Stimulate Economic Growth Requires Center's Proactive Role
Refreshed Perspective on India's Economy
India's GDP surged by a stunning 6.5% in the financial year 2024-25, retaining its reputation as the world's fastest-growing large economy. However, upon closer examination, this growth masks a deceleration in momentum, as highlighted by the Gross Value Added (GVA).
Sectoral Growth ConundrumGVA, which offers an insightful look at the economy's supply-side, unveiled some surprising findings. Though real GVA expanded by 6.4% in FY25, a marked decrease from 8.6% in the previous year, the sectoral growth numbers undermined confidence.
The prime worry stemmed from the sluggish growth in the manufacturing sector, a priority for the Narendra Modi government, with initiatives like Make in India, Production Linked Incentive (PLI), lower corporate tax, and improved business environment. However, the manufacturing sector's growth rate clocked in at 4.5%, a second-lowest figure after the mining sector in FY2024-25, sparking concerns about job creation and India's ability to integrate deeper into global manufacturing value chains.
A Double-Edged Sword: Trade AgreementsThe services sector continued to bear the brunt of the economic growth, but no economy can endure long-term prosperity without a thriving industrial base. Protectionist trade policies introduced by US President Donald Trump complicate matters further, challenging the government's endeavors to stimulate factory growth.
Regardless, India has forged free trade agreements (FTAs) with numerous nations, opening up promising markets for domestic products while exposing manufacturers to global competition. Successfully navigating this complex scenario requires a well-thought-out industrial policy that promotes domestic consumption, encourages increased capital expenditure, and nurtures a robust demand-driven economy.
Unlocking the PotentialTo set the economy on the path to sustained growth, companies must be encouraged to allocate more resources for investments, salary increases, and hiring new workers. However, risk-averse corporations focused on market capitalization may resist these moves, shifting the responsibility of jump-starting the slowing economy to the Central government, which must marshal its resources to take action.
Enrichment Insights
The slowdown in India's manufacturing sector is a cause for concern for various reasons:
Economic Growth Concerns1. Slowing Growth: The HSBC India Manufacturing PMI fell to 57.6 in May 2025, marking a three-month low, suggesting challenges in maintaining previous growth rates[1].2. Cost Pressures: Soaring input costs and geopolitical tensions challenge manufacturers, forcing them to adjust output prices to maintain profit margins, potentially constraining overall economic growth[1][5].3. Industrial Output: The Index of Industrial Production (IIP) growth dropped to 2.7% in April 2025, indicating broader economic difficulties[3][4].
Job Creation Concerns1. Employment Trends: Despite the slowdown, employment in the manufacturing sector saw a boost, with a focus on permanent hires, reflecting optimism about the sector's resilience[1][5]. However, sustained growth is essential to maintain this positivity.2. Sectoral Performance: While sectors like machinery and motor vehicles are booming, mining and power sectors are dwindling, which could impact job creation in these areas[4].
Overall Impact- GDP Growth: The slowdown in manufacturing and industrial growth could negatively impact India's GDP growth, which has already decreased to a four-year low in FY25[2].- Global Implications: India's manufacturing sector plays a significant role in international supply chains, particularly with export orders at a three-year high. Any slowdown in the sector could ripple through global trade and economic stability[1].
A well-thought-out industrial policy is essential to stimulate factory growth and address concerns surrounding job creation in India's manufacturing sector, which is experiencing a sluggish growth of 4.5% in FY2024-25, as highlighted in the Sectoral Growth Conundrum. Additionally, navigating the complexities of trade agreements, such as those forged by India with numerous nations, requires an industrial strategy that encourages increased capital expenditure, domestic consumption, and nurtures a robust demand-driven economy to improve the manufacturing sector's growth during uncertain economic periods.
