Economic Survey

India Economic Survey 2013-14

Restarting the Growth Engine

GDP Growth (Actual)

6.4%

Forecast: 5.0-5.5%

Inflation (CPI)

9.5%

Consumer Price Index

Wholesale Inflation (WPI)

6.0%

Wholesale Price Index

Fiscal Deficit

4.5% GDP

Union Budget (Actuals)

Key Theme

Restarting the Growth Engine

Key Highlights

GDP growth recovered to 6.4% from 5.1% in FY13, beating the Survey forecast of 5.0-5.5%
Current account deficit narrowed sharply from 4.7% of GDP to 1.7% through gold import curbs and rupee stabilisation
CPI inflation remained stubbornly high at 9.5%, driven by food prices and structural supply constraints
WPI inflation averaged 6.0%, reflecting cost-push pressures from fuel and raw material prices
Fiscal deficit contained at 4.5% of GDP against a target of 4.8%, through expenditure compression
Foreign exchange reserves recovered to $304 billion after the taper tantrum episode of mid-2013
Industrial production remained sluggish with IIP growth at just 0.4%, reflecting investment cycle downturn
Agriculture sector grew at 4.7% aided by a favourable monsoon season
Services sector continued as the growth anchor at 7.8% growth, led by financial and IT services
Merchandise exports crossed $314 billion despite global demand weakness
FDI inflows improved to $24.3 billion, reflecting improved investor sentiment post policy reforms
The rupee depreciated 11% during mid-2013 before recovering with RBI interventions

Policy Recommendations

1 Implement structural reforms to boost manufacturing and revive the investment cycle
2 Address food inflation through supply chain improvements, cold storage, and agricultural marketing reforms
3 Continue fiscal consolidation to create space for productive public investment
4 Pursue disinvestment aggressively to meet revenue targets and improve governance of PSUs
5 Accelerate environmental and forest clearances for stalled infrastructure projects
6 Reform the subsidy regime with better targeting through Aadhaar-linked Direct Benefit Transfers
7 Strengthen the banking sector through recapitalisation and governance reforms
8 Liberalise FDI norms further across sectors including defence, insurance, and retail
9 Invest in skills development and education quality to capture the demographic dividend
10 Improve ease of doing business through single-window clearances and regulatory simplification
11 Develop the corporate bond market to reduce over-reliance on bank credit for infrastructure financing

Survey Predictions vs Budget Outcomes

Comparison between Economic Survey predictions and actual Union Budget allocations

Metric	Survey Prediction	Actual Budget	Deviation
GDP Growth (%)	5.0-5.5	6.4 (actual)	Beat forecast by ~1%
Fiscal Deficit (% of GDP)	4.8	4.5	-0.3%
CPI Inflation (%)	8.0-9.0	9.5 (actual)	Above range
Current Account Deficit (% of GDP)	2.5	1.7	-0.8%
Revenue Deficit (% of GDP)	3.3	3.1	-0.2%

