At the start of the new year as we wait for corporate earnings season to begin again, I thought it might be worth spending some time thinking about where the Indian economy is headed in 2025 and beyond. We tend to focus on headline GDP growth of the economy all the time, but rarely look beneath the surface to see what is actually going on in people’s lives, employment, consumer spending, productivity, wages and so much else.
While Q2 FY25 GDP growth in India was disappointing reflecting a sharp slowdown to 5.4%, and our finance minister said that this is a one-month blip, there are already media reports of Q3 GDP growth also likely to come in muted. Some of Q2 GDP growth slowdown was attributable to base effects from the previous year, but there was enough to raise legitimate concerns about the economic data. If Q3 FY25 – which ought to comprise the main festive season economy in India – also sees slow growth, we ought to seriously examine the reasons why and try and remedy them.
In my previous blog post about innovations, I had written that we should focus on solving some critical conundrums in India which are key to economic growth. For example, the size of India’s middle classes, both urban and rural ought to be estimated properly by NCAER and regularly done, as was once the case years ago. Recent media reports about urban consumption declining and rural consumption growing looks more like unprofessional PR agency idiot bosses’ mischief to me, in cahoots with, and pandering to, their cronies in RK Swamy/BBDO Chennai.
Revival in rural demand is something to be appreciated and this is indeed good for FMCG and automobile companies especially makers of two-wheelers and farm equipment. However, those of us who have been following the Indian economy for decades ought to also know that rural demand in India is always seasonal, volatile and unstable, based as it is on precarious employment and livelihoods, low wages and little to no opportunities for growth on a longer-term basis. However, rural employment which comprises agriculture mostly, is still large and considerable at around 50% to ever be ignored.
This has been India’s Achilles heel. That agriculture and allied activities are not remunerative enough to support people’s lives and growth, and yet nearly half the country’s population depends on this sector. This is a conundrum we must address properly and take steps to resolve in 2025, as it has been an age-old chronic problem and drags down our economic growth potential.
I think our unemployment is a structural one and this is perhaps why it has plagued us for decades. It has to do with lack of adequate education opportunities for everyone, especially in rural India and those who work on farms. While we must keep investing in better education at the primary and secondary levels in India’s hinterland, we must also make sure that there is a proper plan to generate better quality jobs for them. Instead, what we have is MNREGA. It is good as a stop-gap measure and something for rural and semi-urban poor to fall back on when there is no work in farms or in cities. In fact, in recent years especially post-demonetisation and in the Covid-19 pandemic, it has been observed and reported that many workers even from towns and cities flocked to MNREGA when they lost their jobs.
But MNREGA is a poor job creator, since that is not what it was intended for. What is needed in my opinion is a systematic way of getting more people out of agriculture, particularly the landless farmers and labourers, into better paying and more secure employment in manufacturing and services. And I think that repurposing our employment exchanges – which I am surprised to learn still continue to operate – with the chief objective of shifting poor rural labour into better jobs in manufacturing and services might be a good idea. This would have to be a concentrated effort by all state governments for the next five to ten years with adequate investments and well-trained officers for the task. I think that all those who are given MNREGA job cards must be required to also register with the state’s employment exchange. This way states will be able to develop and maintain a proper database of all those who are unemployed/underemployed and can be trained or skilled for jobs in areas other than agriculture. They must then, of course, be directed to small and medium industries as well as businesses in the service sector for training and for job opportunities. In other words, job creation cannot be left to the private sector alone; government must play an enabling role in identifying the needy and helping them shift to better job opportunities.
Related to this is the problem of creating adequate and better paying jobs in the private sector. Even with all the push on manufacturing through PLIs, we have not been able to create enough jobs nor better quality and better paying jobs either. The reasons are many. I would imagine chief among them are the kinds of industries being encouraged to invest, which are capital intensive and employ automated technologies, requiring fewer workers. Then, there is the problem of not enough adequately trained workers to fill these jobs in high-tech manufacturing, and also the phenomenon of rising dependence on contract labour. So, I suspect – though I have no data to corroborate my view – that manufacturing and all of industry has been hiring people from the same pool of semi-skilled and skilled labour that exists in towns and cities. This pool of labour too is stagnant, not just in wages but in numbers as well. So, all the job creation that is happening in manufacturing and construction is perhaps simply rotation of labour within the same pool. Neither is this pool of urban semi-skilled/skilled labour growing, nor are we reducing the rural labour’s dependence on agriculture. This is the structural bind that leads to jobless growth and worsens prospects for millions of Indian men and women, and one that we need to get the country out of, soon.
The Indian Economic Survey 2023-24 mentions in the preface, citing The Annual Survey of Industries, that the total number of factory jobs grew annually by 3.6% between 2013-14 and 2021-22, with factories employing more than 100 workers growing at 4%, while those employing less than 100 workers growing by 1.2%. And that in absolute numbers, employment in Indian factories has grown from 1.04 crore to 1.36 crore in this period. This is bound to be the case since the period chosen for consideration suffered demonetization as well as the Covid-19 pandemic, when large businesses were not impacted the way small businesses were, many of which shuttered down.
