I began this year by writing about the challenges facing India this year as Trump’s tariffs take effect and cause a global economic slowdown, from which India too will not be immune. Then in February 2025, I wrote about the Indian Union Budget which I thought was desperate to push growth, including by cutting taxes for the middle-class, which was quite unnecessary in my opinion. More useful would have been a lowering of GST, especially on cars, and a rationalization of indirect taxes across the board. I also wrote in February 2025 about the slower growth in India Inc’s corporate earnings and the need to innovate in order to grow their businesses and the economy.
We are now almost midway through the calendar year of 2025, and the recent set of corporate earnings reflect more of the same as in Q3 FY25, which I had written about earlier citing CMIE. For the latest March 2025 quarter, for which the count of companies analysed by CMIE is reasonably large, though not exhaustive, it seems that companies are still managing to control expenses and generate larger profit growth even as revenue growth is weakening. This seems to be even more accentuated in the case of non-financial companies, where revenue growth is slimmer, while profit growth is higher than the previous quarters.
There have been analyses in The Economic Times saying that for most companies, managing good profit growth was really about lower debt and finance costs, even as revenue growth was weaker. On the other hand, banks’ earnings show that revenue growth was more about higher other income than about improved net interest income. The latter is due to weakening credit demand in India, where credit growth has slowed to 12% from 16% a year ago.
I have been writing about the strange and noisy news flow in the Indian media regarding slowdown in consumption especially in urban India, etc. which I think is the mischievous work of unprofessional PR agencies in India. Even if there is a slight moderation in consumption in urban India, it could be that some of this is post-Covid normalization in spending. However, this is not borne out by the latest GDP numbers for India for Q4 FY25 and for the full fiscal year 2025. Both show a healthy growth in private final consumption, coming in at 6% and 7.2% respectively.
In fact, this is a good time to turn to the latest GDP figures announced at the end of May 2025 for the March 2025 quarter and for the full fiscal year FY25. Agriculture and services led the growth in the last quarter, with manufacturing slowing down considerably. However, this slowdown appears to be the result of a huge base effect, as is the growth in agriculture which too seems to be because of a base effect. However, coming to the GDP components of private final consumption and gross fixed capital formation, while the growth numbers look reasonably good, there seems to be a slight slowdown in the share of both as a percentage of GDP, when we look at them over several quarters. I discovered that GFCF seems to grow faster in the last quarter of every financial year, and even then, comparing the share of GFCF in GDP for the fourth quarter every year, one finds that it has reduced from the 34% level in Q4 FY23. Private final consumption growth tends to be higher in Q1 and Q3 of every year from what I see in the MOSPI tables. But its share in GDP has reduced even more pronouncedly, from 54.75% in Q4 FY23 to 53.68% in Q4 FY24 and to 52.96% in Q4 FY25. Even for the full fiscal years, private consumption’s share in GDP has slid from 58.1% in FY23 to 56.1% in FY24 to a slight improvement of 56.5% in FY25. Of course, one needs to compare these across many more quarters and years to see a clear trend, and perhaps even with pre-Covid years, but we should not allow the shares of private consumption and gross fixed capital formation (especially by companies) to slide lower. As it is, we can see from the chart below that I am sharing from MOSPI’s (Ministry of Statistics and Programme Implementation) website, that India has just about managed to recover and grow its economy at the 2018-19 level, when too it grew at 6.5%.
I say this because we are a large domestic economy and it ought to be able to generate enough consumption and investment demand on its own. We cannot and should not depend too much on exports to grow our economy, though we can control and reduce our imports especially of gold! In fact, the GDP for FY25 is reasonably good at 6.5% though much slower than FY24’s 9.2% because our exports have grown this year by 6.3% compared to 2.2% last year, but more importantly, because our imports have fallen considerably from 13.8% in FY24 to -3.7% in FY25. There are a couple of strange components of GDP called changes in stocks which, for some reason, surged last year by 53.4% and collapsed to growth of only 4.5% in FY25 and valuables which also grew by 14.4% last year and by only 0.6% in FY25. I am not sure if the former term refers to inventory or anything else, and if the latter term refers to the amount of gold reserves in the country, but these two account for around Rs 5 trillion!
In the middle of all this, it was also being reported on media that India has become the fourth largest economy in the world by overtaking Japan in GDP terms. Even if it has later been clarified that this will have to wait many months, the point is how can we even compare India’s economy with any of the other developed economies that we have overtaken in recent years? Look at the living standards and the quality of life in France, UK and Japan and you know immediately that this comparison is very misleading and that India has plenty of ground to cover before we can match some of these advanced economies.
This developed nation status is what India should be focused on, not merely in rhetoric but in policy actions. Instead, the latest conflict between India and Pakistan over the terror attack at Pahalgam, ‘branded’ Operation Sindoor has taken up all of our time, attention and energy. The military conflict was over in four days, but the conflict continues to occupy our leadership’s minds. 59 of our MPs were sent on a diplomatic mission overseas when they should have left it to diplomatic channels and should have been focusing on domestic policies instead. And the Prime Minister is addressing rallies in various states on this to make political capital of it at home.
