(MENAFN- The Arabian Post)
By Nantoo Banerjee
India's net economic growth minus inflation during the current financial year may be well below the projections made by the government, the Reserve bank and external agencies such as the International Monetary Fund (IMF), the Asian Development Bank and the World Bank. The net economic growth is calculated after subtracting the current inflation rate from the GDP growth rate. Going by the latest estimates, it could be around 5.8 percent for the fiscal 2024-25. Based on the first advance estimates by the Ministry of Statistics, India's GDP growth for this fiscal year would be 6.4 percent which is significantly lower than the 8.2 percent growth recorded in the previous fiscal year of 2023-24.
The Asian Development Bank has adjusted India's growth outlook downward from seven percent to 6.5 percent and from 7.2 percent to seven percent next year“due to lower-than-expected growth in private investment and housing demand,” ADB said in its latest report. In September, Last year, the World Bank was hopeful that India's GDP growth would be around seven percent during the current fiscal and the country is expected to remain the world's fastest-growing major economy. The World Bank cited strong agricultural output and the government's employment growth policies fostering robust private consumption as the key reason for the growth outlook. Unfortunately, the country's employment growth and the private consumption rate have fallen well below the original expectation.
Lately, the Reserve Bank also significantly downrated the growth projection for the current fiscal to 6.6 percent from the earlier 7.2 percent and hiked the inflation forecast to 4.8 percent in view of slowdown in economic activity as well as stubborn food prices. The country's GDP growth fell to a seven-quarter low of 5.4 percent in the July-September quarter of the current financial year as against RBI's own projection of 7 percent. Surprisingly, the IMF upgraded India's GDP forecast by 20 basis points to seven percent in FY 24-25. The IMF has revised upward its forecast from the previous estimate of 6.8 percent in April. The IMF's 'World Economic Outlook' report indicates that India's economic growth forecast for the current year has also been raised to 7.0 percent. The development has come in the backdrop of a notable rise in consumption prospects, especially in rural areas. With this, India continues to maintain its position as the fastest-growing economy among emerging markets and developing economies.
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However, none of these projections seem to have taken the inflation rate into account. While the country's actual economic growth rate minus the inflation rate would still look robust compared with developed nations, the figure clearly signals the trend of an economic slowdown in India. The reasons are many. India's largest consumer base, the middle-income group is hard up for funds to meet their daily necessities. The high and nearly-all pervasive GST and income-tax rates have become a big burden. Income and jobs are not growing. The increasing healthcare expenses, including the cost of medicines, are a big concern. Private investment has been sluggish for years and government spending - an essential driver in recent years - has been pulled back. India's goods exports have long struggled, with their global share standing at a mere two percent in 2023. Massive imports are taking away local jobs. The rich are converting their surplus Rupee stocks into gold, the price of which has reached the record level ever since the government slashed the import duty last year.
The sectors most significantly pulling down the country's economic growth rate this year are manufacturing and mining. Hit by imports, both the sectors are experiencing a growth slowdown compared to the previous years. For the first time in recent years, the construction sector is witnessing a slower growth rate. The hotels sector, travel and trading in general too are not growing at their expected levels, this year. The manufacturing sector is expected to see the most significant decline in growth, with projections showing a drop to 5.3 percent from 9.9 percent in the previous year.
The mining industry is also projected to slow down considerably, with growth estimated at 2.9 percent compared to 7.1 percent in the previous year. Imports are recklessly rising while exports are under constant pressure due to fluctuations in international markets with most countries striving for a favourable balance of trade. Lower investments in key sectors are also hindering growth. Indicators like the Index of Industrial Production (IIP) show a slowdown across various industrial sectors. All these are leading to an overall dip in India's GDP growth for the current fiscal year.
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Amidst these bleak economic growth prospects, India's agricultural sector stands out as the most hopeful performer. Despite several challenges, the farm sector is projected to show an encouraging positive growth rate, potentially offsetting some of the slowdown in other sectors. The projection comes from the National Statistical Office (NSO) and is naturally considered as the official government estimate. According to the NSO, India's agricultural sector is expected to grow at 3.8 percent in 2024-25, marking a significant increase compared to the previous year's growth rate of 1.4 percent. The growth projection is attributed to a healthy monsoon season, leading to increased foodgrain production. This is expected to contribute to a projected 6.4 percent GDP growth for the entire Indian economy during the current fiscal.
For the next financial year, 2025-26, all focus is on the budget for the removal of the hindrances to a higher economic growth for the year and beyond. Much will depend on how the government increases and speeds up infrastructure spending, helps promote private sector investment and boost green initiatives. It is high time that the forthcoming national budget makes a genuine effort to further streamline the tax reforms to stimulate consumption and economic growth, with attention to key areas such as manufacturing, mining and import control. The budget should pay serious attention to rural development, skill development, and job creation through measures like tax incentives for new businesses and support for emerging sectors like AI and renewable energy. Lastly, the budget provisions along with the dual government-RBI effort must help stabilise Rupee to ensure the confidence of direct industrial investors – foreign and local – in the country. (IPA Service )
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