India’s Economic Slowdown: A Balancing Act
The bustling streets of Mumbai are a stark contrast to the anxieties simmering in the homes of many families. Prema Salgaonkar, a resident of a suburban Mumbai neighborhood, starts her day before dawn, tirelessly preparing nearly 100 vegetable-stuffed parathas to sell. Her son, Amar, 35, returns home in the afternoon, having worked a grueling overnight shift as a temporary worker on transport trucks.This scenario reflects the struggle of millions in India, grappling with a sluggish economy and a lack of steady jobs.
Finance Minister Nirmala Sitharaman faces a formidable challenge as she prepares to present the budget on february 1st. She must navigate a delicate balancing act – stimulating growth and employment for citizens like the Salgaonkars while adhering to stringent fiscal deficit targets.“We don’t sit at home,” Prema states, highlighting the desperate measures families are taking to survive as the cost of essential goods, like vegetables, skyrockets.Amar’s wedding, once a cherished dream, now seems a distant prospect.
India’s economic growth has slowed considerably. The latest data paints a sobering picture – GDP growth dipped to 5.4% for the quarter ending September 2024, marking the slowest pace in seven quarters. Forecasts predict an even slower growth rate of 6.4% for the fiscal year ending March 31,the lowest in four years. Adding to the complexity, economists caution against excessive government spending as a means to boost growth.
Dhiraj Nim,an economist at ANZ Bank,emphasizes,“There is no room for fiscal leniency.” This stance stems from the meaningful budget deficit accumulated during the pandemic, which reached 9.3% in the fiscal year ending March 2021. While Sitharaman aims to bring this deficit down to 4.9% this year and further reduce it to below 4.5% next year, the pressure to stimulate growth remains.
Sunil Sinha,professor of economics at the Institute for Progress and Communications in Chandigarh,attributes the economic slowdown,in part,to weak consumer demand. he notes, “Some economists, including me, have flagged that post-COVID demand was a problem.” While demand for luxury goods and international tourism rebounded, the recovery for essential mass-consumption products, such as soaps, shampoos, and biscuits, has been sluggish.
Amar’s experience in India’s once-booming mobile sales sector exemplifies the challenges faced by millions. after the pandemic, phone sales declined, leading to widespread layoffs. He, like many others, is struggling to find stable employment.
The government’s focus on infrastructure development in the past decade, while crucial for long-term growth, may no longer be enough to overcome the current economic hurdles. Nikhil Gupta, chief economist at Motilal Oswal Securities, emphasizes, “There is a limit to how much the government can spur growth,” adding, “We are burdening the government to much by expecting it to boost growth a lot.”
The specter of low private sector investment in capacity building looms large. India’s economic future hinges on addressing these multifaceted challenges and finding a sustainable path towards inclusive and robust growth.
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india’s Budget: Balancing Growth and Social security
As India’s Finance Minister Nirmala Sitharaman prepares to unveil the upcoming budget, the country faces a delicate balancing act: fostering economic growth while addressing pressing social concerns. While large infrastructure projects grab headlines, experts stress the importance of a more holistic approach, prioritizing human capital development and targeted social welfare schemes.
Prema Salgaonkar, a resident of Maharashtra, has benefited from a government scheme providing monthly cash handouts of 1,500 rupees ($17) to women. “It’s been a lifeline, helping me manage our household budget,” she says.However, such schemes are not without their critics. “We have to ask, are these schemes necessary? What is the basis on which they are designed? Are they just a political tool?” asks Rajnish Gupta, an economist at Motilal Oswal. “Structurally speaking, we don’t favor them and there is a limit to how much they can spur growth.”
Targeted Investments for Sustainable Growth
Economists emphasize the need for targeted investments that create lasting impact. “Smaller-scale infrastructure projects undertaken by state governments could create more jobs compared to large union government projects which are increasingly mechanized,” observes Sinha, an expert in infrastructure financing.
Improving access to labour, land, and capital are crucial for boosting production and job creation, adds majumdar, an economist at Deloitte. “India’s construction sector, the country’s second-largest employer after agriculture, could receive a welcome boost in the budget,” Gupta suggests.
Navigating the Challenges of Sluggish Demand
While the debate around income tax relief continues, economists are divided on its potential to stimulate demand from the lower middle class. Sitharaman, however, maintains that the current economic slowdown is “not systemic.” She attributes the recent slowdown to a decrease in public investment during the election year, when government spending is restricted.
Sitharaman projects a recovery in growth in the coming quarter. Meanwhile, Salgaonkar offers a pragmatic solution: ”Lower prices, increase buying capacity by creating jobs – or both,” she emphasizes, highlighting the real-life challenges faced by millions of Indians grappling with rising inflation. Inflation surged to 6.2 percent in October, its highest in 14 months, surpassing the central bank’s target of 4 percent. Salgaonkar cites the rising prices of essential items like wheat, cooking gas, and clothes, all while incomes in her household have dwindled.
Investing in Human Capital: The Long-Term Solution
Despite fiscal constraints, experts believe that investments in human capital are paramount for India’s future. “Establishing a vision and roadmap to improve human capital – skills training and education – would be a welcome step,” Gupta of ANZ asserts. “It might very well be the only long-term way to boost growth in the world’s fifth-largest economy and its most populous nation.”
