Scale of GDP and actual Economic Growth

The recent data of Gross Domestic Product (GDP) shows that India’s economy is improving. What is more worrying is that the growth momentum disappears when we look at the long-term trend.

There is not enough investment to accelerate growth. In 2024-2025, real investment is estimated to grow by only 6 percent, which will be less than the economic expansion. Compare this with the period of 15 per cent annual growth from 2004 to 2007 when 40 per cent of GDP was being invested in real investments, which has now come down to only 33 per cent.

Data such as decline in retail sales, sluggish loan allocation, weak profits of companies, sluggish exports, fall in net foreign direct investment and inflation rate are also confirming this.

The economy was not doing well before the Covid pandemic and the growth rate had come down to less than 4 per cent. The condition of the unorganized sector had become bad. The unorganized sector was also recovering from the burden of excessive debt taken during the previous growth phase. Some problems still persist, but they seem to be less so due to certain reasons.

As the situation returning to normal, people returned to work after the lockdown and families started spending money. Consumption also increased due to the ease of availability of retail credit. Retail credit grew by 20 per cent annually for some time. The government’s focus was on infrastructure and spending on it grew by an average of 30 per cent annually between 2021-22 and 2023-24, which gave a boost to the automobile and construction sectors. The construction sector grew in double digits in those three years.

The post-Covid boom due to the reopening of the economy has ended, the government has reduced spending on infrastructure due to tight fiscal conditions and low returns.

In other words, a mistake was made in understanding the post-Covid boom. The boom was an exception and the slowdown this time is normal and is around the 6 per cent average growth rate since 1991.

The question is whether an average economic growth rate of 6 per cent over a long period is enough to meet the country’s needs?

Overall, the size of the economy seen on the scale of GDP and its economic growth rate after the Covid pandemic are confusing.

At present, a concrete plan is needed immediately to accelerate economic growth, which will remove the country’s structural deficiencies and strengthen the economy for the long term.

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