What’s in Today’s Article?

• India’s GDP Growth (Slowdown, Reasons, Challenges, Recommendations, etc.)
• Key Economic Terms

India’s GDP Growth Performance:

• Slowest Growth in Seven Quarters:
• India’s Gross Domestic Product (GDP) grew by 5.4% in the July-September 2024 quarter, down from 6.7% in the previous quarter. This is below the 6.5% projected by analysts.
• Sectoral Slowdown:
• Manufacturing grew by just 2.2%, compared to 7% previously, driven by weak consumer demand, inflation, and high borrowing costs.
• Private Consumption, constituting 60% of GDP, slowed to 6%, reflecting reduced demand for goods.
• Rural-Urban Dynamics:
• Rural demand showed recovery due to strong agricultural output (+3.5%), while urban demand lagged due to high inflation and weak wage growth.

Economic Concerns and Policy Challenges:

• Policy Pressures:
• Economists suggest the RBI might need to cut the repo rate, currently at 6.5%, to stimulate growth.
• The government faces challenges in balancing growth targets, inflation control, and job creation.
• Private Sector Issues:
• Weak hiring and wage growth have reduced purchasing power and dampened demand, particularly for consumer goods.
• The profit-GDP ratio grew to 4.8% in FY24 but did not translate into proportional compensation or job growth.

Structural Recommendations:

• Deregulation: Double down on deregulation, especially at state and local levels, to foster ease of doing business and increase investment.
• Public Investment: Focus on increasing capital expenditure (capex) for long-term infrastructure development.
• Private Sector Responsibility: Improve hiring practices and wage growth to sustain demand and boost private consumption.
• Geopolitical Risks: Address challenges like supply chain disruptions, rising US dollar strength, & tightening liquidity conditions in emerging markets.

Positive Outlook

• Resilience in sectors like agriculture, construction, and parts of manufacturing supports optimism.
• Record production in Kharif food grains and promising prospects for Rabi crops signal rural economic recovery.
• The labour market shows signs of improvement, though further policy efforts are needed.

Conclusion:

• India’s growth remains one of the fastest among major economies but faces challenges from domestic constraints like weak consumption and global risks such as geopolitical uncertainties.
• Policymakers must balance stimulating growth with controlling inflation, focusing on structural reforms and private sector participation.

Explanation of Key Economic Terms:

• Gross Domestic Product (GDP): The total value of goods and services produced within a country in a specific period. It reflects the economic health of a nation.
• Gross Value Added (GVA): A measure of economic activity that shows the value of goods and services produced, excluding taxes and subsidies. It offers a more precise sectoral view of economic performance.
• Repo Rate: The rate at which the RBI lends money to commercial banks. Lowering the repo rate can stimulate borrowing and investment, boosting economic growth.
• Profit-GDP Ratio: The share of corporate profits in the GDP. A high ratio indicates profitability but may also signal unequal income distribution if wages do not grow proportionally.
• Capital Expenditure (Capex): Government or corporate spending on physical assets like infrastructure, machinery, or buildings, aimed at boosting long-term growth.
• Kharif and Rabi Crops: Kharif crops are sown during the monsoon season (e.g., rice), while Rabi crops are sown during the winter season (e.g., wheat).
• Supply Chain Disruptions: Interruptions in the production and distribution process of goods due to geopolitical issues, natural disasters, or pandemics.