The Indian Economy: Current State and Challenges
The Indian economy is experiencing a favorable period, characterized by various government initiatives and economic indicators that suggest potential for growth. However, certain challenges remain that need addressing to sustain this positive momentum.
Government Initiatives
- Tax Reforms:
- Rationalization and reduction of Goods and Services Tax rates in recent times.
- Exemption for individuals earning up to Rs 12 lakh annually from income tax in the 2025-26 Union Budget.
- Reduction in corporate tax rates since September 2019.
- Capital Expenditure:
- Increase in government capital expenditure on public infrastructure from Rs 3,35,726 crore in 2019-20 to Rs 11,21,090 crore in the current fiscal.
- Investment Schemes:
- Production Linked Incentive Scheme and India Semiconductor Mission attracting investments, especially in mobile manufacturing, with exports worth $24.1 billion in 2024-25.
Banking and Corporate Sector Health
- Indian corporates have reduced debt levels, resulting in improved debt service and debt-equity ratios.
- Commercial banks have achieved low gross and net non-performing asset ratios.
- The twin balance sheet problem that hindered growth is largely resolved.
Economic Indicators
- Low consumer price inflation at 2.1% overall year-on-year, with a negative 0.7% for food in August.
- Soft interest rates and increased credit availability conducive to investment and spending.
Challenges and Concerns
- Private sector reluctance to invest and spend despite favorable conditions.
- Possible reasons include:
- General uncertainty over demand and job security.
- Geopolitical disruptions and impacts of international tariffs.
- Flagging "animal spirits" suggest a need for policy stability rather than quick-fix solutions.
