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India Slows Down: Economic Growth Forecasted at 6.4% Amid Global and Domestic Pressures
India's 2024 growth forecast downgraded to 6.4%, the slowest in four years, amid weakening demand and global uncertainties. Policymakers eye measures to stimulate growth.
ND
by News Desk
2025-01-08
India Slows Down: Economic Growth Forecasted at 6.4% Amid Global and Domestic Pressures

India’s economic growth forecast for the fiscal year ending in March has been revised downward to 6.4%, marking the slowest expansion in four years and a significant drop from previous expectations. This downgrade, announced on Tuesday, reflects a combination of weakening domestic demand, sluggish manufacturing, and global economic challenges, which have prompted concerns about the country’s ability to meet Prime Minister Narendra Modi’s ambitious economic targets.

The forecast revision highlights the impact of slowing corporate earnings and economic indicators that have failed to live up to the optimism that surrounded India’s economy earlier in 2024. While still a relatively strong growth figure compared to many other economies, this marks a shift in sentiment that has wiped out much of the stock market rally seen earlier in the year. India's benchmark Nifty 50 index fell 12% between September and November before recovering slightly to close the year with a more modest 8.7% gain, far lower than the previous year’s 20% surge.

Slower Growth and Weakening Confidence

India’s economic growth has been slowing due to weaker investment, fragile consumption, and an ongoing global slowdown exacerbated by uncertainty about the trade policies of President-elect Donald Trump. The worsening global economic environment, coupled with a surging U.S. dollar, has added to the pressure on India’s economy, with the Indian rupee hitting a fresh all-time low in recent days, marking its seventh consecutive year of decline.

The latest growth forecast from India’s Ministry of Finance marks a significant deceleration from the 7.2% growth achieved last year. The government’s target of maintaining a growth rate between 6.5%-7.5% now seems out of reach, with many economists predicting that the economy may slow further, possibly to a growth rate closer to 5%-6% in the coming year.

Calls for Fiscal and Monetary Stimulus

In light of the slower-than-expected growth, experts and policymakers are advocating for measures to revive economic activity. Madhavi Arora, Chief Economist at Emkay Global Financial Services, highlighted the need for the government to “revive the animal spirit” in the economy, suggesting that India could expand its fiscal balance sheet, cut interest rates, or relax some of the tightening measures it has implemented in recent months.

Finance Minister Nirmala Sitharaman held a series of consultations in December with industry leaders and economists to identify ways to boost demand and revive growth. Among the measures discussed were increasing disposable income for consumers, cutting taxes, and reducing tariffs to support both domestic and foreign businesses.

One key suggestion coming from business circles is for the government to consider cutting taxes for individuals and lowering tariffs on imported goods, especially from the U.S. These moves are seen as vital to boosting consumption and attracting investment at a time when global trade uncertainties are high.

Rising Concerns Over Trade and Tariffs

As the world faces mounting trade tensions, particularly with the incoming administration in the U.S., India is navigating an increasingly precarious global economic landscape. Analysts have warned that India must develop a credible plan to combat Donald Trump’s tariff policies, particularly if his administration focuses more on trade restrictions aimed at China. This could present an opportunity for India to strengthen its position in the global trade network, but only if it is willing to make its exports more competitive.

One solution being floated is for India to allow the rupee to weaken further, which would make Indian goods cheaper on the global market, potentially giving the country an edge in international trade. However, this move could have adverse effects on inflation and consumer purchasing power domestically, making it a delicate balancing act.

Sanjay Kathuria, a Senior Fellow at the Centre for Social and Economic Progress, argued that India needs to implement “tariff rationalization” to better integrate itself into global value chains, especially in anticipation of future trade pressures from the U.S.

The Role of the New Central Bank Governor

In a move that has raised eyebrows, Prime Minister Modi appointed Sanjay Malhotra as the new Governor of the Reserve Bank of India in December. This surprising change came shortly after a significant dip in India’s GDP growth in the September quarter, which slowed more than expected to just 5.4%.

Malhotra’s appointment is seen as an attempt to shift the central bank’s priorities from strict price stability to a greater emphasis on supporting growth. His comments following the appointment suggested that the RBI will now strive to support a higher growth trajectory, a signal that India’s monetary policy may become more accommodative in the coming months.

India's Future Growth Path

Despite the current challenges, India’s economy is still expected to outpace many other major economies globally. However, the question remains whether India can maintain its growth momentum or whether a more pronounced slowdown is inevitable. Arora noted that the country is currently in a “bit of a limbo,” where consumption remains weak and employment growth is sluggish, further dampening prospects for a robust recovery.

The government is also reportedly planning to cut taxes for certain segments of the population and introduce tariff cuts to smooth over trade negotiations with the U.S., aiming to secure favorable terms with the new Trump administration.

Conclusion: Balancing Growth and Stability

India’s policymakers face a delicate task: how to support growth while managing fiscal responsibility and global trade uncertainties. With rising concerns over global economic conditions and domestic factors such as weak consumption and falling confidence, the pressure is mounting for Prime Minister Modi to deliver on his ambitious economic agenda.

The immediate future will likely see India adopt more aggressive fiscal and monetary policies in an attempt to stabilize the economy and restore growth momentum. However, with global trade risks, a volatile currency, and domestic demand still sluggish, it remains to be seen whether these efforts will be enough to avoid a deeper slowdown.

 
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IndiaEconomy

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