India's economic growth on track; job creation, tepid household spending remain a concern, say economists

The Indian economy is expected to grow at a solid pace in the financial years 2024-25 and 2025-26, according to a Reuters poll of economists. However, they cautioned about inadequate job creation and household spending, the key growth drivers that are estimated to increase only mildly over the next year, the news agency reported on Monday, October 28.

Up to 15 out of 28 respondents said job creation would increase only mildly, and 9 out of 28 said that it would remain the same. 

India's economy recorded 8.2 per cent growth in the last financial year, driven by years of government spending. However, the nation failed to create enough well-paying jobs for millions entering the workforce every year, according to the report.

Private investment in India failed to pick up significantly in the last 10 years, and millions of job seekers still wait for government jobs, according to the report.

The economist in the poll attributed the weak household spending and the lack of reforms from the government as the factors to soften private sector investment and job creation. They suggested that these benefits are increasingly directed to only a select few. 

India's economic growth

India's economic growth was estimated to slow down to 6.9 per cent in the current financial year, which was a little lower than the International Monetary Fund (IMF) forecast of 7 per cent, and decline to 6.7 per cent in the next financial year and to 6.6 per cent in the financial year 2026-27, as per the news agency's poll.

As many as 48 economists took part in the poll conducted between October 21 and October 28.

“For economic growth to take off, consumption needs to see an upturn,” Aditya Vyas, chief economist at STCI Primary Dealer Limited, was quoted as saying in the report.

Vyas said that deeper issues like job creation and the level of private investment need to be addressed; otherwise, it will not go above the average trend. 

The growth picked up a little to 6.8 per cent in the previous quarter, compared to 6.7 per cent in the April to June quarter. It was expected to rise to 7 per cent this quarter and next, in line with the long-term growth trend.

The economy needs to consistently grow over 8 per cent for a long period of time to create adequate jobs, according to most economists in the poll.

“With manufacturing struggling especially the MSMEs (Micro, Small, and Medium Enterprises), we do not expect any major improvement in the employment scenario in India,” Kunal Kundu, India economist at Societe Generale, told the agency through an email response.

A modest employment scenario, inadequate job creation and still-negative real wages indicate only a modest growth in employment going forward, Kundu said. “Consumption will likely continue to remain weak. This is a period of consumption normalisation as the phase of pent-up demand is over,” he said. 

Consumer spending 

Consumer spending makes up 60 per cent of the economy, and it has picked up in recent times. Rising inflation is forcing millions of households to reduce their purchase of food items and tap into their savings to stay afloat, suggesting consumption will slow over the coming months.

Up to 19 out of 28 respondents said that private consumption in India will increase mildly in the next 12 months, while five said that it is expected to remain the same.

“There will be some cyclical recovery on private consumption. However, a large part of this increase is likely to come from a recovery on the rural demand side, which so far has been muted and was a big drag on consumer demand,” Sakshi Gupta, principal economist at HDFC Bank, was quoted as saying in the report.