under these two schemes (NPS & APY) as a share of
the total population has increased from 1.2 per cent in FY17 to 5.3 per cent in FY24. AuM under
these schemes as a proportion of GDP has risen from 1.1 per cent in FY17 to 4 per cent in FY24.

Outlook for the Pension Sector

2.115 In the future, NPS (private sector) is poised to expand rapidly as an increasing number
of corporate employees and relatively better-off households, for example, self-employed and

77 The Mercer CFA Institute Global Pension Index benchmarks 47 retirement income systems around the world, highlighting
challenges and opportunities within each. The index is made up of three sub-indices, adequacy, sustainability, and integrity
that measure each retirement income system against more than 50 indicators
78 Presently, 6 per cent of the Indian workforce is covered under private pension plans, as per the 15th Annual MCGPI.
79 https://www.pfrda.org.in/
80 Monthly Pension Bulletins of PFRDA, https://www.pfrda.org.in

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professionals such as doctors, lawyers, and small business owners, see the merit of joining NPS.
There is a potential for NPS in rural areas for larger farmers, traders, and those with lumpy
incomes, as it does not require a standard monthly contribution.

2.116 There is a tremendous scope for growth as India’s per capita income rises further and
transitions to a high-middle-income country. India’s demographic structure, with a more
significant proportion of younger people, favours a phase of accumulation. Since life expectancy
is inching up, the need for a steady income stream is also increasing to mitigate old-age poverty.
Further, as the traditional family support system changes with growing urbanisation, there is
even a greater necessity for an independent source of income in old age.

2.117 Financial literacy becomes essential for people to reap the benefits of the formal financial
sector. There are many facets to pension literacy; women in the family must have a pension
account given their higher longevity; it is prudent to empower young adults, particularly
students, with a pension account so that they imbibe the financial discipline of long-term
saving.

2.118 Financial inclusion and empowerment will only be complete with each family member's
pension account. In this direction, given the nature of the pension product where the payoff
is not immediate, it needs a nudge by all concerned, the employers, intermediaries, the
Government, and the pension regulator, to induce people, particularly young adults, to join
a pension scheme. There is immense merit in joining young as, with small contributions, a
sizeable corpus could be accumulated given the power of compounding, providing substantial
steady income in one’s post-working life.

Mechanisms to ensure regulatory coordination and overall financial

stability

2.119 The financial system's stability is paramount for sustainable economic growth and
prosperity. A financially stable system should be robust to macroeconomic disturbances. It
should withstand unforeseen shocks so that there is a high degree of confidence that it will
continue to meet its contractual obligations. Financial stability means not only an absence
of actual crisis but also the ability of the system to limit and manage imbalances before they
assume a magnitude that threatens itself or the economic processes.

2.120 The role of the Government in ensuring financial stability is multifaceted and crucial.
Governments worldwide employ various policies, regulations, and measures to safeguard the
integrity and smooth functioning of the financial sector. It would also be essential to assess how
financial instability interacts with the real economy to either amplify or moderate the effects of
initial shocks. Thus, regulators responsible for oversight of different financial institutions must
interact and cooperate closely among themselves and with those responsible for the stability of
prices and the real economy.

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2.121 In the Indian context, the Financial Sector Development Council (FSDC)81 is a forum that
facilitates interaction among various financial sector regulators. It is mandated to deal with a
wide range of issues relating to financial stability, financial sector development, inter-regulatory
coordination, financial literacy and financial inclusion, macro-prudential supervision of the
economy, including the functioning of large financial conglomerates, coordinating India’s
international interface with financial sector bodies (like Financial Action Task Force (FATF),
Financial Stability Board (FSB)) and any other matter relating to the financial sector stability
and development referred by a Member/Chairperson and considered prudent by the Council.

2.122 Under the FSDC, the FSDC sub-committee (FSDC-SC) is a forum chaired by the RBI
Governor which deliberate on agenda items proposed by any of the members along with
supportive actions required. Further, the RBI promotes the financial sector's resilience by
regulating financial institutions, monitoring systemic risks, and implementing monetary
policy. The collective assessment of the risks to financial stability and the strength of the Indian
financial system is undertaken and reported in the bi-annual Financial Stability Report (FSR)
published by RBI since March 2010.82

