Policy choices that deepened the slowdown demand urgent course correction | Current Affairs | Vision IAS

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Policy choices that deepened the slowdown demand urgent course correction

2 min read

India's Economic Slowdown

India, once one of the world’s fastest-growing major economies, is facing a significant economic slowdown. The GDP expanded by only 6.1% in April-December FY25, down from 9.5% in the same period the previous year. Inflation remains above the Reserve Bank of India’s (RBI’s) target, and foreign investors are withdrawing amidst market jitters.

Global and Domestic Factors

  • The slowdown is attributed to domestic factors despite a stable global economy.
  • Global growth is projected to be resilient, with the US surpassing expectations.
  • The Indian stock market has experienced a decline of over 10% since September 2024.

Structural Challenges and Policy Missteps

  • The economic slump is due to structural challenges and policy missteps.
  • Fiscal and monetary policies have been tightened simultaneously, exacerbating the slowdown.
  • Capital expenditure contracted by 15% in the first half of FY25.
  • RBI's exchange rate strategy has led to forex interventions, tightening liquidity, and raising interest rates.

Corrective Measures and Long-term Issues

  • The RBI has eased exchange rate controls and injected liquidity.
  • The February Budget provided tax relief to stimulate demand.
  • Long-term issues include the collapse of private investment and exports post-2008 financial crisis.

Export-Led Growth Potential

  • India’s share in global manufacturing exports remains below 2%.
  • Opportunities arise from China's retreat from low-skill exports and US tariffs on Chinese goods.
  • Inward-looking trade policies and increased tariffs have hurt competitiveness.

Investment Climate and FDI

  • FDI is crucial for export growth but is declining due to protectionism and regulatory uncertainty.
  • India may have lost up to 60% of potential FDI due to policy gaps.

Way Forward

  • India needs an outward-looking trade strategy and a stable business environment.
  • Protectionist barriers must be reduced and FDI actively encouraged.
  • Exports should become a central priority for sustained growth.
  • Tags :
  • FDI
  • Economic Slowdown
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