India's Economic Slowdown 2024-25

Current Context

India's real Gross Domestic Product (GDP) is predicted to grow at a slow rate of 6.4% in the financial year 2024-25 (FY25)—lower than 8.2% in 2023-2024, marking a four-year low as the country's economic growth The growth rate has reached its lowest point since the pandemic year of 2020-21, during which India's economy contracted by -5.8%.

GDP Growth Trends

• The first advance estimate of India's GDP for 2024–2025 was announced by the National Statistics Office (NSO), and it shows a slowing in growth to 6.4%.

• Compared to the previous Union Budget's prediction of 10.5%, this year's nominal GDP growth rate of 9.7% is significantly lower.

GVA Growth Trends

• Real GVA (Gross Value Added) has grown by 6.4% in FY 2024-25, down from 7.2% in FY 2023-24.

• Nominal GVA has increased by 9.3% in FY 2024-25, compared to a growth of 8.5% in FY 2023-24.

Rate of Inflation

• Annual retail inflation in India slowed to 5.22% in December 2024 from 5.48% the previous month, with food costs being the main contributor to this decline.

Fiscal Deficit:

• India is expected to have a fiscal deficit of 4.7% to 4.8% of GDP in FY25, which is a little less than the estimate of 4.9%. Lower planned capital investment spending and a higher-than-expected dividend from the Reserve Bank of India (RBI) are the reasons for this decrease.

Sector Wise Performance-Overview

• Primary Sector: The agricultural sector is on the rise, with a projected growth rate of 3.8% for 2024-25, a significant increase from the 1.4% anticipated in 2023-24.

• Secondary Sector: The manufacturing sector is projected to experience a slowdown, with growth anticipated at 5.3% for 2024-25, a significant decline from the 9.9% growth recorded in 2023-24.

• Teritiary Sector: The services sector is expected to see a GVA growth of 5.8% for areas such as trade, hotels, communication, and broadcasting, a decrease from last year's 6.4%.

Overall, while some sectors are slowing, others are growing, indicating a mixed but dynamic economic outlook for 2024–25.

India's Economic Outlook: Growth and Investment Plans for 2025

• Overall Growth: The Indian economy grew 8.7% in FY22, 7.2% in FY23, and 8.2% in FY24 due to public investments, Global Capability Centres (GCCs), and robust service exports. In Q2 2024-25, global geopolitical concerns, local inflation, and cautious private sector investment slowed growth to 5.4%.

• Fiscal Prudence/Fiscal Discipline: The IMF expects the fiscal deficit to fall from 6.4% to 5.9% of GDP in FY24, stabilizing public debt at 83%. The fiscal deficit target of 4.5% for FY2025-26 provides room for increased government spending.

• Government Spending and Economic Boost: infrastructure and social spending should boost economic growth. Reducing the RBI's Cash Reserve Ratio (CRR) will stimulate bank lending and investment.

• The Union Budget 2023-24 earmarked ₹10 lakh crore for capital investment, representing 3.3% of GDP. The National Infrastructure Pipeline (NIP) aims to invest ₹111 lakh billion in electricity, roads, railways, and urban development by 2025.

  
  

  

  
  

Key Issues Affecting India's Economy

• Global Economic and Geopolitical Challenges

  a. Geopolitical risks and policy shifts in the US: Global economic uncertainties, including geopolitical tensions, present significant risks.Economic volatility is exacerbated by changes in US policy regarding trade and foreign policy. The economy of India can be directly influenced by changes in interest rates and fiscal measures in the United States. These effects are exacerbated by the interconnectedness of global financial systems.

  b. Commodity prices and global trade dynamics: Inflation and growth prospects are influenced by fluctuations in commodity prices. Additional pressure is exerted by trade imbalances that result from changes in global trade patterns.

• Obstacles to Domestic Economic Growth

a. Savings-Investment Gap: The RBI's Financial Stability Report emphasizes a

decrease in household net financial savings, which decreased from 7.3% of GDP in FY22 to 5.3% in FY23. This is substantially lower than the average savings rate of 8% over the previous decade.

b. Fiscal Prudence: Concerns are raised regarding fiscal health when states increase their expenditure on subsidies, including agriculture loan waivers and cash transfers. Fiscal discipline and state finances may be compromised by an excessive dependence on these measures.

c. Private Sector Investment: Industrial growth and economic expansion are impeded by inadequate levels of private sector investment. In order to establish a more conducive investment environment, structural reforms are required.

d. Unemployment: The pressing concern of insufficient employment generation persists, particularly in sectors such as manufacturing and services. Unemployment is further exacerbated by a discrepancy between the availability of jobs and the skills of individuals.

India’s Key Reforms and Efforts Towards Achieving Milestones

• GST (Goods and Services Tax): The implementation of GST has resulted in the unification of India into a single market, which has facilitated revenue growth and simplified the tax structure. The GST collections in FY 2023-24 were an outstanding ₹20.18 lakh crore, with an average monthly collection of ₹1.68 lakh crore.

