The Ministry of Statistics and Programme Implementation’s press note (released on February 28) pegs the second advanced estimate of GDP growth at 6.5% for FY25, slightly higher than the 6.4% estimated in the first advanced estimate.
Furthermore, the GDP growth rate for FY24 has now been revised to 9.2% from the earlier 8.2% while the final estimates for 2022-23 GDP growth has been revised downward from 7.8% to 7.6%.
The rating agency Moody’s announced on March 12 that India’s economic growth in FY26 is expected to be over 6.5%.
All of this creates the impression that the Indian economy is on a path to economic recovery reversing the slowdown observed over the last few years – basically that ‘all is well’. Even if we accept these numbers while setting aside questions of data credibility (such significant variations between initial and revised estimates are uncommon), they must be analysed in the context of other datasets indicating that income standards of people continue to be distressed. At the end of the day, what do these growth numbers mean when it comes to people’s lives?
One key question being discussed is whether the quantum of growth is sufficient to meet our stated targets and whether we are indeed seeing ‘achche din (great days)’. The average growth rate from 2012-13 to 2017-18 was 7.1%, whereas it declined to 5.2% for the period 2018-19 to 2023-24 (which, of course, includes the negative growth during the COVID year, though the flip side is that this low base naturally results in higher growth rates). While an annual GDP growth rate of around 6.5% is being celebrated we would, in fact, need to sustain a growth rate of around 8% per annum for 25 years to reach the goal of becoming a high-income country, i.e. achieve ‘Viksit Bharat’.
Over the last six months, there has been considerable discussion about weakened private consumption expenditure in urban areas. This issue was highlighted in the media after statements from some corporate leaders about a slowdown in sales of FMCG goods, two-wheelers/automobiles and other products. Many economists have been pointing to the demand problem in both rural and urban areas for several years, particularly since demonetisation in 2016. The last two Economic Surveys made mention of economic slowdown, along with lamenting that private investment has not kept pace despite the injection of public capex and tax subsidies since 2019 and that the corporate sector is failing to create employment. There is still no evidence to suggest a significant turnaround in consumption demand.
Furthermore, the rising stock market, which we seem to take great pride in, has been in a continuous downward spiral affecting large number of small retail investors (the ‘middle-class’) and their spending capacity. The Nifty FMCG index has been declining since October 2024, indicating that these companies are not doing too well in terms of their revenue and turnover. Foreign investors are also pulling out of the Indian market.
The annual Periodic Labour Force Surveys (PLFS) show a very slow increase in real earnings, particularly for those in self-employment. There is hardly any increase in real terms in the Gross Value of Output per establishment among unincorporated enterprises as shown by ASUSE data, although the number of enterprises and employees have gone up. Another indicator of distress, is the increasing share of agriculture in employment as shown by the PLFS surveys in the last couple of years signalling a reverse structural change.
Also read: The Latest ASUSE Reports Show How Deep in Trouble the Informal Sector Is
While agriculture appears to be the buoyant sector as seen in the revised GDP estimates (with a projected growth rate of 4.6% for FY25 compared to 2.7% for FY24), it is important to recognise that there have been no substantial structural reforms in agriculture and the goal of doubling farmers’ incomes remains far from reality. These growth figures reflect a good Kharif crop this year and future projections hinge on an equally strong Rabi crop – something that is highly dependent on climatic factors. For sustained agricultural growth and improved farmers’ incomes deeper structural changes and increased public investment in agriculture remain essential. Meanwhile, the manufacturing sector expected to drive employment and output, is projected to underperform (5.6% in FY25 compared to 10.8% in FY24). Clearly, the PLI and various other initiatives are not delivering, and the outlook for employment and manufactured exports remains bleak. Global developments, particularly the policy shifts following the Trump administration’s frequent ‘reforms’, present additional challenges.
Beyond demand-side concerns, many have highlighted the issue of low incomes and poor employment prospects for a large section of the population. It is evident that, in recent years, the benefits of economic growth have been highly concentrated at the very top of the ladder, while the vast majority have experienced only sluggish improvements in real incomes. Despite this, demand side measures aimed at increasing purchasing power among the poor and lower middle classes – such as increased spending on schemes like MGNREGS continues to be neglected. Other measures such as public investment in agriculture and small (and labour intensive) infrastructure projects in rural areas are overlooked. In manufacturing, long overdue reforms to improve the profitability of MSMEs remain unaddressed.
Instead, policymakers continue to rely on supply side measures such as easing credit access, reducing direct taxes especially corporate taxes, focussing on the ‘ease of doing business’ and depending on monetary policy to control inflation and also encourage investment. Capital expenditure has been significantly increased in recent budgets, and the middle classes have been given some relief in income tax this year. The RBI reduced the repo rate for the first time in five years, with the possibility of further reductions, especially with inflation seeming to be in control. However, these measures are insufficient and fail to address the core issues.
The more critical question to ask is whether people’s capabilities and freedoms have expanded. This brings forward a different set of inquiries that are often sidelined. The real questions we should be investigating are whether good quality jobs are being generated, whether human development outcomes are improving, how income/wealth is distributed across class, caste, gender and region and how our actions are impacting the environment. Asking these questions will point us to more effective and equitable policies, shifting the focus away from an obsession with GDP growth rates and toward the nature of growth and its distribution.
Dipa Sinha is a development economist.
