India, celebrated as the fastest-growing economy in the world, is showing signs of slowdown
India is facing a pivotal moment as it navigates a notable slowdown. Between July and September 2024, the country’s GDP growth rate fell to 5.4 per cent, its lowest in seven quarters and well below the Reserve Bank of India’s (RBI) forecast of 7 per cent. While this growth rate remains enviable compared to developed economies, it highlights significant structural challenges that could impede India’s long-term economic ambitions. The implications of this slowdown are multifaceted. A decline in consumer demand and muted private investment have curtailed economic momentum. Sales of fast-moving consumer goods (FMCG) have dropped, wage bills of publicly traded firms have shrunk, and urban spending has softened. In November alone, car sales plunged by 14 per cent, underscoring the waning strength of urban consumption. Rising inflation adds another layer of complexity. In October 2024, inflation surged to 6.2 per cent, exceeding the RBI’s target ceiling of 4 per cent. Escalating food prices, driven by climate disruptions and inefficiencies in supply chains, have inflated costs across sectors, further squeezing disposable incomes.
The slowdown has also placed pressure on India’s exports, which account for just 2 per cent of global goods trade. A stronger dollar and rising tariffs have eroded the competitiveness of Indian products in international markets. Compounding the issue is stagnant job creation, particularly in agriculture, manufacturing, and small-scale industries. Collectively, these factors are eroding confidence in India’s growth narrative, despite the government’s optimistic outlook. The roots of this economic deceleration lie in several factors. Demand weakness is a central issue. While rural demand remains relatively resilient thanks to a favourable monsoon, it alone cannot offset the broader slowdown. Restrictive monetary policies have further constrained growth. To combat inflation, the RBI has kept interest rates steady for two years, leading to high borrowing costs that discourage both business investment and consumer spending. Global and domestic challenges compound the problem. Slowing global demand and climate-related disruptions in agriculture have adversely affected exports and food production. Additionally, the RBI’s interventions to stabilise the rupee by selling dollars have inadvertently tightened liquidity, slowing economic growth. A stronger rupee, while stabilising in some respects, makes Indian exports more expensive and less competitive internationally. Addressing these challenges requires targeted solutions. Boosting consumption through wage growth could be a key strategy. Policy measures that reduce bureaucratic hurdles, provide tax incentives, and simplify labour and land laws can unlock the potential of small and medium enterprises, which form the backbone of the economy. Tackling inflation and strengthening supply chains will also play a critical role in stabilising the economy.
