By Dr. Gyan Pathak
Slowing down of India’s GDP in the second quarter of the current financial year during July-September 2024 to 5.4 per cent, which was a seven-quarter low, has raised a serious concern about maintaining growth momentum of the country in 2025. India’s Chief Economic Advisor, V Anantha Nageswaran has termed the latest GDP growth figures “disappointing”. Union Minister of Finance Nirmala Sitharaman, however, said the slowdown was not “systemic” and with better “public expenditure” the loss will be compensated in the third quarter.
Nevertheless, the concern about maintaining the growth momentum has started haunting even the Prime Minister Narendra Modi, who met eminent economists and sectoral experts on December 24, as the preparation of the Union Budget 2025-26 is underway, that has just become challenging with special reference to better “public expenditure” on which Union Finance Minister Nirmala Sitharaman has pinned her hope. She has already concluded her pre-budget consultations with key stakeholders, including economists and representatives of industry and trade unions.
The Prime Minister chaired the meeting with eminent economists and sectoral experts at NITI Aayog. The chief issues that figured during the interaction were job creation, improving farm productivity, and mobilizing public funds. Challenges posed by global economic uncertainties and geopolitical tensions also figured in the meeting.
It is worth noting that the Asian Development Bank (ADB) has lowered India’s economic growth forecast to 6.5 per cent for the current financial year from its earlier estimate of 7 per cent due to lower-than-expected growth in private investment and housing demand. The Reserve Bank of India also significantly lowered the growth projection for the current fiscal year to 6.6 per cent from its earlier estimate of 7.2 per cent. IMF forecast for India’s GDP growth in 2025 is 6.5 per cent.
All the economic data of 2024 and the global factors including trade war among nations and the threatened tariff increase by the president elect of USA Donald Trump, are indicative of the impending challenges and difficulties before the Indian economy in 2025.
Quarter second slowdown of GDP has confirmed the fears of India on the track of losing its growth momentum. Wages are falling, profits of the companies are declining, and the inflation has been stubbornly high. All these compelled the RBI to keep interest rates unchanged for nearly two years, since it felt that rate cut could be “very risky” as the former Governor Shaktikanta Das has reiterated.
Slump in GDP growth rate during July-September months was disappointing for various reasons, including a sharp fall in the manufacturing sector which came down from 7 per cent in the previous quarter to just 2.2 per cent. Service sector had also seen slower growth compared to earlier projections though still robust. Mining sector output also contracted marginally. Private consumption expenditure was down from 7.4 per cent to 6 per cent compared to the first quarter.
The problems do not end here. Apart from the weaker demand, growth in investment also lost its steam, primarily because the government’s planned capital expenditure slowed down. Inflation, with elevated food prices, is hovering around 6 per cent impacting the household expenditure.
Union Minister of Finance Nirmala Sitharaman has indicated about a “better public expenditure” for which funding will be a difficult task in the Union Budget 2025-26, which she is expected to table in the parliament on February 1. Experts have called for a significant increase in infrastructure spending, to the tune of 30 per cent more from the Rs11.1 lakh crore capex allocated for the current financial year.
It should be noted that the government was unable to use the capex allocation in the past and hence it had raised the allocation for the current financial year by merely 10 per cent. There has been overall deceleration of the government spending leading to slowdown of GDP growth rate.
All these indicate that the greatest challenge for the Indian economy at this time is to maintain its growth momentum, which will be dependent chiefly on such provisions in the Union Budget 2025-26, that can fund the economic growth through public funding, since there is not much hope from the private investments.
Good monsoon this year has generated some hope for the agriculture, but the government need to urgently address the agrarian sector crisis. It also needs to focus on the manufacturing sector which has performed very badly. Consumption and demand have been sluggish, but reversing this trend would need money to be placed in the hands of households, through various social sector schemes, providing tax reliefs, significantly increasing public expenditure, and creation of large number of jobs.
However, overcoming the economic challenges in 2025 would much depend on how the Union Budget 2025-26 tackles the current problems and takes pre-emptive steps against the expected impact of global uncertainties and threats on Indian economy. (IPA Service)
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