Persistent inflation is leading to highly selective price manipulation by companies, shrinking pack sizes, and cost cutting. The country needs a strong employment growth to push up individual income, demand and expenditure to grow the economy. Unfortunately, that is not happening. India's per capita income growth rate in 2024 was only 2.73 percent while the year-on-year inflation rate based on the All India Consumer Price Index (CPI) was 6.21 percent. The inflation rate for rural areas was 6.68 percent, and 5.62 percent for urban areas. In September, the inflation rate reached a whopping nine percent.
This could somewhat explain why India's recently published second quarter (FY 2024-25) economic growth slowed to a seven quarter low of 5.4 percent. This is a big fall compared to 8.1 percent growth in the corresponding quarter of 2023-24. Incidentally, the country's central bank, RBI, has retained its GDP growth forecast at 7.2 percent for the current fiscal year, down from 8.2 percent in the previous year although numerous private economists have lowered their estimates. The State Bank of India has suggested increasing private sector investment in the infrastructure sector to push up economic growth.
In reality, few private sector firms, barring the likes of the debt-heavy Adani group, have shown interest in time-consuming infrastructure investment. Some companies are judiciously investing in the real estate sector in view of the safer and faster return it offers. It is one of the few noticeable growth areas which are creating jobs, although mostly of contractual nature, apart from supporting employment in industries such as cement, steel, stone chips, elevators and roads within the residential complexes.
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Among the leading real estate development companies are: DLF Limited, Godrej Properties, Prestige Group, Ansal, Ashiana, Parsvnath Developers, Oberoi Realty, L&T Realty, Mahindra Lifespace, Merlin Group, StepsStone Builders, Propacity and Ambuja Group. They mostly cater to the demand of the middle and upper-middle class sections of the society. Alongside the real estate developers, road building companies and contractors have also been contributing a lot to the contractual employment and to the GDP growth. A substantial credit for the latter goes to the country's Road Transport & Highways Minister Nitin Jairam Gadkari, for the excellent performance of the department. The veteran BJP leader has gracefully remained in charge of the department since 2014. The government's tremendous success in this sector has been aided by companies such as Larsen & Toubro, IRB Infrastructure Developers, VRC Group, Hindustan Construction Company, Engineers India, Afcon, Tata Projects, HG Infra Engineering, KNR Constructions, GR Infraprojects Limited and PNC Infratech among others. L&T has worked on large-scale projects like the Delhi-Agra Road and Mumbai Coastal Road Project. IRB Infrastructure has worked on large, complex highway infrastructure projects, including the Ahmedabad-Vadodara Six-Lane Expressway and the Nehru Outer Ring Road (Hyderabad ORR) Project.
However, the government's latest claim of a massive job generation in the country over the last decade appears to be somewhat inflated if one goes by the Employees' Provident Fund Organisation (EPFO) records. According to the Union Labour Ministry, 179 million new jobs were created in the last 10 years of the NDA rule. However, the EPFO records show that the number of new additions to the payroll in FY24 was only 10.7 million, which is lower than FY23's 11.4 million. It is reported that in the last six and a half years 61 million members joined the EPFO. Uttar Pradesh and Uttarakhand had the highest growth rates for formal job creation in FY24.
Maharashtra, Karnataka, Tamil Nadu, Haryana, and Gujarat accounted for 59.27 percent of the total net member additions while 21 other Indian states and eight union territories seemed to continue to stay laggards in terms of new job creation, income generation and per capita consumption. According to the Ministry of Statistics and Programme Implementation, the average monthly per capita consumption expenditure in rural and urban India in 2023-24 has been estimated to be only Rs. 4,122 and Rs. 6,996, respectively without taking into account of the values of items received free of cost by the households through various social welfare programmes.
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Weak private consumption was a factor in India's slower GDP growth in 2024. Low rate of employment and income growth slowed down the consumption growth. Rising inflation, particularly of food items, coupled with fall in real wages squeezed household budgets forcing people to cut back even on essentials. Muted profitability for manufacturers seemed to have impacted real income and wage growth amid elevated inflation. Reduced government spending added to private consumption constraints.
With much higher employment and income, the world's most populous country could have achieved a much higher GDP growth. Since the private sector is fighting shy of long-term infrastructure investment to provide the necessary push to employment, the government must bridge the gap to grow the economy at a much faster rate. The four main components of GDP are: consumption, investment, government spending, and exports. Any change in one of these components can affect GDP growth. Massive imports are taking away jobs and individual income from India, slowing down the economic growth rate.
Thus, the government's national budget must focus primarily on employment, import control, education and healthcare. A high rate of permanent nature of employment and income creation alone can ensure a sustainably high GDP growth. Over the years, neighbouring China worked with singular dedication and attention to job and income creation to become the world's second largest economy. Higher consumer spending is possible only through new job creation. The government should use tax cuts and rebates to return money to consumers and boost spending. Massive infrastructure spending is the need of the hour. (IPA Service )
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