Financial Sector Assessment Program (FSAP) for India

2.123 FSAP is the quinquennial exercise jointly conducted by the IMF and the World Bank
in countries having ‘systemically important’ financial sectors. FSAP involves a comprehensive
and in-depth analysis of a country’s financial industry to assess financial stability and financial
sector development. India underwent its first FSAP exercise in 2011-12 and the second one
in 2017, after which IMF-World Bank published its reports, including the Financial System
Stability Assessment Report (FSSA) and Financial Sector Assessment (FSA) report. The third
FSAP exercise for India is underway for 2023-24. The FSSA and FSA reports will be published
by February 2025.FSB publishes its annual report on the Implementation and effects of the G20
financial regulatory reforms, mentioning implementation status across various jurisdictions.
The colour-coded template in the report83 highlights the extent of sectoral implementation of
FSB Principles and Standards. The monitored priority areas include (i)Basel-III reforms, (ii)
Compensation, (iii) Over-the-Counter (OTC) derivatives, (iv)Resolution, and (v) Non-Banking
Financial Intermediation (NBFI).

2.124 Implementation of Basel III Reforms84 has supported resiliency in both the domestic
and global banking sectors. Under Basel III pillars reforms, India is largely compliant as it has
laid down provisions for Net Stable Funding Ratio, liquidity coverage ratio, requirements for
81 The Minister of Finance chairs the FSDC. Members are MoS (Finance), heads of all other financial sector regulatory bodies (e.g.,
RBI, SEBI, IRDAI, PFRDA, IFSCA), Secretaries of the departments of (i) Economic Affairs, (ii) Expenditure, (iii) Financial
Services, (iv) Revenue, (v) Ministry of Corporate Affairs and (v) Ministry of Electronics and Information Technology and the
Chief Economic Adviser to the Ministry of Finance. The Financial Stability and Cyber Security Division of the Department of
Economic Affairs, Ministry of Finance serves as the Secretariat of the Council, and the Division Head of the Division is the
Member Secretary of the Council
82 RBI Financial Stability Report June 2024,
83 2023 Financial Stability Board (FSB) Annual Report, 11 October 2023, ‘Promoting Global Financial Stability’, https://www.fsb.
org/wp-content/uploads/P111023.pdf
84 FSB classifies implementation under three heads where a jurisdiction has published and implemented final rule, has published
rule but not implemented and has not published draft regulation.

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Systematically Important Banks, and supervisory framework for measuring and controlling
bank’s large exposures .in line with international standards. India is also in the process
of implementing the other two requirements under Basel III, that is, revised leverage ratio
requirements and risk-based capital framework.

2.125 For the compensation pillar, India already has in place Standards for Sound Compensation
Practices (Principles and Standards) for significant banks, insurers, and asset managers in
India.

2.126 Under the OTC derivatives segment, India made significant progress in 2023 from
the 2022 FSB assessment, as more than 90 per cent of the OTC derivatives now follow trade
reporting, central clearing and platform trading requirements under FSB principles. The fourth
parameter under the OTC pillar, that is, margin requirements concerning OTC derivatives, is
currently under implementation.

2.127 Enhancing the resilience of NBFI is an important priority of FSB, which under key reforms
area is bucketed under Money Market Mutual Funds, Securitisation and Securities Financing
Transactions (SFT) requirements. India is the only jurisdiction among 24 reported by FSB in
total compliance with SFT requirements including minimum regulatory standards for collateral
valuation and management, numerical haircut floors on bank-to-non-bank transactions, etc.
India has actively undertaken securitisation and MMFs reforms in line with FSB principles.

Financial System Stress Indicator

2.128 The RBI, in the 26th issue of its FSR85, attempted to compile a comprehensive indicator
called the financial system stress indicator (FSSI)86 to monitor the aggregate stress level in the
Indian financial system. FSSI aims to (a) help identify periods of stress, (b) assess the intensity
and duration of stress in the financial system, and (c) gauge the ability of financial markets and
intermediaries to withstand shocks and imbalances.

2.129 The latest FSR of June 2024 shows that FSSI indicated a gradual easing of stress during H2
of FY24. The decline in stress indicators has been broad-based, except for the NBFC and money
market segments. The decline in government debt market stress was the primary contributor
to the improvement in the overall FSSI, aided by a fall in long-term yields as well as volatility
and higher net foreign portfolio debt inflows. Meanwhile, declining volatility and rangebound
movement in the exchange rate reduced stress levels in the foreign exchange market. Money
market stress indicators inched up as tight liquidity in the banking system led to higher interest
rates on money market instruments (e.g., Commercial Papers and Certificate of Deposits). The
banking system stress indicator remained subdued, supported by improving soundness. The real
85 26th issue of the RBI Financial Stability Report, December 2022, page 56, https://t.ly/o_CZb.
86 The FSSI features risk factors about five financial market segments-equity, foreign exchange, money, government debt and
corporate debt markets and three groups of financial intermediary segments, namely, banks, NBFCs and AMC-MFs. It also
features a real sector component encompassing select real sector variables that have a bearing on financial stability due to
their strong interlinkages with the financial sector. For more details, refer: https://rbi.org.in/scripts/BS_PressReleaseDisplay.
aspx?prid=57005

