The current state of the Indian economy is at a pivotal crossroads. The diminishing GDP statistics provoke apprehension, whereas the escalating inflation metrics affect the daily lives of the general populace. Upon examining the stock market, it becomes evident that the previous boom has shifted into a bearish trend, reflecting signs of a slowdown in the Indian economy. The stock market is frequently viewed as an indicator of the overall economic condition. An upward trend in the stock market indicates economic growth, while a downturn points to a potential economic slump or a slowdown. The present condition of the stock market is a subtle reflection of the financial challenges India is facing right now.
After two years, reports indicating a decline in the growth rate have begun to emerge. The National Statistical Office’s (NSO) advance estimate for 2025 indicates that the growth rate of the Indian economy is projected to fall to 6.4 percent in the financial year 2025 (FY25). This figure is lower than the recent estimate of 6.6 percent published by the Reserve Bank of India. Therefore, two primary questions arise here. Does the current economic decline signify a temporary setback or suggest a prolonged slowdown? The second question pertains to the steps required to escape this situation. What economic measures can be employed to achieve rapid growth and stability in the Indian economy?
Is the economic decline temporary or indicative of a prolonged slowdown?
Addressing the first question, we must accept that the Indian economy is under global pressure. Over the past two years, global instability, including warfare, oil supply disruptions, and shifting geopolitical dynamics, has impacted both the global economy and the Indian economy. The effects of significant initiatives aimed at rapid growth following the COVID-19 pandemic are now diminishing, highlighting the necessity for renewed efforts to bolster the global economy. The International Monetary Fund (IMF) reports that global economic growth was stable yet moderate in 2024. It has projected global GDP growth to be approximately 3.3% in 2025. This slowdown is also evident in the Indian economy. India’s growth rate falls to 5.4% in the July-September 2024, marking the lowest level in the past seven quarters. Additionally, The State Bank of India has projected retail inflation to exceed 5% in the ongoing financial year. It simply means that India must revisit its policy decisions and ensure an effective strategy for sustainable long-term growth.
What Key Measures Are Essential for Sparking an Economic Boom Again?
Addressing the second question necessitates an examination of fiscal policy, which serves as the sole instrument capable of revitalizing the economy as of now. Before suggesting any changes, it is essential to note that not all economic data is negative or disappointing. Instead, attention should be focused on specific areas of concern. The agriculture and manufacturing sectors are projected to grow in the latter half of the financial year. This sector experienced a growth of 2.7 percent in the first half of FY25, with projections indicating an increase to 3.8 percent in the second half. Besides, the manufacturing sector experienced a growth of 4.5 percent in the first half and is expected to grow by 5.3 percent for FY25. The figures indicate a potential enhancement in domestic demand.
However, the growth rate of the labor-intensive manufacturing sector, essential for job creation, is expected to decelerate in the latter half of the year. The sector is expected to expand by 8.6 percent for FY25, a decrease from 9.1 percent in the first half. The shortage may result from increasing raw material costs, project delays, and global economic challenges. The deceleration in this sector will adversely influence worker income and negatively affect both rural and urban demand. Therefore, it is crucial to boost investment in the construction sector and ensure employment security for workers through fiscal policy.
To do so, boosting the government’s investment spending can be a powerful approach to stimulating economic activities. The significance of government investment grows even more due to its extensive and lasting multiplier effect. The government’s investment in large projects like roads, railways, ports, energy, and urban development extends its impact beyond those sectors. This investment additionally promotes associated industries and services. Highway construction projects, for instance, create job opportunities for laborers, engineers, and technical experts. In addition, the heightened demand for construction materials such as cement and steel leads to a rise in employment and production within these sectors. One more advantage of this is that infrastructure projects boost the income of individuals working, thereby enhancing their purchasing power. This boosts market demand, prompting producers to ramp up their production efforts. This cycle generates new employment opportunities and stimulates economic activities.
Optimal Direction and Methodologie
However, the crucial inquiry pertains to the optimal direction and methodologies for enhancing governmental investment to expedite growth. Should initiatives such as cash transfers be implemented to strengthen domestic demand, or should greater emphasis be placed on infrastructure projects? While cash transfer schemes can yield immediate benefits, they fall short of fostering sustainable capital formation over the long term. However, Infrastructure projects serve a dual purpose: they generate employment opportunities while simultaneously fortifying the economic framework for the future. In this context, the government may consider implementing a dual strategy. To enhance rural demand, raising the honorarium of farmers (including farm workers) is essential, thereby augmenting their purchasing power. Secondly, a designated sum must be allocated to women beneath the poverty threshold, as this will enhance rural demand and foster economic transformations.
In addition, the government needs to concentrate primarily on the middle and lower middle classes to enhance urban demand. A significant portion of the monthly expenditure of these groups goes to education, healthcare, and household necessities. Therefore, if assistance is provided in any of these domains, individuals may experience an enhancement in their savings, allowing them to spend toward other essential needs. Expanding the ‘Ayushman Bharat Yojana’ may be a significant strategy for relief. The government has recently incorporated the older people into its coverage. Similarly, households within a specified income bracket may be encompassed in this consideration. This will significantly reduce the health-related financial burden, motivating them to allocate resources toward alternative purchases.
Today, it is imperative for the government to find an equilibrium between providing immediate support to the economically weak population and engaging in long-term strategic investments. It is essential to provide direct financial assistance to the underprivileged while ensuring that investments are made with a forward-looking perspective for the future of India. To transform India into a developed nation by 2047, this must be considered in the forthcoming budget.
(The views expressed are the author’s own and do not necessarily reflect the position of the organisation)
