Source: This post on Current state of India’s economic growth has been created based on article “‘To fix economy, boost consumption’ ” published in The Hindu on 18th January 2025.
UPSC Syllabus topic: GS Paper 3- Indian Economy
Context: This article highlights the Reserve Bank of India’s (RBI) assessment of India’s economic challenges and potential strategies to address slowing growth. It underscores the need to stimulate consumption and rekindle private sector investment amid persistent inflationary pressures and an uncertain global economic environment.
What is the current state of India’s economic growth?
India’s economic growth is slowing, with private capital expenditure (capex) showing no visible signs of revival and government capex declining.
What are the RBI officials’ suggestions for reviving growth?
- Senior Reserve Bank of India (RBI) officials suggest boosting consumption as a means to revive the economy.
- They emphasize rekindling private sector investment, creating mass consumer demand, and triggering an investment boom.
- Investment and manufacturing are identified as the primary drags on economic growth.
What role does food inflation play in the current scenario?
- Food inflation remains persistently high, even though December recorded a 5.22% inflation rate due to the seasonal availability of fruits and vegetables.
- Several key food products are experiencing double-digit inflation, which impacts disposable incomes and consumer demand.
What challenges are posed by food inflation?
- High food inflation persists despite seasonal easing.
- Rising rural wages and increasing corporate salaries could lead to second-order effects, requiring careful monitoring.
What is the impact on the middle class?
The urban middle class is looking for relief from high food prices to improve their disposable incomes, which could enhance consumption and support economic growth.
How is private consumption performing?
- Private final consumption is a bright spot in the economy, driven by e-commerce and quick commerce (q-commerce).
- Encouraging competition in these sectors is seen as more beneficial than imposing restrictions.
What are the inflation concerns and monetary policy challenges?
- Disinflation may bring some relief to households, but inflation risks remain due to uncertainties, such as geopolitical issues.
- The future path of interest rates is uncertain, posing challenges to monetary policy.
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