Is India getting richer or struggling in its growth story? Wisdom Hatch founder Akshat Shrivastava, in an article on X, unpacked the mixed signals in India’s economy.
On the one hand, India is poised to become the world’s fourth-largest economy by GDP, overtaking Japan this year.
On the other hand, nearly 800 million citizens depend on free rations, household economies are at historic lows and the rupee has depreciated to its lowest levels.
India’s GDP growth, a key indicator of economic health, is showing troubling trends, he writes.
“Since 2019, our average real GDP growth rate has hovered around 6%, which is concerning for a growing economy of India’s scale,” says Shrivastava. By comparison, China grew at double-digit rates during its peak growth phase.
Private spending, which accounts for 60% of India’s GDP, is slowing. Over the past five years, its growth has averaged just 4.8%. “High taxes and declining household savings are key contributors to this slowdown,” he notes. India’s savings-to-GDP ratio is now at a 50-year low, leaving less disposable income to fuel economic growth.
Foreign investors are also sending mixed signals. While foreign direct investment (FDI) inflows rose 26% in the first half of FY24-25, net FDI – a more accurate indicator after accounting for outflows – fell to a low of 12 years old. “This indicates that foreign investors are not betting on India’s long-term prospects,” warns Shrivastava.
A weakening rupee should, in theory, attract FDI as investors can buy more with their foreign currency. However, even with the INR increasing from 54 to 86 against the dollar over the last decade, the participation of FDI and foreign institutional investors (FIIs) has declined. Shrivastava points out, “Domestic consumption alone cannot generate massive growth. Real growth requires foreign investment or the export of goods and services. »
To reverse these trends, Shrivastava suggests tax cuts and better tax policies. “Tax rationalization is necessary to broaden the base beyond the current level of 2%. This would propel markets, increase consumption and encourage growth. »
His advice to investors? Diversify globally, invest in high-growth sectors like AI and semiconductors, and prepare for a high-inflation environment. “Your wealth is in your hands.”