There is no granular data or statistics on the kind of employment even within manufacturing, by which I mean how many workers in what type of industries including high value-added and high-tech manufacturing and where employment growth is higher and lower. This is as critical to know from a policy perspective, as merely the number of people employed in a factory. I went searching for this kind of data on Indian manufacturing online and I must say that even the ILO has only PLFS survey data, provided by the Indian government, on which I have already shared my views in an older blog post (more in the postscript below). When I visited the MOSPI website for the Annual Survey of Industries 2022-23, the page featured a summary document in Hindi!
Key to solving the unemployment conundrum in 2025 is the encouragement and growth of our MSME sector in industry and in services. Hundreds of thousands of small and medium businesses are the biggest employment generators in India, even if much of it is in the informal sector. As I said earlier, employment exchanges need to coordinate better with these MSME companies as well in order to find better employment opportunities for millions of agricultural workers. I have written before on my blog on how India can help MSME’s grow, prosper and how they are also key to formalizing the Indian economy.
Next to solving the unemployment problem and helping MSMEs in 2025, is the issue of India being able to leverage the China+1 strategy and getting it to work this time. Here, I think we need a set of economic policies that is focused on attracting foreign companies – including Chinese companies – based on long-term growth of India as an investment destination for high value-added manufacturing and trade with the rest of the world. If we decide to make a go of it this time, we must also boost our trade especially with ASEAN and East Asian countries. We hardly trade with these countries at the moment, despite signing an FTA with ASEAN in 2011 and have also chosen to be out of RCEP.
It might make sense to invite Chinese investment in certain industries as joint ventures with Indian firms, where we can gain knowledge and technological expertise such as in EV batteries or solar panels, for example. Rather than our EV manufacturers having to import Chinese EV batteries as they do now, Indian companies could gain technical know-how and allow the technology to diffuse through the Indian economy, so more Indian firms can manufacture these and become competitive in them.
Media reports mention the Indian government’s keenness to attract more manufacturing investment in electronics components and it is possible that the forthcoming Union budget might give us a clearer indication of it. I think this might be in order for us to integrate better with global supply chains, though we must remember that supply chains are the ones likely to be hit hardest by Trump’s tariffs, especially if they are channeled to the US. We must approach this much more carefully so as to not fall into either the US camp or the China camp, and also be strategic in what kinds of electronics components India can become competitive in. If it works out well for India, it might help to boost employment as electronics components manufacture is reported to be labour-intensive and of the high value-added kind.
As corporate earnings start trickling in in India, we will have a clearer picture of how the Indian economy is faring. The first advance estimates of GDP growth for India for the full year FY25 have been announced and it is lower than most GDP estimates issued until now, including RBI’s. Weak urban consumer demand will reflect in corporate earnings as we go forward. I happened to see FADA automobile retail sales numbers for December 2024 on CNBC TV18 news, but cannot find an online news report with the details. However, here is FADA’s report that Google served me which shows that retail sales of two-wheelers in December 2024 are down the most on a year-on-year basis, followed by commercial vehicles and passenger vehicles. Less surprising is that the fall in retail sales month-on-month in December 2024 is even steeper, perhaps because this is post-festive season buying.
Credit growth from banks in India is modest I think from what one reads in the papers and it appeared that for the past couple of quarters at least, deposit growth was improving. Whether this suggests that Indians at least in urban India are saving more than normal is something that the banks will have to tell us in their management commentary during earnings calls. At the same time, media reports of RBI’s stress tests for banks seemed to raise concerns about worsening asset quality especially among private sector banks. I have also noticed during corporate earnings season for the past couple of quarters that private sector banks in India have seen their asset quality worsen or stay high. This is indeed a serious concern, as for decades it was our public sector banks that were saddled with bad loans thanks to large infrastructure projects in the country. Some media reports also mention that it is higher unsecured lending – by which I understand credit card spending – that is causing a problem for banks. This doesn’t suggest weak consumer spending to me and one must therefore look at what urban Indian consumers across the various middle classes are spending on, in a much more detailed and nuanced way.
All sections of the Indian economy, from businesses to government – both states and the centre – need to think strategically and act decisively to be able to overcome the headwinds that we are likely to face in 2025 and the years ahead. We also need to prioritise meaningful and sensible innovation of all kinds, in order to make the most of these challenging times.
Postscript: I must mention that while searching ILO’s website for manufacturing labour statistics as I write in my blog post, I found a page with figures that are not merely inaccurate, but full of the same unprofessional PR agency mischievous meddling. Take a look at the share of employment in agriculture, industry and services in India! And don’t miss the Go to Explorer tab. These take you to the PLFS survey data.
Please note the image used for the India page, which also reeks of unprofessional PR agency idiot bosses’ mischief. For years, they have been doing mischief with sailor shirts, including getting nonsense written about it. And, of course, we have here once again their two women narrative and nonsense, which too they have been using to achieve their hidden, toxic and unprofessional agenda.
After all their nonsense with OECD where they got advertising clubbed with veterinary sciences, we have more non-stop mischief of theirs not just in India, but with international organisations and I suspect even with foreign governments, who knows! Such idiots ought to be booted out of the corporate world.
Peripatetic Perch 