India’s Growth: Strengths, Challenges, and Prospects

Source: The post India’s Growth: Strengths, Challenges, and Prospects has been created, based on the article “Revival on the cards for Indian economy” published in “Indian Express” on 27th November 2024

UPSC Syllabus Topic: GS Paper3-Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment.

Context: The article discusses India’s economic growth, expected above 7% this year. It highlights positive indicators like strong GST collections, rising vehicle sales, and good crop prospects. Concerns remain about inflation and urban stress, but investment momentum is strong.

For detailed information on India’s Economic Growth and challenges read this article here

What is the current state of India’s economic growth?

1. India’s economy is growing healthily, expected to achieve a growth rate above 7% this year.
2. Purchasing Managers Index (PMI): For the last three months, both services and manufacturing PMIs have been high, between 57-60, indicating expansion.
3. GST Collections: Collections have reached Rs 12.74 lakh crore in the first seven months of the year, surpassing last year’s Rs 11.64 lakh crore.
4. Vehicle Sales: Two-wheeler sales are up by 16% this year. Car sales increased by 9% in October due to the festival season.

What challenges are affecting India’s economic growth?

1. Urban Stress: Some consumer goods companies report subdued consumption, partly due to the “shradh” period affecting sales.
2. Inflation Concerns: Inflation is at 6.2%, driven by high food prices, especially onions and pulses.
3. Rural Demand Weakness: Rural demand remains muted due to lower farm output and past inflation.
4. Uneven Investment Activity: Consumer goods industries face underutilized capacity, limiting new investments.
5. Global Risks: Potential global disruptions, like U.S. policy changes, could affect inflation and growth.

How is investment momentum performing?

1. Private Sector: Investment is recovering, supported by bank credit and other financial instruments.
2. Government Spending: Central and state government capex was slow initially due to elections, but it’s picking up.
3. Infrastructure: Sectors like metals, cement, and power, especially renewables, are seeing significant investment.

What Does the Future Look Like?

The Bank of Baroda forecasts a growth rate of 7.3-7.4% for the year, a slight decrease from last year’s 8.2%. The RBI predicts a 7.2% growth rate, maintaining its anti-inflation stance with no immediate rate cuts expected.

Question for practice:

Discuss the factors contributing to India’s economic growth and the challenges it faces in sustaining this momentum.