Slowdown Blues For Indian Economy

That the Indian economy is slowing down, despite still being the fastest, is a given. A premier govern-ment institution on Tuesday dealt a shock, forecasting that economy is set to grow at the slowest pace in 4 years, at 6.4% in 2024-25 as against 8.2% in the previous fiscal. National Statistical Office’s (NSO) first advance estimates of national accounts are in contrast to World Bank estimates of a robust 7% GDP growth in FY 2024-25. The WB confidence stemmed from the resilience of India’s economy.

The NSO’s latest projection is surprising in that it is the lowest, lower than the RBI estimate of 6.6% for the current fiscal. It shows a general slowdown in consumer spending, which affects growth. The con-trast is quite sharp given the estimates of 8.2% growth in economy as per the Provisional Estimate (PE) of GDP for FY2023-24. The NSO dwelt deep on the available figures, sample surveys to come out with a detailed justification for its estimates. Broad indications and implications thereof should suffice to get clarity on the current state of economy.

Among the sectors, agriculture and its allied sectors are estimated to grow 3.8% in FY25, compared to a modest 1.4% growth in FY 2023-24. Construction, financial-real estate-professional services segment is also expected to perform well, with an estimated real GVA growth of 7.3% in the same period. But, given that almost of 60% of India’s GDP is expected to comprise spending by households and businesses, food inflation is a worry. It surged to 10.87% in last October. It makes up half the retail consumption and affects purchasing power of middle classes. That bank credit growth rate is contracting is also a factor for low spending by households.

The Modi government has to act innovatively as export curbs failed to cool food prices in the country. Soaring food inflation is also restraining RBI from easing interest rates, a move termed long-due by in-dustry as well as certain quarters in the government. Instead of acting on its priorities, it is odd that the government blares it on the central bank for weak economic performance. “The combination of mone-tary policy stance and macroprudential measures by the central bank may have contributed to the de-mand slowdown,” says Department of Economic Affairs in its monthly economic review for November. Of late, wary of India’s sluggish growth rate, foreign investors, on expectations of dollar strengthening under Trump regime, are pulling out funds from equities. India’s growing appetite for high-value imports such as crude oil and gold and sluggish exports paved for weakening of the rupee. Rupee hovers over 85 rupees to dollar as against 61 rupees a decade ago.

While India still ranks as a major player on the world stage, boosted by its strong GDP growth, it cannot remain complacent in terms of capital expenditure, reining in food prices and increasing export competi-tiveness. It also has to improve the edge of its human capital, by developing skills and promoting re-search so as to get productive jobs or turn entrepreneurs. India continues to fare poorly on indices of health and inequality.

Thus, there is a need for stronger inflation control and increased government spending to boost domes-tic consumption as well as increase services exports. Physical goods exports scenario is bleak amidst Trump’s policies, geopolitics and global trade uncertainties. It being an election year, government con-sumption would have lagged, but it is time to double down. A 7-quarter low of GDP in the second quar-ter at 5.4% and a five-quarter low of 6.7% in the previous quarter should be proved a transient phase. GST revenue is also seen clocking slowest rates, causing concern. Thus, the Modi government has its task cut out.