In the second quarter of the ongoing fiscal, the Indian economy registered 6.3 per cent growth, which is nowhere near its first quarter growth rate of 13 per cent. The dip in the GDP growth rate throws light on the strong and weak points of the Indian economy. The most encouraging indication emerging from this growth rate is that the Indian economy is still going strong in comparison to many other economies of the world, which are still struggling to come out of the double whammy of the Covid-19 pandemic and the ongoing Russia-Ukraine war. A major evidence of the fact is that the Indian stock market is touching new heights regularly, while other stock markets of the world are falling every day. It proves that foreign direct investment (FDI) has increased manifold in India in recent times, which is indicative of their faith in the Indian market.
Apart from the fact that the Indian economy is still going strong amidst worldwide turmoil, the simultaneous lower growth rate hints at a number of possible hurdles, which the economy may face in the coming days. Firstly, the Indian economy may register a lower annual growth rate in the financial year 2022-23, defying the Reserve Bank of India’s (RBI) predictions. Secondly, it will be a mistake to bank heavily on FDI as such investments always search for markets which provide highest returns and stability. At present, India is fulfilling these conditions making it a favourite destination for foreign investors. But the situation may change at any time, especially when the global economy achieves normalcy again.
But more than external factors, it is the internal factors which may hurt the Indian economy with much more severity. As latest figures suggest, government expenditure has declined by nearly 4.4 per cent compared to the expenditure incurred in the second quarter of the previous fiscal. It indicates that infrastructure and employment generation, considered to be the two strongest pillars of any economy, will be the biggest losers. It appears that the government is deliberately curtailing its expenditure to keep fiscal deficit under control. Many renowned economists have already urged the government to increase expenditure considerably without worrying about fiscal deficit, keeping the prevailing situation in mind. The government must think about adhering to it’s own advice as government expenditure contributes more than 10 per cent to the country’s GDP. So reducing the expenditure will definitely have an adverse impact on the economic growth as increased expenditure enhances the purchasing capacity of the rural people. Another worrying factor for the Indian economy is the poor health of the manufacturing sector. This sector has contracted by 4.3 per cent. The manufacturing sector in any economy is an important factor, as it not only hampers economic growth, but also affects employment generation. Time has come to address this issue on a war footing to revive the health of the Indian economy as the manufacturing sector has long been passing through a difficult phase.