Indian Economy’s Weakness?

The Indian economy is experiencing a downturn. It is not a recent problem. The symptoms have been evident for a long time. They are visible during the most significant Indian festival, the general election, and the subsequent festival season. It should not be viewed as an individual problem for India, as the world is deeply interconnected economically. Whatever happens in other economies, especially the US, will affect India also. It is one of the downsides of globalisation. While we enjoy the benefits of globalisation—such as tasting Arabian food, dry fruits, American luxury, and Malaysian fruits—we must also confront its negative aspects.

The GDP growth is estimated to be 6.4% for FY25, a sharp decline from last year's growth rate. This indicates that the Indian economy has already begun its journey toward serious trouble. However, we are optimistic, as RBI's projection of 6.6% should be considered in this context. We can interpret this not as a cyclical downturn but as a structural problem, making recovery more challenging.

Unlike previous recessions, we will face a tougher time this time around. In the past, we navigated through recessions without much struggle because our expenses were limited, our lifestyles were simple, and we had higher household savings rates.

The Indian middle class traditionally saved a significant portion of their income, which helped them manage economic downturns. Today, however, our lifestyle and expenses have reached new heights. Indians are increasingly drawn to luxury, and we have little to no savings left.

Our cultural changes also contribute to the challenges. Interestingly, while the Indian government appears to be in a safe mode, many Indians are in a difficult situation. However, GST collections indicate that there is no significant decline. Last year's performance was ₹815,520 crore compared to ₹723,270 crore in 2022-23. As of November, the collections stood at ₹511,151 crore, highlighting a considerable difference in collection despite a vast difference in GDP compared to last year's level. Of course, there is also a slowdown in GST collection; consumption is decreasing daily. The policy changes are also a matter of concern. Instead of focusing on the social economy and increasing the purchasing power of the common people, the focus has shifted to collective growth, which can be seen as GDP-based centralised growth. Consequently, the poor become poorer.

Our economic focus has shifted more globally rather than domestically. When we rely heavily on FDI, there are also drawbacks associated with it. The ongoing crisis in West Asia, the Urkraine-Russia war, growing tensions between neighbouring countries in Asia and economic slowdowns in many countries—especially those nearby—are also significant concerns. When we have healthy economic ties with our neighbours, logistics costs, and time-consuming transportation to reach destinations become important factors. Although these issues may not directly impact us, they will indirectly affect our economy.

The most crucial challenge facing the Indian economy is global weather change. Yet we seem largely unconcerned about it. It indicates a need to shift our focus from a purely growth-based economy to a holistic socioeconomic development. There is an urgent need to fundamentally address farmers' problems, as they are the backbone of the economy. Simply depending on drastically changing weather patterns will be challenging; effectively addressing global warming is crucial. While solving economic problems is difficult, we can take significant steps to mitigate the most severe damage. However, the government must recognise the signs.

The worrying trend is the increasing share of the top one per cent. In 1991, it was 10%, and now it stands at 23%, while the bottom share has shrunk from 20% to 13%. The growing influence of technology plays a role in this shift, as the middle class is losing income sources due to technological advancements. The top tier believes they can reduce costs by relying more on AI. However, over time, this will create a gap in their profits. If the middle class cannot purchase the products they produce, it will be a complete disaster for the economy. We have a vast population, and we need more job opportunities. We cannot follow the path of developed countries whose population is smaller than ours. Their labour costs are high, unlike ours. Optimum utilisation of manpower can enkindle our economy.

SAJIKUMAR

https://sajikumar.co.in