The headline GDP numbers of 8.2% for FY24 and 7.2%, predicted by the Reserve Bank of India and Fitch, for FY25 must be comforting, especially as consumer confidence is reported to be rising both at home and abroad, and the rural demand is seen slowly recovering from a long trough. Moreover, the share of private sector in the “newly announced investment projects” has been above 80% over the last several quarters, a smart recovery from the nadir of 50%. The concerns, however, are as much regarding the sustainability of the current growth paradigm and its credibility, as they are about the travails of those left out like the sizeable number of small and medium companies, the unorganised sector units, and earners of sustenance wages.
There is enough proof to conclude that the share of a clutch of large corporates in the GDP has gone up quite significantly in recent years, at the expense of micro, small and medium enterprises (MSMEs), and several thousands of decent jobs they used to provide. This has apparently raised the incremental capital output ratio significantly. Each unit of output is already much harder to produce than it was before the pandemic. It’s also worrisome that different sets of economic data don’t easily reconcile with one another any longer — a gap of over 4 percentage points between the growth rates of the GDP and private consumption in FY24, for instance. Gross fixed capital formation at 33.5% of the GDP in FY24 was led by real estate demand, rather than industrial investments.
There is also the question of whether and how much the GDP estimate was boosted by the tweaking of sparse MSME data in tune with corporate-sector value addition, even while the wedge between the two has apparently widened. The way the economy is going can be well illustrated from the fact that exports from key job-generating sectors like textiles and garments, leather and leather products, diamond and gold jewellery, and marine products were 12% lower than in FY18 in absolute dollar terms. Actually, in most of these sectors, 2023 exports were lower than the 2015 levels. So, while these industries together accounted for nearly 30% of the country’s total merchandise exports in FY18, their share dropped steeply to 18% in FY24.
For a better economic balance and productivity spike, the sectors holding employment potential should receive policy support. The production-linked incentives or the massive sops for semiconductor fabrication units would need to be supplemented with measures aimed at bolstering labour productivity, wages, and job creation, and thereby broad-based consumption. India’s textile industry has seen massive investments in the spinning sector thanks to a liberal interest subsidy scheme that ran for two decades, and the removal of growth-stunting reservations. Yet, even as China ceded quite a bit of its share in the global textiles market, the gainers were Bangladesh and Vietnam, not India.
Worse, the European Union carbon tax is a looming threat for the sector. The policy bias favouring the upstream man-made fibre (polyester and viscose) players still requires to be fully corrected. Import tariffs for key inputs and synthetic fabrics must come down further. Lowering of goods and services tax rates for the textile value chain, heightened co-lending by banks and non-banking finance companies to the whole spectrum of MSMEs, and effective use of competition regulations are also necessary. Gems and jewellery units would require debt relief, as their prospects finally look bright, thanks to the free trade agreement with the UAE, and other such pacts on the anvil.