India’s Economic Slowdown and Path to Recovery

Source: The post India’s Economic Slowdown and Path to Recovery has been created, based on the article “A push for growth” Published in “Indian Express” on 2nd December 2024

UPSC Syllabus Topic: GS Paper 3- Economy-Growth

Context: The article discusses India’s slowing GDP growth, driven by weak industrial performance, reduced investments, and muted consumption. It suggests improving rural demand, boosting government spending, creating jobs, and offering tax benefits to strengthen domestic demand and sustain growth. India’s Economic Slowdown and Path to Recovery.

For detailed information on Sharp slowdown in India’s economic growth read this article here

What is the Current State of India’s Economy?

1. GDP growth slowed to 5.4% in Q2 of 2024-25 from 6.7% in Q1 and 8.2% in 2023-24.
2. Industrial growth dropped to 3.6% in Q2 from 8.3% in Q1.
3. Sectors like mining, manufacturing, and electricity performed poorly.
4. Agriculture grew due to a good kharif harvest.
5. The services sector maintained steady momentum.
6. Merchandise exports were weak due to slow global growth.

How has consumption and investment been impacted?

1. Impact on Consumption
2. Moderation in Growth: Private consumption growth slowed to 6%, which is higher than the 4% growth in 2023-24, but still moderate.
3. Rural vs Urban: Rural consumption improved due to good agriculture production, reflected in FMCG and two-wheeler sales volumes. Urban consumption slowed because of high food inflation and a slack IT job marketaffecting household income.
4. Impact on Investment
5. Government Capex Decline: Centre’s capex fell by 15% in the first half of the year. State government capex dropped by 11%.
6. Investment by central public enterprises contracted by 11% in the same period.

Will growth improve in the second half?

1. GDP growth is expected to recover due to better agriculture production, rural demand, and likely lower food inflation.
2. Government capex may rise as only 37% (central) and 28% (state) of budgeted capex was spent in the first half.
3. Private investments are gaining momentum, with capital goods companies seeing a 10% increase in order books in 2024-25.

What are the challenges ahead?

1. Imported inflation and global risks like a trade war could impact growth.
2. Excess capacity in China may lead to competition in Indian markets.

What steps are needed to sustain growth?

1. Boost consumption by creating jobs and providing tax benefits in the upcoming budget.
2. Focus on widening the consumption base to include all segments of society.
3. Strengthen domestic demand to counter global uncertainties and ensure sustainable growth.

Question for practice:

Examine the factors contributing to India’s slowing GDP growth and the measures needed to sustain economic recovery.