Agencies
As 2024 draws to a close, it’s becoming evident that India’s economic growth is stuck in a game of two halves.
Like the Earth’s rotation that lights up only half the planet, leaving the other half in darkness, the country’s economy too is rocking on its axis, lighting up some sectors, but leaving others behind.
Likewise, if you take annual growth trends, if one half does either good or bad, the other half runs exactly in the opposite direction. Lastly, gangbuster growth rate in one fiscal year, invariably, is followed by moderation or a slowdown that comes knocking the following year.
In short, as the economy tries to whip up world-beating growth rates, the country’s growth cycles are traversing an uncanny pattern -- now here, now gone, now back again.
Take for instance, FY24 growth. Last year around this time, the economy was decidedly riding the seven-horse chariot, moving up the world rankings. And as it aimed to leap from the fifth to the third spot, GDP growth seemed like a hamster on a wheel that can’t stop. Cut to the current year, growth stands strikingly away from the blockbuster marketplace, and a fervent debate is breaking out whether we are at a risk of entering a cyclical slowdown.
The first two quarters of FY25 turned in growth with charmless energy, but the government insists that it won’t tear a great deal of flesh, as the last two quarters will likely make up for the lost momentum. Coming to sectoral output, if agriculture, which flattened into the bottom line, seems ready to jump on the joy growth bandwagon, manufacturing, mining and electricity, which were doing good until recently, are at a threatening distance from crossing heaven and hell.
Investment activity is holding up, but consumption-related sectors are one step away from a wall of sorrow. Similarly, communication, trade and transport sectors are witnessing a downfall. Broadly, consumer demand has weakened, private investment remains elusive, while government spending, which was holding the fort, is being pulled back.
Which begs the question, is India’s economy losing steam? Is all the hype about being the world’s fastest growing economy nothing but imagined triumph? Is the growth we are seeing fast, without being nourishing? The last fiscal’s 8% plus output didn’t yield mass job creation, which indicates growth wasn’t entirely organic and much of it was due to state-sponsored spending. In fact, that has been the case post-Covid-19 pandemic.
The Centre’s capital expenditure boom (capex has grown at a CAGR of 30%, rising from an average of 1.5% of GDP between FY18-20 to 3.2% in FY24), has delivered on the headline numbers, but failed on jobs and incomes. India is still a poor country with a per capita GDP of less than $3,000 and what we need is sustained development, where all the growth levers are in action.
From rosy growth projections at the start of 2024, brokerages have now slashed FY25 estimates down to about 6.5%. The RBI too lowered its estimates to 6.6%, down from 7.2%. That said, economists looking into the crystal ball are optimistic that what we are seeing now is near-time moderation, and that India’s long-term prospects remain rock solid.
The government too is upbeat and amid fears of a potential cyclical slowdown, chief economic adviser V Anantha Nageswaran warned not to over-interpret Q2 GDP numbers where growth slumped to a 7-quarter low of 5.4%.
Even Finance Minister Nirmala Sitharaman maintained that the decline was ‘not systemic’, but a result of reducing government spending during an election-focused quarter. She hopes that Q3 growth will offset the recent decline and that India will probably remain the fastest-growing major economy despite challenges like stagnant wages affecting domestic consumption, slowing global demand and climate disruptions in agriculture.
India’s economy is of global importance, thanks to its large and young population. With more than a sixth of the world’s population, India produces only 7% of the world’s output. According to the Australian Treasury’s long-term projections, for the next two decades (and beyond) India can maintain the relatively high economic growth (averaging 6%) required to lift its share of global output.
But first, job creation and labour market reforms are the top-most priorities. India’s working age population will likely touch over one billion, emerging as the world’s largest in the coming years. While the rate of increase is expected to slow, the working age share of the population will continue to rise out to 2035. While India’s growth shift away from agriculture to services is on expected lines, the lack of growth in the manufacturing sector has held back India’s potential and needs to be spruced up.
There are roughly 45 national and 200 state laws governing labour relations which impose cumbersome requirements on businesses. Even though labour market reform is a sensitive issue, reforms to India’s complex labour regulations would likely reduce informality, lift productivity and attract investment.
