The Indian economy faces a growth slowdown as it enters 2025. GDP growth has declined in four out of the last five quarters, falling from over 8% in mid-2023 to less than 5.5% by September 2024. High-frequency indicators confirm this trend, despite measurement issues in official data.
Consumption demand remains subdued, especially in urban areas, leading to weak private investment. Government investment has been propping up demand but will soon face fiscal constraints. However, India has a major opportunity to boost growth through exports.
India’s share in global goods exports is less than 2%, much lower than its 4% share of the global economy. Increasing export share to 3% over the next five years could add more than 1 percentage point to annual growth. Many multinational companies are looking to move out of China, and India is seen as the next best alternative.
Boosting India’s export potential
The government has launched the Production Linked Incentives (PLI) subsidy scheme to attract foreign direct investment (FDI) in manufacturing. However, results have been disappointing so far, with inward FDI stagnant at $66 billion last fiscal year and only one-fifth going to manufacturing.
Average year-on-year growth in goods exports was just 4.5% from March 2022 to September 2024. To seize this opportunity, India needs a well-defined export-led growth strategy focused on minimizing risk and policy uncertainty. This includes a consistent trade policy without frequent changes in tariffs or bans, re-liberalization of the foreign trade regime, a market-responsive exchange rate, and a level playing field for all firms.
Transparent and predictable policies are crucial for attracting long-term investments from both foreign and domestic firms. India faces a historic opportunity to achieve rapid growth by increasing FDI and raising its share of global goods exports. Predictability and certainty on the policy front, along with a reorientation towards a free-trade mindset, are urgently needed for this growth strategy to succeed.
Failing to seize this opportunity could be costly for India’s aspirations to become a developed economy by 2047.
