India (Commonwealth) _ The most recent GDP figures present a depressing image. India’s economy fell to a seven-quarter low of 5.4% between July and September, much below the 7% anticipated by the Reserve Bank of India (RBI). The number indicates a slowdown, even if it is still strong when compared to developed countries.
This is due to a number of variables, according to economists. Private investment has been slow for years, consumer demand has declined, and government spending, which has been a key engine in recent years, has decreased. India has historically had trouble exporting commodities; in 2023, their share of the world market was only 2%.
Publicly traded companies’ salary bills, a measure of urban poverty, show weak sales, with an increase to over 40% in October. Additionally, there are increasing indications that increases in food prices are now impacting core inflation, or other regular expenses.
However, higher interest rates could not be the only factor contributing to the slowing economy. Lower rates won’t spur growth unless there is strong consumption demand. According to Himanshu, an economist at Jawaharlal Nehru University in Delhi, investors only borrow money and make investments when there is a demand, which isn’t the case at the moment.
Nonetheless, Shaktikanta Das, the RBI’s departing governor, says the “balance between inflation and growth is well positioned” and that India’s “growth story remains intact”.
Urban demand is declining, according to economists, despite record-high retail credit and an increase in unsecured loans, which show that consumers are borrowing to pay for their consumption even in the face of high interest rates.
Demand in rural areas increased to over 40% in October. Additionally, there are increasing indications that increases in food prices are now impacting core inflation, or other regular expenses.
However, rising interest rates alone may not fully explain the slowing growth. “Unless there is robust consumption demand, lower rates won’t promote growth. Only when there is demand do investors borrow and invest, and that isn’t the situation right now,” says Himanshu, an economist at Jawaharlal Nehru University in Delhi.
Nonetheless, Shaktikanta Das, the RBI’s departing governor, says the “balance between inflation and growth is well positioned” and that India’s “growth story remains intact”.
Urban demand is declining, according to economists, despite record-high retail credit and an increase in unsecured loans, which show that consumers are borrowing to pay for their consumption even in the face of high interest rates. According to consulting firm Deloitte, India now hosts the headquarters of more than half of the GCC countries.
These R&D, engineering design, and consulting centers employ up to 2 million highly qualified professionals and generate $46 billion (£36 billion) in revenue.
This influx of GCCs boosted urban consumption and bolstered the market for luxury goods, real estate, and SUVs. For two to three years following the outbreak, this resulted in an increase in urban spending. Ms. Sengupta claims that as GCC countries solidify and consumer preferences shift, the urban spending advantage is eroding.
Therefore, when the new economy slows down, the old economy appears to lack a growth stimulus. Although private investment is essential, businesses won’t invest if there isn’t a high demand for their products. Investment is necessary to meet consumption demand, boost earnings, and create jobs.
According to consulting firm Deloitte, India now hosts the headquarters of more than half of the GCC countries. These R&D, engineering design, and consulting centers employ up to 2 million highly qualified professionals and generate $46 billion (£36 billion) in revenue.
“The market for SUVs, real estate, and luxury items was supported by this influx of GCCs, which increased urban consumption. This led to a spike in urban spending for two to three years after the outbreak. The urban spending boost is diminishing as GCCs become more entrenched and consumer habits change, according to Ms. Sengupta.
Therefore, when the new economy slows down, the old economy appears to lack a growth stimulus. Although private investment is essential, businesses won’t invest if there isn’t a high demand for their products. Consumption demand cannot revive without investment to raise incomes and generate jobs. “It’s an endless cycle,” Ms. Sengupta asserts.
There are further perplexing signs. India now has higher average tariffs than its Asian counterparts that trade with the US, having increased from 5% in 2013–14 to 17% now.
