India‘s economy, which posted impressive growth last year, is now grappling with a sharp slowdown. The country’s forecast for fiscal year growth has been downgraded to 6.4%, the slowest in four years, due to weaker investment and manufacturing. This follows disappointing economic indicators and a slowdown in corporate earnings, raising doubts over Prime Minister Narendra Modi’s ambitious growth targets.
To address these concerns, there are calls for policymakers to stimulate growth by loosening monetary policies and easing fiscal tightening. Chief economist Madhavi Arora suggested that India could boost consumption by expanding its fiscal balance sheet or cutting interest rates. These discussions are occurring as the government prepares for its annual budget, which is due on February 1.
In recent meetings with industry leaders and economists, Finance Minister Nirmala Sitharaman discussed measures to stimulate growth, such as increasing disposable income for consumers and reducing taxes and tariffs. However, economic growth in the September quarter of 2024-25 showed signs of slowing, with GDP rising by only 5.4%, down from previous projections.
Amid this growing concern, India’s stock market saw a significant dip, with the Nifty 50 index falling by 12% from September to November. While the market rebounded to end 2024 with an 8.7% gain, this was far below the previous year’s 20% surge.
As India’s economy faces these headwinds, the political pressure to implement stimulus measures is mounting. This includes a potential change in the central bank’s monetary stance after Modi appointed a new governor in December. Some analysts predict that India’s economy may continue to outperform globally but could see slower growth in the coming years if employment and wage growth do not improve.
With global trade uncertainties, particularly with the looming prospects of a second Trump presidency, India is also exploring ways to mitigate tariff wars and improve its trade relations. The rupee has hit a fresh all-time low, and economists believe India needs to implement proactive measures to stay competitive in the global market.
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