A taste of things to come? As the government unveils the Q1 (April to June 2025) growth figures on Friday, the predicted drop is not the real worry. Whether this will be just the beginning of a downward spiral going forward (considering the impact of Trump’s tariffs and other factors in the coming quarters), which will signal a rude halt to India’s winning streak since Covid, will be the real worry.
The last quarter, the Q4 of financial year 2024-25 had seen India blaze ahead with 7.4 per cent growth, though the whole year’s composite GDP was a more tempered, yet impressive, 6.5 per cent.
At the time it was announced, it helped India to remain the world’s fastest-growing major economy. But since then, a spate of factors, from the geostrategic upheaval that US President Donald Trump’s tariff tirade, complete with their ups and downs, were unleashed. Not to forget the delicate state of anything from urban consumption to the fear of inflation rearing its head again, and together, that has managed to bring the great expectation in the air down.
Even the best estimates for today’s GDP figure do not dare to go near the previous quarter’s 7.4 per cent. Between the various banking analysts, the most optimistic is, as usual, the RBI, which has pegged the Q1 GDP growth at 7 per cent. Between other banks, the rates have been predicted to be anywhere between 6.9 per cent, to a low of 6.4 per cent.
The drop is on account of a perceived drop in industrial activity. There is enough data to perceive a distinct drop in production, especially in the power and mining sectors. While the government had continued with its capital expenditure push, the private sector, as has been the finance minister’s perpetual peeve, has not risen to the occasion.
The private sector, on its part, blames its lack of investment and capacity expansion on the weak demand in the market. Urban consumption, a euphemism for the spending power and confidence of the public in cities and towns, is another big cause of worry. India, by virtue of its vast domestic marketplace, has always fallen back on its private spending to ride out GDP blues, especially considering that the nation’s exports have never been much of a strength.
While spending fell since Covid and rather disastrously when it comes to rural consumption, ironically, many economists and observers have pointed out a curious divergence – rural areas seem to be picking up since last season, while urban confidence has fallen. And this has been even more ironic, considering the fact that price rise (inflation) has been more or less not gone off the charts like was feared over the past couple of years.
While the reasons for that need to be crunched quickly to get to the bottom of the malady, what that leaves India’s economy is with a whole lot of craters on the path ahead. The export scenario, depending on how long the tariff trauma will continue and whether the maverick American president will expand it to include more areas (for example, if services sector or pharma sector is brought under the ambit of his punitive rates, it could be deadly for India), could bring more pain points in the coming quarters.
Interestingly, the Reserve Bank had gone in for a repo rate cut back in June, in the hopes of spurring economic activity, but many banks have not even passed on the cuts to their customers. The government’s brahmastra, a GST rate cut that is on the anvil, also proves to be ‘pointless’ if businesses don’t pass on the tax cuts in the final pricing (like oil companies, which have not cut fuel prices, despite record profits running into thousands of crores of rupees in the past year, thanks to cheap Russian crude). That will be no solace to the economy in the coming quarters.