Union Budget 2013-14 Summary

Corresponding budget data to read alongside the Economic Survey Actuals

Total Receipts

15.58 lakh crore

Total Expenditure

15.58 lakh crore

Fiscal Deficit

5.03 lakh crore

Revenue Deficit

3.17 lakh crore

View Union Budget 2013-14 in detail

Detailed Analysis

The Economic Survey 2013-14 was presented against the backdrop of an economy that had endured two consecutive years of sub-6% growth — a painful slowdown for a nation accustomed to the heady 8-9% expansion of the mid-2000s. Prepared under the guidance of Chief Economic Adviser Raghuram Rajan (who had moved to the Reserve Bank of India as Governor by the time the Survey was formally presented), the document charted a careful course between acknowledging the severity of the slowdown and pointing toward the green shoots of recovery. The central narrative of the Survey was one of stabilisation. After the alarming taper tantrum episode of May-August 2013 — when the Federal Reserve signalled a reduction in its bond-buying programme, triggering massive capital outflows from emerging markets — India found itself among the most vulnerable of the "Fragile Five" economies. The rupee plunged to a record low of nearly 69 against the dollar, foreign exchange reserves dwindled, and the current account deficit had ballooned to 4.7% of GDP in FY13, a level widely regarded as unsustainable. The policy response was swift and multi-layered. The RBI introduced special swap windows for FCNR(B) deposits, attracting over $34 billion in foreign currency deposits. Gold import restrictions, including the 80:20 rule requiring that 20% of imported gold be re-exported, helped compress the import bill. By year-end, the current account deficit had narrowed dramatically to 1.7% of GDP — a remarkable turnaround that the Survey highlighted as one of the year's most important macroeconomic achievements. GDP growth recovered to 6.4%, comfortably beating the Survey's own conservative forecast of 5.0-5.5%. This recovery, however, was uneven across sectors. Agriculture performed well at 4.7% growth, benefiting from a normal monsoon, but industrial production remained anaemic. The Index of Industrial Production grew by a meagre 0.4%, reflecting the deep malaise in the investment cycle. Stalled projects, regulatory bottlenecks, and stressed corporate and bank balance sheets combined to create what analysts termed the "twin balance sheet problem" — a framework that would dominate economic policy discussions for years to come. Inflation presented a complex picture. CPI inflation remained elevated at 9.5%, driven primarily by food prices — vegetables, pulses, and milk products in particular. The disconnect between WPI inflation (6.0%) and CPI inflation underscored the structural nature of food price pressures. The Survey pointed to inadequate cold chain infrastructure, fragmented agricultural marketing controlled by APMCs, and low agricultural productivity as root causes rather than merely monetary phenomena. This analysis would later inform the government's push for agricultural marketing reforms. The fiscal consolidation path showed some progress, with the fiscal deficit coming in at 4.5% of GDP against a target of 4.8%. However, the Survey cautioned that much of this improvement came from expenditure compression — particularly capital expenditure cuts — rather than genuine revenue improvement. Plan expenditure was curtailed significantly, raising concerns about the quality of fiscal adjustment. The Survey warned that repeatedly cutting capital spending to meet fiscal targets was counterproductive in the medium term. On the external front, beyond the current account improvement, the Survey noted that merchandise exports had crossed $314 billion despite weak global demand. Software services exports continued their steady contribution, and remittances from the Indian diaspora provided a reliable cushion. FDI inflows improved to $24.3 billion, with sectors like automobiles, telecommunications, and pharmaceuticals attracting significant interest. The financial sector chapter devoted considerable attention to the rising stock of non-performing assets in the banking system. Gross NPAs of scheduled commercial banks had climbed to 4.1% of gross advances by March 2014, with restructured assets adding another 5.9%. Public sector banks were disproportionately affected, and the Survey called for a comprehensive strategy encompassing better credit appraisal, faster resolution of stressed assets, and governance reforms in PSU banks. The Survey's recommendations covered a wide canvas. On manufacturing, it advocated for a renewed push to improve the ease of doing business, streamline environmental clearances, and develop industrial corridors. On agriculture, it called for comprehensive reforms of the APMC Act, investment in irrigation and cold storage, and crop diversification away from the rice-wheat monoculture of north India. On social sectors, it highlighted the need for outcomes-based assessment of flagship programmes like MGNREGA and the National Health Mission. Looking at the demographic dimension, the Survey emphasised that India was in a unique position with its working-age population growing rapidly. With 10-12 million young people entering the workforce annually, the quality of education and skills training would determine whether this demographic transition became a dividend or a disaster. The Survey proposed significant expansion of vocational training institutes and apprenticeship programmes. The energy sector warranted detailed examination. India's dependence on imported crude oil — at nearly 80% of consumption — made the economy deeply vulnerable to oil price shocks. The Survey noted that the subsidy bill for petroleum products had reached Rs 85,000 crore in FY14, crowding out productive expenditure. It made the case for moving toward market-determined fuel pricing, a reform that the subsequent government would partially implement with diesel deregulation. The coal sector, meanwhile, was mired in controversy over the allocation of coal blocks, with the Supreme Court eventually cancelling 214 allocations — a decision that would force a move toward transparent auctions. The infrastructure sector remained a critical bottleneck. Road construction, which had averaged 12 km per day in FY13, barely improved, and the target of 20 km per day seemed distant. Power generation capacity additions were healthy on paper, but distribution losses averaged 22% nationally, and many state electricity boards were technically bankrupt. The Coal India monopoly constrained fuel availability, with power plants frequently operating below capacity due to coal shortages. The Survey argued for comprehensive reforms across the infrastructure value chain — from project approval to execution to asset monetisation — noting that India needed to roughly double its infrastructure spending from 5% to 9-10% of GDP to sustain 8% growth. The trade policy chapter observed that India's share of global merchandise exports had stagnated at around 1.7%, well below its potential. While services exports continued to perform strongly — crossing $155 billion led by IT and business process outsourcing — the merchandise export basket remained concentrated in traditional sectors like gems, textiles, and petroleum products. The Survey called for diversification into higher value-added manufacturing and for addressing the infrastructure bottlenecks (port turnaround times, road connectivity to hinterland) that hampered export competitiveness. On the social development front, the Survey presented a mixed picture. Poverty ratios had declined meaningfully, with the Tendulkar methodology showing a reduction from 37.2% in 2004-05 to 21.9% in 2011-12. But India still accounted for a disproportionate share of the world's poor, and the quality of education and health services remained deeply inadequate. Learning outcomes in government schools, as measured by the ASER surveys, were alarmingly low — over half of Class V students could not read a Class II text. The Survey argued that India's social sector challenge was shifting from access (building schools and hospitals) to quality (ensuring they delivered meaningful outcomes). The Survey concluded on a cautiously optimistic note, arguing that the worst of the slowdown was behind the economy and that with the right policy mix — fiscal consolidation, monetary stability, structural reforms, and improved governance — India could aspire to return to the 7-8% growth trajectory. The newly elected government, which took office in May 2014, would soon inherit this agenda and set about implementing its own version of structural transformation through initiatives like Make in India, Swachh Bharat, and Jan Dhan Yojana.

Source: Official Economic Survey Document

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Reviving Growth

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Make in India and Structural Reforms

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