India’s 2025 Economic Strategy
India’s economic policy in 2025 focuses on boosting household consumption to sustain growth. Other growth engines like private investment and net exports face challenges. Government spending remains strong but cannot carry the economy alone. This shift aims to raise India’s growth rate beyond 6.5% towards 8% or more.
Recent Economic Context
Government capital expenditure has grown rapidly post-pandemic but will moderate. Infrastructure investments continue, supported by interest-free loans to States. Private investment is increasing but not fast enough to meet growth targets. Net exports suffer from global trade tensions and high tariffs, especially from the US. Thus, demand from abroad weakens while domestic consumption becomes vital.
Role of Household Consumption
Household consumption forms the largest part of India’s GDP. It is less affected by global uncertainties compared to exports or investments. However, consumption growth is slow due to limited income growth and cautious spending habits. To accelerate consumption, incomes must rise and prices should fall.
GST Reforms to Lower Prices
New GST rate reforms effective September 2025 reduce tax burdens on many goods. Over 75% of rural expenditure now attracts either zero or 5% GST, up from 56%. For urban consumers, the coverage rises from 50% to two-thirds. This lowers prices and encourages spending, especially in rural areas.
Income Tax Cuts and Disposable Income
Income tax reductions in the 2025 Budget aim to increase take-home pay. While helpful, this alone may not boost consumption. People tend to save extra income rather than spend it immediately. Larger wage increases are needed for a stronger impact.
Challenges in Wage Growth
India has an oversupply of labour, limiting wage growth. Skill shortages also restrict productivity improvements and higher pay. Without addressing these, wage increases will remain modest, constraining consumption growth.
Need for Private Investment
Private investment must rise to complement consumption-led growth. Industrial capacity utilisation has stayed below 80% for over a decade, indicating room for expansion. But higher demand is required to justify increased investment.
Global Trade and Export Issues
Indian exports face headwinds from global uncertainty and protectionist policies. The US imposes tariffs up to 50% on some Indian goods. This reduces export competitiveness and limits net export growth as a source of economic expansion.
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