Recently Indian economy has been facing slowdown across major sectors.
What is the recent and projected economic slowdown?
Most populous country – In 2023, India overtook China in becoming the most populous country with 1.42 billion population, as per UN projection.
5th largest economy - India displaced Britain in 2022 as the world's fifth-biggest economy, and by next year it is expected to push aside Germany in fourth spot.
GDP growth – FY 2023-24 is estimated to had a GDP growth of 8.4%, as per NSO Provisional Estimate (PE).
Sensex decline - Benchmark BSE Sensex plunged over 1,000 points recently with investors losing over Rs 12 lakh crore.
Rupee depreciation – The Rupee had hit its historic low of 86.70 against the US dollar in November 2024.
GDP fall - According to the National Statistical Office (NSO), India’s real GDP growth for FY 2024-25 is expected to slow to 6.4 %.
Investment outflow - Net foreign direct investment (FDI) inflows to India fell to a 12-year low in the April to October period of this financial year.
What are the reasons for the slowdown?
Demonetization – The withdrawal of 1000 and 500 rupee denominations from circulation in 2016 had disturbed the unorganized economic sectors.
Investment outflow - Foreign investment has taken the call that the Indian stock market is overvalued.
Number of Indians holding investment accounts went from 22 million to 150 million, in the last decade.
Inadequate job creation - Between 2019-20 and 2022-23, an average of 26 million jobs were added annually due to an increase in agricultural and services jobs.
Inadequate wages - The national minimum wage in the informal economy is just $2 a day.
Inadequate demand – Unemployment and low wages affects the creation of demand for goods and services.
Economic inequality - The top 10% of the Indian population holds 77% of the total national wealth and 73% of the wealth generated in went to the richest 1%.
670 million Indians who comprise the poorest half of the population saw only a 1% increase in their wealth, as per Oxfam report.
Uncertain global environment - A strong dollar and suspense over the possibility of sudden policy moves in the United States and China affects the domestic economy.
Global head winds – Conservative government formation in the United States of America and the impending tariff wars.
What lies ahead?
The government is expected to release a budget for the new fiscal year with tax cuts and putting more money in the hands of consumers.
Increase in wages over the inflation is essential to drive the savings, demand and investment.
Expand the credit availability and provide credit at low cost to drive investment.
