India’s Economic Slowdown Requires Structural Issue Fix

Source: The post India’s Economic Slowdown Requires Structural Issue Fix has been created, based on the article “A different economic question” published in “Indian Express” on 20th January 2025

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

Context: The article highlights India’s economic slowdown as driven by both structural and distributional issues. It points to limited job creation, stagnant wages, unequal income growth, and rising household debt, emphasizing that consumption growth is skewed toward higher-income groups, leaving broader demand weak.

For detailed information on India’s Economic Slowdown and Path to Recovery read this article here

Is the Indian Economy Just in a Temporary Slump?

1. The economy has slowed, with second-quarter growth declining and GST collections dropping from 8.9% to 8.3% in Q3. Forecasts suggest GDP growth will align with the pre-pandemic decadal average of 6.6%, reflecting weak momentum.
2. The government blames a cyclical slowdown, attributing it to RBI’s tight monetary policies that weakened exports and the rupee.
3. This slowdown differs from earlier episodes like 2008 or 2013 because it stems from structural and distributive issues, not temporary shocks.
4. Uneven growth benefits the highly skilled, limiting upward mobility and broader consumption.

What Does the Data Show About Growth?

1. Recent growth spurts were largely due to a boom in services exports, particularly Global Capability Centres (GCCs), which also boosted sectors like real estate and high-end goods.
2. However, this growth was uneven, benefiting mainly the highly skilled, small segment of the workforce.
3. This has not significantly expanded the overall consumption base, as evidenced by slowing car sales in the affordable segment. For example, cars priced under Rs 10 lakh, which are often first cars for many, have reduced from 73% of sales in 2014-15 to just 46% in 2024-25.

What Are the Implications for Employment and Consumption?

1. The job market has not improved, with more people working in informal or low-skill jobs and real wages not increasing significantly.
2. This is reflected in the car market and broader consumption trends, where demand for basic consumer goods like low-priced cars is weakening.
3. Household debt has increased to 43% by June 2024, indicating that people are borrowing more, often to meet basic consumption needs, rather than because of rising prosperity.

How Is Investment Responding?

1. With uncertain government policies and a lack of clear demand, investment remains low.
2. New project announcements are decreasing, and Foreign Direct Investment (FDI) has not reached its previous highs.
3. This reluctance from the corporate sector to invest indicates a lack of confidence in the market’s growth potential.

Conclusion

India’s economic challenges are structural, marked by limited job creation, stagnant wages, weak consumption, and rising debt. Without addressing these issues, returning to a robust growth trajectory may remain difficult.

Question for practice:

Discuss how structural issues in the Indian economy, such as limited job creation, stagnant wages, and rising household debt, are impacting consumption and investment trends.