The Indian economy is likely to record the slowest growth in the last four years at 6.4 per cent in the next financial year 2024-25, according to the first advance estimates released by the government on Tuesday. The muted growth is supposed to be caused by lagging manufacturing and lower capital formation.
The advance estimates are prepared by the National Statistics Office (NSO), which will be the biases for the Union Budget to be presented by finance minister Nirmala Sitharaman in the Lok Sabha on February 1.
While agriculture was a standout performer, with growth estimated at 3.8 per cent, the growth of industry is projected to moderate to 6.2 per cent. The growth in the manufacturing sector, constrained by weak exports and slowing global demand, is expected to muted at 5.3 per cent from the previous year’s high of 9.9 per cent.
Private consumption — spending by individuals — is set to recover, with a 7.3 per cent growth forecast, which is almost double the four per cent, which reflects a revival in rural demand and improved consumer sentiment. The government spending too is projected to rise by 4.1 per cent, recovering from 2.5 per cent last year.
Inflation would continue to remain elevated in the next financial year, with consumer price index-based inflation estimated at 4.8 per cent, driven by food price volatility and energy costs.
Coupled with this, a lower-than expected urban consumption, which is adversely hit by slowing credit growth, would affect the overall economic growth.
Gross Fixed Capital Formation (GFCF) or investments made by the industry to add capacity — a crucial maker for the future growth in the economy — is estimated to grow lower at 6.4 per cent, which is considerably lower than the previous year’s nine per cent. This metric raises doubts about the sustainability of the investment momentum. It is the second lowest after 2015-16, without taking the Covid pandemic year into consideration.
The exports are expected to grow 5.9 per cent, while imports are forecast to shrink 1.3 per cent because of slower global recovery and geopolitical developments.
A brief look at sectoral growth indicators reveals that, except for agriculture, all others are forecast to witness lower growth, suggesting that an all-pervading slump is in store for the Indian economy. This also corroborates low investments as reflected in the lower GFCF.
Nevertheless, the Economic Survey 2023 had declared that profitability of the Indian corporate sector has touched a 15-year high. If the companies are sitting on mountains of profits, why have capital investments remained so low and employee salaries raised a paltry 9.5 per cent?
The appropriation of corporate profits to swell its cash reserves would hurt the economy badly. Without either investing in new capacities and thereby creating new jobs or increasing employee salaries to allow them to contribute more to the economic growth by consuming more, higher corporate profits serve no purpose for the common good of the country. The Narendra Modi government ought to look into this aspect, if it wants to revive the economy.