• Atmanirbhar Bharat: The Atmanirbhar Bharat initiative has led to steady growth in the manufacturing sector. The National Manufacturing Policy aims for manufacturing to contribute 25% to India's GDP by 2025. In 2023-24, the sector grew at a rate of 9%, reflecting its vital role in economic growth, employment generation, and India’s push towards self-reliance.

• Digital Transformation: The Digital India initiative has been a revolutionary force, promoting technological innovation and adoption in a variety of sectors. While fueling the growth of over 150,000 startups and establishing over 1.5 million jobs, this initiative has improved governance efficiency.

• Poverty Alleviation and Financial Inclusion: The Pradhan Mantri Jan Dhan Yojana (PMJDY) has played a critical role in the expansion of access to banking services, with over 53 crore accounts opened by october 2024. This initiative has reduced economic disparities by integrating millions of unbanked individuals into the formal financial system. Furthermore, the report by NITI Aayog emphasizes that 24.82 crore individuals were able to escape multidimensional poverty between 2013-14 and 2022-23.

• Boosting Investor Confidence and Market Growth: In the fiscal year 2023-24, India's financial markets demonstrated exceptional performance, as benchmark indices increased by 28% while maintaining minimal volatility. This robust market performance has enhanced investor confidence, attracted substantial foreign investments, and further solidified the nation's economic stability.

Way forward for Boosting India's Economic Growth

India's economic situation is promising, but it also has many obstacles to overcome. The following actions can be taken to get beyond these obstacles and accomplish sustained growth:

• Global Risk Reduction: Diversifying economic connections builds geopolitical resilience by lowering reliance on one nation. International activities like the Indo-Pacific Economic Framework for Prosperity (IPEF) and Quad will develop supply chains and trade linkages. Offering incentives to high-potential export industries like electronics, textiles, and medicines can reduce trade imbalances and boost global competitiveness.

• Increasing Private Sector Investment: Streamlining regulatory frameworks and speeding industrial project approvals makes business easier. Automation in compliance procedures reduces bureaucratic hurdles. Rationalizing corporate tax rates and offering tax incentives for manufacturing, green energy, and technology will boost the private sector. Expansion of micro and small business loan guarantee programs and government-backed SIDBI funding will also boost job creation and entrepreneurship.

• Expanding Job Possibilities: To close the skill-job gap, Skill India should cover digital, green, and developing sectors. Supporting labor-intensive industries like electronics, leather, and textiles will create many jobs. Strengthening MGNREGA and integrating it with infrastructure development will boost rural job creation and employment.

• Improved Agriculture Productivity: AI, IoT, and precision farming will reduce post-harvest losses and boost agricultural productivity. If e-NAM is strengthened, farmers will get greater prices and be less dependent on middlemen. Promoting crop diversification into high-value crops, horticulture, and associated businesses like dairy and poultry production can boost farmer incomes and agricultural sustainability.

• Overcoming Inflation and Supply Chain Issues: Strong buffer stock structures for critical commodities help reduce imports and food inflation. Investing in transportation and cold storage can strengthen supply chains and decrease disruptions. Economic stability requires monetary and fiscal policy cooperation to balance growth stimulus and inflation management.

• Promoting Financial Inclusion and Saving: Tax incentives for long-term savings products like PPF, EPF, and pension plans will boost household savings. Fintech innovations in digital banking will help programs like PMJDY succeed by enrolling more people in formal banking. Financial literacy campaigns help citizens make informed financial and investment decisions, encouraging economic participation.

• Promoting Innovation and Technology: Digital India 2.0 will focus on AI, blockchain, and quantum computing to increase industry use of technology. Grants and subsidies for academic institutions, new startups, and private organizations will boost R&D spending and innovation. Keeping government services digital will boost citizen involvement, reduce corruption, and boost efficiency.

Conclusion

India has a cautiously positive economic forecast for 2025. There is hope for a recovery in the second half of the year, despite obstacles including inflation, limited private investment, and slowdowns in certain sectors. India must prioritise structural reforms, encourage investment, and improve industry, agriculture, and infrastructure to sustain long-term prosperity.

To reach $5 trillion, inclusive growth, human capital development, and innovation-driven policies must be prioritized. India can overcome current obstacles and strengthen its position as a robust and successful global economy by preserving fiscal discipline, improving policy clarity, and seizing global possibilities. The way is complicated, but targeted initiatives and balanced priorities can make the nation's economic growth compelling and feasible.

References

• https://www.thehindu.com/business/Economy/decoding-indias-growth-slowdown/article69080910.ece

• https://www.reuters.com/world/india/indian-states-must-set-glide-path-fiscal-consolidation-says-central-bank-report-2024-12-19/?

• https://www.fortuneindia.com/opinion/household-finances-in-distress-worsening/116467?

• https://www.thehindu.com/business/Economy/indias-real-gdp-expected-to-rise-64-in-fy25/article69072112.ece

• https://www.polymerupdate.com/News/Details/1360065/important

• https://economictimes.indiatimes.com/news/economy/indicators/indias-gdp-growth-seen-to-slow-sharply-to-6-4-this-fiscal-year-from-8-2-last-year-first-advance-estimate-shows/articleshow/117022315.cms?from=mdr

• https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/jul/doc2024722351601.pdf