Economic Survey 2024: Despite record profits growth, private sector lags in job creation; Key to India’s 2047 Vision

The Economic Survey 2023-24, presented by Finance Minister Nirmala Sitharaman, suggests that despite several favourable factors such as tax cut, high government capex and record profit growth for Private sector, employment generation is not picking up. The government now expects from private sector to invest more on machinery, equipment, and intellectual property (research and development) to create more and quality jobs.

The Economic Survey underscores that private sector has a crucial role in Job creation and most new jobs are created by private companies. On the other hand many factors that affect economic growth, job creation, and productivity are managed by state governments. Therefore, India needs cooperation between the private sector, the government, and the Central government to achieve its goal of becoming a developed nation by 2047.

Financially, Indian companies have been performing exceptionally well. A study of over 33,000 companies shows that from FY20 to FY23, their profits before taxes have witnessed almost four fold increase. “The corporate profit for the Nifty-500 universe was up 30 per cent last fiscal to Rs. 14.11-lakh crore against Rs. 10.88 lakh crore in FY23. The nominal GDP grew 9.6 per cent y-o-y to Rs. 295-lakh crore from Rs.269-lakh crore”.

While corporate profits as a percentage of GDP reached a 15-year high in FY24. However, hiring and wages haven't grown at the same rate. It's in companies' interest to increase hiring and pay more to workers to generate demand, the survey reported.

In September 2019, the Union Government cut taxes to encourage investment. From FY19 to FY23 Private Sector investment in non-financial assets grew by 52% in current prices, while government investment grew by 64%.

The overall gap isn't large, but when broken down, private sector investment in machinery, equipment, and intellectual property grew by only 35%, compared to a 105% increase in buildings and structures. This imbalance is not ideal.Slow investment in machinery and intellectual property will delay efforts to increase manufacturing's share of GDP, improve competitiveness, and create high-quality jobs.

However, there's a positive trend. From FY21 to FY23, private sector investment grew faster than government investment. Government investment rose by 42%, while private sector investment increased by 51%, with significant growth in machinery and intellectual property. This progress is promising. For continued investment, companies need to see growing demand, which comes from higher employment and income.

Aditi Nayar, Chief Economist and Head - Research & Outreach at ICRA said "the Economic Survey implicitly stresses that in the medium term, growth needs to be supported by the private corporate sector as well as the state governments. Managing inflation, on the other hand, is not just the prerogative of the RBI and its MPC, and would require active intervention by the Centre, especially in the arena of food price management. The realisation of both these paradigms is crucial to ensure an optimal growth-inflation mix over the medium term."