India’s Economic Challenges: Navigating A Complex Landscape – OpEd

Formerly recognized as one of the bright economic outlooks in the international market, India is facing a number of economic problems that act as a challenge to its economic and social progress. Erroneous domestic policies, global economic shocks, and structural issues have slowed down the growth rate in recent years, stoking economistic and policy analytic worries as well as public consciousness. In this article, the main concerns of India’s economy are being discussed, such as a decline in the economic growth rate, investment problems, high inflation rates, trade un-equilibrium, agricultural decline, unemployment growth, fiscal deficits, and the banking system problems.

As earlier mentioned, the evidence of slowdown in India’s economy can be estimated by India’s Gross Domestic Product (GDP) growth rate. India’s economy has shown a high growth trend of about 7-8% GDP for more than a decade. Largely, it depended on the domestic demand, foreign investment, and the demographic dividend. This is however, from a higher figure of 8. 3% in 2016, therefore cutting its growth rate to the tune of 3. 5% by 2023. According to the growth rate, for the Financial year 2021-2022, it reduced from 13% to 5% majorly because of the COVID-19 and its impact on industries. While there might have been some revival, the current rate of expansion is a pale imitation of what used to be and admonishes more about the economy’s prospects.

On the contrary, China, India’s main rival has sustained a higher economic growth rate. Of course, China also suffered the consequences of the pandemic that affected it economically, but the recovery rates were higher in China as the GDP growth rate of China is 5% in 2023. Other modern powers have similar trend but for them the decline is lesser, thus India’s slowing down of economy conspicuously stands out.

There are signs that capital formation at a higher level has boosted India’s growth in the 2023-24 fiscal year. Government expenditure has gradually shifted to capital expenditure in the recent budgets to assist the State Governments in their investment. But coordinated efforts and proper response from the private sector have failed to meet the desired amount. Owners’ capital decreased from US$ 168.6 billion in February 2023 to below US$24 billion for fiscal year 2024/25. Furthermore, the FDI amounted to about 4% less in the initial months of April to November period of 2023 than 2022 period. Thus, however India fared comparatively better than other developing countries, where FDI came down by 12%, the level of disinvestment, which is up nearly 29% year-on-year is quite disturbing.

On the other hand, China remains a magnet of foreign investments and stays in top list of preferred investment destinations. The saving grace has been its policies, structures and the propensity for private investments, which has not been erratic like that of India.

Agriculture & allied sectors, which account a large chunk of workers in India, rose a meagre 1. 7% in 2022-23 against 3. 7% of the previous year’s revised estimates. Sectors such as agriculture, water supply for human consumption, and tourism were negatively impacted by uncertain changes in weather such as uneven rainfall. The slowing of growth rate to agriculture and allied in 2023- 24 is expected, due to which higher incomes in those sectors, promote demands and could be a stimulus for manufacturing and service sectors. 

On the same note, while developed countries such as the United States has downsized farming activities, China on the other side has enhanced the mechanization of its farming industry ensuring that the farming activities have higher productivity, in case of extreme climate conditions. This relative efficiency spells a big problem for the Indian policies and structure of agriculture. 

However, coupled with the economic slowdown, India has a harsh unemployment challenge, even more critical among the young population. Government data show that the unemployment remains considerably high, particularly in the urban areas. Over thirty years later by December 2023 unemployment has reduced to 8 %. To address this problem, some strategies that should be pursued with vigour include preparing for employment creation particularly in the manufacturing, service and the agricultural production sectors.

India’s fiscal issue has also received some focus with a rising fiscal deficit. Higher Government expenditure and low revenues have posed a limitation to the Government’s capability to undertake large scale fiscal deficits. These problems are worsened when the public debt is high, thus reducing fiscal space and possibly crowding out private investment. The Government’s debt elevated to almost 88% of GDP, because of COVID-19 outbreak, debt, however, has lowered but high.

After the pandemic, spending has recovered, although spending on consumption goods has been lower than spending on savings and debt has been higher. Thus, there is reduction in the total household net savings in relation to GDP from 76.0 % in FY: 2020/21 to 66.0% in FY: 2022/23. The net savings rate fell to the adjusted rate below 5.1 % GDP in the FY 2022/2023. More pressure is heaped on consumers, when interest rates on outstanding as well as new loans are predicted to go up again in 2024, given the relatively low incomes and unpredictable employment situations.

Managing inflation lesser than the G7 countries is vital for India, because majority of Indians are extremely poor. It anticipates the retail headline inflation to average to 5.4 % in 2024 from approximately 4.0 % in 2023. In a recent development the Reserve Bank of India, has shown that achieving 4% inflation rate seems uncertain. High inflation of food prices that was 9.5% in December 2023, compared to 4.2% a year ago, increases the inflation rate.

To sum up, the conditions of India economic situation in 2023 can be viewed as rather conflicting and still optimistic at the same time. For as long as global GDP continues to upscale with sustained Government expenditure on capital formation, prospect such as; inefficiency of the current and impending regulations on the growth of the economy, therefore declined of private investors’ growth, high inflation rates among others remain to be real. The manufacturing sector displays some possibilities, However, the growth rate in agriculture sector is low and the influence of global economic environment on trading is another issue significant for Belarus.

So with regard to the economic problems compared to China and other modern powers structural problems are even more acute, showing the need for more radical changes. It is very evident that these structural deficiencies are important keys to India’s economic future and development if appropriate and proper policies are put forward and instituted. Measures of fiscal consolidation, strategic actions that pertain to the monetary policy and the investing in human capital and infrastructure as well as prescriptive facets of sustainability and reducing the socio-economic distance are instrumental to creating an economy inclusive of all citizens. The return of the investor confidence and raising the India’s comparative advantage in the global market is the key for the revival of economy in the country.