CURRENT AFFAIRS
CURRENT AFFAIRS
Description
India demonstrated economic resilience in the fiscal year 2024-25, registering a real GDP growth of 6.5%. This growth was primarily fueled by a robust agricultural output and continued strength in the services sector. Despite this positive momentum, several domestic and external challenges remain, potentially affecting the country’s future economic trajectory.
Key Growth Drivers
The 6.5% GDP growth in FY 2024-25 reflects a strong finish to the fiscal year. Agriculture played a major role in this upswing, while the services sector maintained its consistent contribution. However, the industrial sector experienced uneven performance, and private investment lagged despite healthy corporate earnings.
Domestic Challenges
India continues to face persistent internal challenges. These include:
Flat private capital investment, even with increasing profits in the corporate sector.
Weak urban consumption trends, with limited signs of recovery.
Rural demand remains inconsistent and vulnerable to external shocks.
Household financial stress and a declining credit impulse further weigh on consumption and investment.
Global Economic Environment
International developments, such as uncertainties surrounding US trade tariffs, pose mixed implications. While India could benefit from trade realignment and supply chain diversification, higher global tariffs might adversely affect Indian exports. Geopolitical dynamics and global inflation also contribute to economic risks.
Policy Measures And Economic Reforms
The Indian government has introduced several key reforms to support economic growth:
The Goods and Services Tax (GST) has unified domestic markets.
The Insolvency and Bankruptcy Code (IBC) has improved asset recovery for banks.
Corporate tax reductions aimed to encourage private investment.
Despite these measures, private sector capital formation remains subdued, raising concerns about the effectiveness of reform implementation.
Stagnant Capital Investment
Although firms have seen increased operating profits, capital spending remains stagnant. Capacity utilisation across industries hovers at about 75%, and gross fixed capital formation has held steady at roughly 25% of GDP since 2014. Additionally, investment patterns suggest a growing concentration in select sectors, raising systemic concerns.
Monetary Policy Landscape
The Reserve Bank of India (RBI) has implemented multiple interest rate cuts to enhance credit availability. However, its ability to further ease monetary policy is limited. Similarly, fiscal space for additional stimulus appears constrained.
Long-Term Economic Outlook
India's medium-term prospects remain promising, with expectations of an average annual growth rate of 6.5% over the next five years. However, this growth may fall short of addressing the country’s employment needs. With an expanding workforce, India needs to create over 8 million jobs each year until 2030 to maintain social and economic stability.
Future Risks And Strategic Needs
India’s growth trajectory could be influenced by several external risks, including:
Global trade protectionism
Geopolitical tensions, especially with neighbouring Pakistan
Volatility in international capital markets
To sustain growth and improve socio-economic outcomes, investments in education, skill development, and infrastructure will be essential.
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