India’s economy does not appear to be growing as it should. Official figures have shown that India’s economy grew at an annual rate of just 7.1% April to June compared to 7.9% for the previous quarter. This is the slowest growth rate for two years. The previous lowest was in the same quarter in 2014 when the growth rate was just 6.7%.
The Indian government’s target annual growth rate is 8%. This lack of growth in the first half year is going to make this a more difficult target to meet. However, India still claims to be the fastest-growing large world economy, faster growing even than China. So what was the reason for the slowdown in the Indian economy in the last quarter?
Part of this is the reliance of India’s economy on government spending during a period when spending by private business is low in comparison. Particular issues involved slow growth in the agricultural sector while growth in the mining industry contracted during the quarter. It is difficult to meet growth targets when a major sector contracts.
Indian Prime Minister Narendra Modi had promised the creation of millions of jobs in India to meet the needs of all those young people entering the jobs market each year. In order for these jobs to be created, economic growth must be much higher than it is now. It should be in double figures for the Prime Minister’s statements to become fact.
Narendra Modi has tried to get India’s economy going not only by implementing reforms, but also mainly by attempting to make up for a lack of private sector investment by increasing government spending. This is not always a sensible way to give a jump start to a country’s economy, but he likely had no other option.
His action may have been intended as a quick solution until conditions became more suited to natural economic growth. One of the factors relating to growth is the monsoon season. This usually results in increased spending and growth in the economy.
According to estimates made by Citibank, rural consumption could increase by up to $80 billion for the year to March 2017. This is assuming that rainfall would return to normal this summer after two years of summer drought. The monsoon season often supports economic growth.
Another way of increasing the economic growth rate would be a wage rise for 10 million pensioners and federal government employees. This would certainly assist with India’s economy due to the extra fuel spending this step would motivate.
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