While most analysts feel that the economic expansion during the first quarter of the current financial year is likely to be lower than 7 per cent, the Reserve Bank of India (RBI) has projected a 7.1 per cent growth rate for the quarter.

The State Bank of India's growth projection is in line with the RBI's forecast but with a downward bias.   

Recently, in an interview to a news channel, RBI governor Shaktikanta Das said that India’s economy is resilient and stable. “We are not seeing any major growth sacrifice,” he said.

However, concerns over economic growth are beginning to show.

Goldman Sachs Group Inc. has lowered India’s growth forecast for the ongoing calendar year by 20 basis points to 6.7 as government expenditure dropped 35 per cent during the April-June quarter due to general elections.

For 2025, the bank has projected a 6.4 per cent growth rate for India. The assessment is based on the Centre’s stringent fiscal deficit targets. 

Is India Growing Below Its Potential?

External member of the RBI’s monetary policy committee (MPC) Ashima Goyal has opined that though overall growth is resilient, it is still below potential.

“There are some negative signals for Indian growth also. Early results of listed private manufacturing companies show sales and profits softened in Q1 FY25. Consumer confidence fell and the business expectations index has been moderating since Q4 FY24,” she said at the latest MPC meeting.

The six-member RBI MPC has been split on India's growth assessment. Jayanth R. Varma, also an external MPC member said that data from various RBI surveys point to early signals of slowing growth.

"Expectations of robust growth depend heavily on an expectation that private capital investment will pick up soon. However, we have been hoping for this revival for many quarters now, and hope is not a strategy," he said. 

Chorus For Rate Cut To Push Growth Upwards

The chorus, spotlighting the need for a policy rate cut, is getting louder as well.

Last month, presenting the Union Budget this year, Finance Minister Nirmala Sitharaman said “India’s economic growth continues to be the shining exception and will remain so in the years ahead.”

While the government has been showcasing India’s steady growth rate and that it is among the fastest-growing emerging economies, experts said that the country needs to press the growth accelerator if it has to become “developed” by 2047.

Clearly, an average annual growth rate of about 7 per cent will not be enough for India to attain the developed economy status by 2047.

“The 7 per cent growth rate annually will not help us,” D Dhanuraj, chairman of the Centre for Public Policy Research, told The Secretariat.

“My understanding is that if you are growing by 7 per cent every year, your per capita income will be about US$ 14,000 by 2047. With that kind of average income, you are nowhere near being a developed country,” Dhanuraj told The Secretariat.

Between 2000 and 2010, China registered an average growth rate of over 10 per cent with a focus on micro, small and medium enterprises (MSME), exports and real estate among other sectors.   

According to a presentation made by Chief Economic Adviser V Anantha Nageswaran, India’s per capita income in 2023-24 stood at US$ 2,500 or Rs 2.12 lakh.

Dhanuraj said that the per capita income with inflation adjustment needs to be much higher than US$ 14,000 if India has to become a developed economy by 2047.  

He underlined the urgent need for the government to be 'ambitious' in its policy-making if it wants to attain the developed nation status by 2047.

“We have to help our lower and lower-middle class to earn more,” Dhanuraj said, adding that the focus should be on large-scale employment generation while second-generation reforms, especially in key sectors such as agriculture and labour, need to be brought in at the earliest.

At present, the government is doling out about 80 per cent subsidy for several centrally sponsored schemes including PM Kisan Samman Yojana and Udyami Mitra among others.

“That subsidy amount must come down,” Dhanuraj said. He said both rural and urban demand need to be further boosted. The focus has to be on large-scale employment generation and the MSME sector. 

Sitharaman in her budget speech said that the government will chart out an Economic Policy Framework to delineate the overarching approach to economic development and set the scope of the next generation of reforms for facilitating employment opportunities and sustaining high growth.

“This needs to be taken up on a priority basis,” another analyst said. Goyal in her MPC statement also noted that though India’s growth rate is high, it has to rise to its full potential.