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sector stress indicator moderated further on the back of sound macroeconomic fundamentals.
Stress indicators for the NBFC sector rose as their capital ratios dipped and spreads on their
borrowing costs increased.

Chart II.15: Easing of stress in the Indian financial system reflected in FSSI
0.6 0.52
0.50
0.5
FSSI indicator

0.45
0.5
0.41

0.4
0.39
0.4 0.36 0.37
0.34
0.3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24
Source: Chapter I: Macrofinancial Risks, RBI Financial Stability Report, June 2024

Chart II.16: Broad-based decline in stress levels across financial sectors

Q4: FY23 Q1: FY24 Q2: FY24 Q3: FY24 Q4: FY24
0.6

0.4
FSSI indicator

0.2

0.0
Equity Govt Debt Forex Money Corp Debt Banking NBFC AMC-MF Real FSSI

Source: Chapter I: Macrofinancial Risks, RBI Financial Stability Report, June 2024

ASSESSMENT AND OUTLOOK

2.130 On most counts, India's financial industry has progressed over time. Domestic credit to
the private sector as a per cent of GDP rose from 50.6 per cent in 2010 to 54.7 per cent in 2021.
Gross and Net NPAs of SCBs have been declining over time, accompanied by an improvement
in CRAR, RoA and RoE. Despite heightened geopolitical uncertainty, India’s stock markets
have been stable.

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2.131 Even as banks, non-banks and corporates battled balance-sheet excesses, the consequences
of the credit boom of the first decade of the new millennium and the inevitable bust that followed
in the second decade, the broad industry kept advancing the cause of financial inclusion and
financial deepening. As India embarks on the vision to become a developed country by 2047,
it is imperative that financial intermediation costs decline globally. India has made significant
strides in this regard, which may be one reason for its resilient post-Covid economic recovery.
However, much work could be done to make it a global financial leader.

2.132 The outlook for India’s financial sector appears bright. The vision of Viksit Bharat by 2047
is indeed an opportunity for a prosperous society, robust financial services sector, strong public
finances, and economic sovereignty. The elements of a robust financial services sector include
a highly competitive and viable banking sector, universal access to banking and other financial
services for all citizens, lowest intermediation costs, efficient and quick access to credit and
equity funding for small businesses, highly liquid, efficient, and well-regulated stock, bond, and
commodity markets. India’s financial sector needs to support capital formation and promote
trade, business, and investments in MSMEs, enabling them to scale It also needs to provide
insurance protection and retirement security to all citizens. The share of insurance and pension
fund assets in GDP stands at 19 per cent and 5 per cent, respectively, in India, compared to a
high of 52 per cent and 122 per cent in the USA and 112 per cent and 80 per cent in the UK,
leaning scope for further improvements.

2.133 The next big step in the coming years is likely to be towards Artificial Intelligence/
Machine Learning (AI/ML), Decentralised Finance, Internet of Things (IoT), etc., which have
a vast potential to disrupt the digital payments ecosystem. Further, the vision is for India to
evolve as a ‘fintech nation’ with the highest number of fintech firms and the highest fintech
adoption rate by incumbents fuelled by digital public infrastructure. An approach should be
evolved for common user data, e.g. KYC, across Regulators. In the medium term, efforts should
be made to move towards data-based lending instead of judgment-based lending, especially
for small businesses. In this regard, there is a need for continuous review to identify regulatory
gaps/overlaps and benchmark them with the best global practices. Financial sector firms –
public or privately owned – must become customer-centric. Without that, most quantitative
metrics will remain elusive.

2.134 The Indian financial sector is at a turnpike moment. The dominance of banking support
to credit is being reduced, and the role of capital markets is rising. For a country that aspires to
be a developed nation by 2047, this is a long-awaited and welcome development. Being reliant
on and exposed to the capital market, however, comes with its challenges and trade-offs. As
India’s financial sector undergoes this critical transformation, it must also brace for likely
vulnerabilities and prepare itself with regulatory and government policy levers to intervene
and hedge, as required.

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