By Mehmet Enes Beşer
India was once hailed as a role model of high growth in the largest economies. However, recent economic trends suggest that India’s economy is currently undergoing a slowdown that raises serious concerns in national and international circles alike. According to estimates, GDP growth will reach 6.4% in fiscal year 2024-25 which represents the lowest growth in four years. Therefore, it is important to analyze what the reasons behind this economic transition may be.
It is apparent that India’s manufacturing industry has shown poor performance during recent times. Despite being seen as a prospective way of creating jobs and diversifying the economy, the industry has encountered many barriers like infrastructure deficiency, complex regulations, and inconsistent policies. These difficulties have weakened competition and discouraged both local and foreign investments, leading to a standstill in terms of production and employment opportunities.
Another significant engine of growth in the private sector has become weak due to a number of different factors. Policy inconsistencies, bureaucratic hurdles, and the unfriendly business climate have all combined to decrease investor confidence. As a result, the development of new businesses and expansion of existing companies has become impossible. The situation hampers job creation and technology development.
Urban consumerism is considered an essential element of India’s economic growth. However, due to increased inflation rates and expenses, consumers’ capacity to spend has been compromised. Consequently, many industries like retail, automobile, and real estate have faced a cyclical downturn that continues to dampen economic performance.
It should be noted that India’s economy cannot remain unaffected by global macroeconomic trends that have recently slowed down considerably. The IMF expects a rather moderate growth rate of 2.8% in 2025 due to different problems, including geopolitical tension, supply chain disruptions, and price fluctuations. All these issues negatively affect India’s export market and the influx of foreign capital.
The Indian stock market has experienced significant turbulence. In particular, a massive sell-off wiped off around $1 trillion from India’s market cap. As a consequence, retail investors’ spending potential has been constrained, putting additional pressure on India’s economy. For instance, the NSE Nifty 50 and BSE Sensex indices declined by about 14% after September, while mid- and small-cap indices plummeted by over 20%.
To boost economic performance, the Indian government undertook several measures in the form of personal tax cuts expected to increase domestic demand. It included an increase in the tax exemption limit and lower rates applicable to higher incomes. Besides improving consumption, savings, and investment levels among households, this initiative generates additional revenue for the Treasury.
As far as monetary policy is concerned, the Reserve Bank of India (RBI) has been actively intervening in the economy to improve currency stability and liquidity management. Measures taken to stabilize foreign exchange volatility have decreased rupee liquidity and reduced the rate of bank lending. At the same time, rupee has become one of the weakest currencies in Asia, triggering discussions about its depreciation. A stable currency positively affects international trade and capital markets. In particular, the RBI has sold roughly $40 billion in transactions from October to December.
Despite obvious problems with its economy, India can overcome existing challenges and restore strong economic growth through targeted actions. By solving existing issues and implementing necessary reforms, the country can return to the track of dynamic progress on a global scale.