By Dr. Gyan Pathak
The recent slowdown of India’s GDP to 5.4% in the July-September 2024 quarter represents the lowest growth rate in seven quarters, raising significant concerns about sustaining economic momentum through 2025. India’s Chief Economic Advisor, V. Anantha Nageswaran, labeled these GDP figures as “disappointing.” In contrast, Union Finance Minister Nirmala Sitharaman argued that the decline is not indicative of a “systemic” issue, asserting that enhanced “public expenditure” could offset the losses in the upcoming quarter.
The need to maintain growth momentum has also caught the attention of Prime Minister Narendra Modi, who convened a meeting with distinguished economists and industry experts on December 24 amid preparations for the 2025-26 Union Budget. This task has grown more complex, especially considering the emphasis placed by Finance Minister Sitharaman on improved public spending. Her consultations with stakeholders, including economists and representatives from industry and trade unions, are now complete.
The Prime Minister led discussions at NITI Aayog focusing on critical issues such as job creation, enhancing agricultural productivity, and mobilizing public funds. Global economic uncertainties and geopolitical tensions were also significant topics of concern during the meeting.
Notably, the Asian Development Bank (ADB) has revised India’s economic growth forecast for the current fiscal year down to 6.5% from an earlier estimate of 7%. Similarly, the Reserve Bank of India revised its growth projection from 7.2% to 6.6%. The International Monetary Fund (IMF) has predicted India’s GDP growth for 2025 will be 6.5%.
Analyses of economic data from 2024, alongside global factors such as trade conflicts and potential tariff hikes from U.S. President-elect Donald Trump, underscore the challenges India may face in 2025.
The GDP decline in the second quarter further confirms fears that India might be losing its growth momentum. Wages are decreasing, corporate profits are down, and inflation remains stubbornly high. As a result, the RBI has maintained interest rates unchanged for almost two years due to concerns that lowering rates could be “very risky,” as emphasized by former Governor Shaktikanta Das.
The disappointing GDP growth experienced during July-September is attributed to several factors, including a sharp decline in the manufacturing sector, which dropped from 7% in the prior quarter to a mere 2.2%. While the service sector exhibited slower growth than expected, it remained relatively strong. Additionally, the mining sector saw a slight contraction, and private consumption expenditure decreased from 7.4% to 6% in comparison to the first quarter.
The challenges extend further. Alongside weakening demand, investment growth has also stalled, primarily due to a slowdown in the government’s planned capital expenditure. Inflation, driven by high food prices, hovers around 6%, putting pressure on household spending.
Finance Minister Sitharaman has hinted at hopes for improved public expenditure in the upcoming Union Budget 2025-26, which she is set to present on February 1. Experts have called for an increase in infrastructure spending by 30%, surpassing the current year’s allocation of Rs 11.1 lakh crore.
It is important to note that the government has struggled to utilize past capital expenditure allocations, leading to only a 10% increase in the current year’s budget. Overall, reduced government spending has contributed to the GDP slowdown.
These factors indicate that the most significant challenge for the Indian economy is to sustain its growth trajectory, which will heavily depend on the provisions made in the Union Budget 2025-26 to foster economic growth through public funding, especially given the dim outlook for private investment.
A favorable monsoon this year brings some optimism for the agricultural sector, but urgent action is required to address the crisis within this sector. Focus must also shift towards revitalizing the underperforming manufacturing segment. To reverse the trends of sluggish consumption and demand, it is essential to empower households financially through various social sector schemes, tax reliefs, increased public expenditure, and substantial job creation.
Ultimately, the success in overcoming economic challenges in 2025 will largely depend on how effectively the Union Budget 2025-26 addresses current issues and anticipates the potential consequences of global uncertainties on the Indian economy. (IPA Service)
