Slow but Steady

Contrary to global fears of recession, India's slowdown is a self-correcting phase, with strong fundamentals, robust exports, and steady growth ensuring resilience amid geopolitical uncertainties and fiscal challenges

- KDP RAO

In common parlance, a slowdown is often misunderstood as a prelude to recession, while effectively, it is only a natural phase in every economy. Apparently, today, fears of recession are pushing investors to the edge as stock markets continue to plummet, reinforcing the inevitable. When falling GDP rates across nations, soaring inflation, and decreased consumer spending signify a slowdown, geopolitical tensions and trade wars add fuel to the 'fear'. Even as the World Bank and the IMF have long warned that global GDP will decline from 3.4 per cent in 2022 to 2.8 per cent in 2023, a sharp decline in the ISM Manufacturing Index to 46.80 in August last year, coupled with a three-year-high unemployment rate of 4.3 per cent in the United States, prompted economists to forecast a prolonged slowdown culminating in a recession.

In the Indian context, the slowdown is believed to be due to slower corporate investment and a weak manufacturing sector, which has retarded GDP growth to 6.4 per cent in 2024—the slowest in four years. Stagnation in wage growth has also led to a decrease in urban consumption, combined with high food inflation at 8.3 per cent. Morgan Stanley, the US-based investment bank, says that, among other factors, a substantial reduction in government spending—which accounts for 28 per cent of India's GDP—between April and September 2024 contributed to the slowdown. The IMF estimates India's Debt-to-GDP ratio (including state government debts) at 82.6 per cent in 2024-25. A reduction in FDI (from USD 85 billion in 2023 to USD 479 million in 2024), repatriation of funds, and outbound investments have further deepened fears of a slowdown, if not a complete recession.