India’s Economic Growth Slows with Mixed Trends

Source: The post India’s Economic Growth Slows with Mixed Trends has been created, based on the article “To grow economy, help consumers spend” published in “Indian Express” on 9th January 2025

UPSC Syllabus Topic: GS Paper3- Economy-Growth and development

Context: The article discusses India’s slowing GDP growth, driven by reduced government capital expenditure, industrial deceleration, and global uncertainties. It highlights rising private consumption, rural recovery, export improvements, and suggests boosting consumption, job creation, and private investment in the upcoming budget.

For detailed information on India’s Economic Challenges and Policy Adjustments read this article here

What is the Current Status of India’s GDP Growth?

1. India’s GDP growth is estimated to slow to 6.4% in 2024-25, down from 8.2% in 2023-24.
2. Growth in the second quarter dropped sharply to 5.4%, dampening economic sentiment.
3. Investment growth (Gross Fixed Capital Formation) decelerated to 6.4% from 9% last year.
4. Government capital expenditure declined: Centre’s capex fell by 12%, State capex reduced by 6%, CPSEs reported a 10.8% decline in the first half.
5. Industrial Slowdown: Industrial growth fell to 6.2%, driven by sharp declines in mining and manufacturing.

What Are the Positive Signs in the Economy?

1. Private consumption grew to 7.3% in 2024-25 from 4% the previous year.

• Rural consumption improved due to strong agricultural output.
• Food inflation (7.6%) is expected to moderate, boosting consumption.

2. Exports improved:

• Goods and services exports grew by 6%, up from 2.6% last year.
• Services exports remained strong, with merchandise exports showing recovery.

3. Agriculture and services sectors showed growth:

• Agriculture benefited from a good monsoon.
• Services sector growth is estimated at 7.2%, slightly below last year’s 7.6%.

What are the Implications for the Upcoming Budget?

With nominal GDP growth estimated at 9.7%, which is lower than the expected 10.5%, the government might fall short of its capital expenditure target by approximately ₹1.5 trillion. However, achieving the budgeted fiscal deficit target remains feasible despite slower growth.

What should be done for economic recovery?

1. Boost consumption: Introduce income tax cuts to enhance consumer spending.
2. Focus on jobs and skills: Prioritize job creation and skilling programs to raise household incomes.
3. Sustain capex focus: Continue investment-driven recovery to support growth.
4. Relax fiscal consolidation targets:Extend the 4.5% fiscal deficit target to 2027-28 to fund growth-friendly measures.
5. India’s growth remains robust globally but requires measures to regain 7-8% growth levels.

Question for practice;

Discuss the positive signs in India’s economy despite the challenges of slowing GDP growth.