India's growth momentum has slowed significantly in the second quarter of the current fiscal year, with the economy growing at 5.4%, the slowest in six quarters and nearly three percentage points slower than the same period last fiscal year, according to the East Asia Forum.
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| India's growth momentum has slowed significantly in the second quarter of the current financial year, when the economy grew at 5.4%. (Source: Money Control) |
The slowdown in the Indian economy has been confirmed by the National Statistics Office as advance estimates of GDP for the 2024-25 financial year showed that the economy could grow just 6.4%, nearly 2 percentage points slower than the previous year.
While at 6.4%, India will continue to be the fastest growing major economy, growth below 7% will cast a shadow over India's ambition to join the ranks of developed countries by 2047.
To get back on track, the Indian economy must overcome a number of weaknesses, not the least of which is a slowdown in consumer demand. Private consumption spending is the main driver of GDP, but it has been sluggish since the government’s Covid-19 stimulus packages ran out.
Private consumption expenditure has crossed 60% in some quarters from FY2021-23, while in the subsequent period, it has remained mostly in the mid-50s, even falling to 53% in the third quarter of FY2023-24.
These trends are largely due to the wage squeeze on India’s large informal workforce. However, a small proportion of workers in the formal sector have also seen their real wages fall over the past few years.
A report prepared by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Quess Corp Ltd showed that while nominal wages across six key manufacturing and infrastructure sectors increased by 0.8-5.4 per cent, retail inflation was between 4.8-5.7 per cent, implying that real wages of Indian workers were stagnant or declining.
The cost of living may be higher than retail inflation figures suggest. Food inflation in India has been much higher over this period, often running close to double digits. In contrast, corporate profits have quadrupled over the same period. Not surprisingly, the growth in the share of profits and the decline in the share of wages in India’s formal sector have contributed to sluggish demand in the Indian economy.
Nearly 80% of the total workforce is employed in the informal sector, which includes self-employed and seasonal workers who face unstable incomes. The government has set a target of formalizing the informal workforce and embarked on initiatives to create employment opportunities in the manufacturing sector to improve the overall economic conditions of workers.
On the international stage, 2025 will be a landmark year for global trade, creating new challenges and opportunities for India. As a major trading partner of the US, India must explore the benefits it can gain under the Trump administration and innovate strategies to navigate the looming trade uncertainties.
India’s core export sectors such as pharmaceuticals, textiles and information technology could face higher US tariffs. India’s strength lies in its focus on the relationship between Indian Prime Minister Narendra Modi and President Trump to negotiate bilateral “reciprocal” tariff cuts.
India's announcement welcoming US energy imports following President Trump's move to increase domestic oil and gas production is an example of this strategy.
However, while India must maintain its export flows to the US to sustain growth and employment in the short term, diversifying its export markets is crucial for long-term stability and growth.
Additionally, by simplifying tax laws, engaging in proactive trade policies and creating a regulatory environment that attracts foreign investment, India can become an alternative trade destination for manufacturing. To overcome the potential bottlenecks in the manufacturing sector, India must focus on Production Linked Incentive schemes to encourage domestic manufacturing and exports.
Source: https://baoquocte.vn/kinh-te-an-do-giam-toc-phu-bong-den-len-tham-vong-thanh-cuong-quoc-vao-nam-2047-306145.html
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