THE GDP growth figures being officially put out are suspect, given the fact that the calculation is based on an implicit inflation rate that is not even a fourth of that emerging from the Consumer Price Index (CPI). But despite such manipulated figures, the fact cannot be hidden that there is an economic slowdown. The latest GDP estimates for 2024-25 have also revealed this. The advanced estimates for FY 2025 have pegged India’s real GDP growth at 6.4 per cent, as compared to 8.2 per cent growth in the previous year. Earlier, the third quarter growth rate of July to September was 5.4 per cent.
In spite of all the talk about India being the fastest growing major economy in the world and that India would become a $5 trillion economy by 2027, the realities on the ground are totally different. Unemployment, high food inflation, low private investment, stagnant consumer spending, rising small retail loan defaults and falling manufacturing are all indications of the bankruptcy of the government’s economic policies.
The main reason for the continuing economic slowdown is the lack of demand in the economy. This is the result of people not having enough purchasing power due to meagre earnings. Recently-released data of household consumer expenditure for 2023-24 shows that the average monthly spending of a four-member family would be only Rs 8,079 in rural areas and Rs 14,528 in urban areas. This is compounded by rising unemployment and inflation, both of which further erode earnings. Weak demand affects production and leads to no interest in expanding productive capacities through fresh investment.
On the other side, net Foreign Direct Investment (FDI) flows into the country fell to a 12-year low in the April-October period of this financial year. As far as outflows are concerned, there has been an upsurge in the funds foreign portfolio investors are taking out of the country; this is compounded by a rise in Indian companies choosing to invest abroad. Despite all blandishments, India corporates find it more attractive to invest abroad than domestically. The sliding rupee, which has touched a new low of crossing Rs 86 per dollar is going to exacerbate the already existing problems, including making imports costlier and adding to inflationary pressures.
The government’s lopsided policies favouring big business conglomerates have heightened inequalities, which is affecting private sector investment and growth. The club of billionaire promoters expanded to a record high of 201 members at the end of 2024 compared to 157 at the close of the previous year. Their combined wealth went past $1 trillion for the first time.
The government is clueless about how to tackle the ever-widening crisis, with low incomes, rising costs and rampant joblessness continuing to burden the people.
Given the track record of the Modi government, the forthcoming union budget for 2025-26 will end up with more of the same prescriptions that have been dished out year after year. Unless the government is prepared to raise taxes on the corporates and the super-rich, expand public investment in infrastructure and agriculture; promote MSMEs and increase government spending on social sector, which is currently less than 7 per cent of the GDP, there are dim prospects for economic revival and relief for the people.
(January 15, 2025)
