India’s growth story on a surge, but address jobs

In a massive vote of confidence for the Indian economy, the International Monetary Fund (IMF) recently stated that India’s economy would grow by 6.8 per cent in the current fiscal year, but driven primarily by public investment. Its previous growth projection for the Indian economy was 6.3 per cent. With the latest growth projection, IMF appears to be more circumspect about the Indian economy than the country’s central bank, the Reserve Bank of India (RBI), which believes that the economy will grow by 7 per cent. Another body, the IndiaRatings, forecast the economic growth in India this current year to be around 7.1 per cent.

The upward revision in economic growth figure is in tune with other macro-economic indicators, such as manufacturing growth, tax receipts and the expansion of the services sector.

The services sector continues to be one of the strongest in the last 14 years, though it slightly softened to 60.8 in April. The April figure, as compiled by S&P Global in the HSBC India Services PMI Business Activity Index, declined from 61.2 in March and was lower than the flash estimates of 61.7, mainly due to a moderation in new export orders.

The improved outlook for the economic growth is supported by several factors, including a sustained government capital expenditure, deleveraging of corporate and banking sector balance sheets and the emerging private corporate capital expenditure cycle.

Ind-Ra expects the private final consumption expenditure (PFCE) to grow by seven per cent yearon-year in FY25, marking a three-year high. However, current consumption demand remains skewed, driven largely by goods and services consumed by higher-income households.

Rural consumption has been weak, but Ind-Ra anticipates support from above-normal monsoon rainfall predicted by the India Meteorological Department and increased procurement targets set by the Food Corporation of India. Industrial growth is projected at 7.0 per cent year-on-year, driven mainly by construction and electricity/utility sectors. The agricultural sector is expected to benefit from above-normal monsoon rainfall, with growth forecasted at 3.6 per cent year-on-year.

While the economy will continue to be driven by the massive public expenditure bankrolled by the central government, economists point out that efforts should be made to kick start private consumption.

Annual growth in real private final consumption expenditure (PFCE) and real gross fixed capital formation (GFCF) for 2024-25 are expected at 6.1 per cent and 8.1 per cent, respectively.

In order to further boost the private consumption , the government should ensure that people have enough purchasing power by creating jobs for different skill sets. Instead of investing primarily in physical infrastructure, the government should, therefore, invest more in enchanting skills of its main resources: the people.

All these are factors based on strong foundations but the Indian political establishment must read the numbers more carefully, and also look for clues for where there are signs of distress or lack of confidence. The growth might also be possible without a proportional growth in direct jobs is well established in today’s global economy, with features like robotic and automated manufacturing to Artificial Intelligence enabling small high value startups or corporations to generate extraordinary value, without deploying too much of human effort.

The growth story also hides the inequalities in the society, and therefore, while we cheer the shining skies, the patches of gloomy clouds must also draw out attention, and action.

Instead of investing primarily in physical infrastructure, the government should, therefore, invest more in enchanting skills of its main resources: the people.