India’s Growth Paradox

The National Statistical Office (NSO) released India’s GDP estimates for FY 2024–25. While the Q4 growth was 7.4%, pushing the annual growth to 6.5%, this marked a four-year low. Despite being the fastest among major economies, the data revealed underlying weaknesses in private consumption, manufacturing, and sustainability of tax-driven growth.

Headline Growth vs Ground Realities

• Sectoral Performance:
  • Construction and Agriculture as Key Drivers: The construction sector returned to double-digit growth, and the agriculture sector posted a strong recovery in Q4, significantly contributing to employment-intensive growth.
  • Manufacturing Sector Weakens: Manufacturing growth slowed to 8% in Q4 FY25, a steep fall from 11.3% in Q4 FY24, indicating persistent challenges in industrial competitiveness and private sector momentum.
  • Services Sector Maintains Momentum: Despite sectoral imbalances, services retained their robust performance, continuing as a consistent pillar of India’s quarterly GDP growth structure.
• Underlying Structural Concerns
  • GDP Boosted by Tax Revenues: The headline 4% Q4 growth was significantly amplified by a 12.7% increase in net taxes, suggesting that real economic activity was closer to 6.8%, revealing a disconnect between statistical and real growth.
  • Weak Private Consumption Trends: Growth in Private Final Consumption Expenditure (PFCE) was only 6% in Q4, the lowest in five quarters, despite the anticipated boost from the ‘Maha Kumbh effect’, indicating weak consumer sentiment.
  • Government Capital Formation Improves Late: Gross Fixed Capital Formation (GFCF) rose by 4% as the government accelerated public investment in the latter half of the year, partially compensating for private investment stagnation.
• Strategic and Policy-Level Reflections
  • Annual Growth at Four-Year Low: At 5%, FY25 recorded the slowest annual growth since the COVID-19 pandemic, raising questions about India’s progress toward becoming a $5-trillion economy by mid-2030s.
  • Global Comparison vs Domestic Requirement: Despite being the fastest-growing major economy, India’s pace is insufficient for internal developmental goals, especially in the context of the Viksit Bharat 2047
  • Stable Growth vs Acceleration Trade-Off: Chief Economic Adviser highlighted stable growth with low inflation, but this stability may cap acceleration, risking a prolonged phase of moderate growth in a high-aspiration economy.

Practice Question:

“India’s current economic trajectory reflects resilience without dynamism.” In light of recent GDP data and sectoral trends, critically analyze the strengths and structural weaknesses of India’s growth model. Suggest policy measures to align short-term stability with long-term acceleration.