Let me say quite clearly that this is all a waste of time, and that we should focus our minds now on economic policies that India needs urgently. What are we planning to do in response to Trump’s tariffs? There is talk of a trade negotiation on with the US, but no media reports on the details of what is under negotiation. Surely MPs in Parliament ought to be concerned about this and this needs to be discussed more widely. I hope we are able to keep our long-term strategic interests in mind and negotiate hard on what would benefit our country and make us more productive and competitive.
Next, what about working harder on the China+1 strategy this time around considering we missed the boat in Trump’s first term? While there is a lot of discussion in media on India becoming part of the global supply chain, I wonder if this is all there is to our China+1 strategy. Global supply chains are themselves being disrupted by Trump’s policies, so whose supply chain are we joining?
I would think that a more comprehensive strategy would be to attract foreign companies’ investment in India because of the large size of our market and the potential it offers for growth. In addition, companies – both Indian and foreign – can look to export from India, but we cannot and should not make exports and integration into global supply chains our only focus. We must work towards increasing the potential and the rewards of investing in India rooted in India’s domestic economy. And to make this a reality, we have to seriously upskill our workforce and upgrade our education and career systems.
In the context of our domestic economy, it was widely expected in a poll of economists by various media organisations that RBI would cut interest rates for a third consecutive time by 25 basis points. I was surprised to hear this and thought that with good economic growth in the last quarter and the previous fiscal year, there was no need to lower interest rates right now. Better to pause this time and keep the ammunition ready for when there are clear signals of a serious slowdown. Well, not only has the RBI cut interest rates, it has done so by 50 basis points (half a percent). What’s more the RBI has indicated that it will cut CRR (cash reserve ratio) by a full percentage point in four tranches later this year., which happens to be timed with India’s festive season. I am afraid that this will fuel a rise in consumer price inflation once again, when seen in conjunction with the middle-class tax breaks that the FM has so generously provided under the new tax regime, and also the rise in MSP of various agricultural crops announced recently. There is really no need for such accommodative monetary policy, along with fiscal policy at this time, since India is not facing a serious slowdown yet. If the idea was to make banks improve their lending, it might have been better to cut the SLR (statutory liquidity ratio) or the amount that banks are expected to invest in government bonds, especially since banks are reported to be earning more through other income. Then again, credit demand is reported to be weak. I suspect these policies are all being made under the influence of unprofessional PR agency idiot bosses who should be booted out of the industry.
India Inc also has to innovate much more and invest in R&D to upgrade the kinds of products and services we offer to customers in India. I had written about innovation inertia in my last blog post on the Indian economy, and there is so much more we can do to estimate the size of various market segments among the consuming middle classes more accurately, and I have been mentioning the critical role that NCAER can play in all this. I mentioned the importance of growing volumes, especially in a large market such as India, as maintaining profitability and market share has its limits. This is what I think ails India’s consumption story, where we haven’t explored new avenues of growth and we are still largely an under-penetrated market for most CPG products and for consumer durables as well. Volume growth doesn’t have to come only from existing product lines and line extensions; when a company reaches the limits of this route, there are new product offerings to consider.
I was just thinking the other day about how nice it would be to have a good brand of shampoo, for example, that had hair colour in it, or colour rinses that are quite common in the West. Both have been around in developed countries for decades, but have yet to find their way into the Indian market. Then, instead of launching newer variants of toothpaste every few months or so, what if Colgate introduced dental floss in India? It would be a totally new product offering, and one that would improve oral and dental hygiene and care in India. It would require considerable concept selling and investment in communication, but I think it’s well worth it and would open up a new and growing market for the company. Here’s another one: a liquid starch that you just spray on clothes, while ironing them at home. This too has been around overseas for many years, but nobody has thought of bringing it or introducing it in India, where a large market exists for well-starched clothes and sarees.
These are all ideas that require no great R&D from MNCs since the product ideas already exist overseas, and would vastly improve the lives of consumers in very simple ways. I can see that the market in India is more than ready for new products of this kind and these offer companies a route to growing the market and their volumes. In fact, I often think that India Inc doesn’t do a very good job of convincing their overseas bosses of the potential for growth in the Indian market and the market being ready for new and innovative product introductions. But it’s not the MNCs alone who must consider new innovations and products to build and grow their business while also growing consumption in the Indian market. Indian companies too must endeavour to invest in R&D and innovate much more; the liquid starch spray/spritzer idea can be introduced by Marico who have the Revive brand of liquid starch already in India.
Another view prevailing in corporate circles is that India needs to grow exports and trade with other countries as this would help us build stronger brands, imbibe best practices from overseas, and generally become more competitive. I think this is just making lazy excuses for not building stronger brands today within the domestic market. While it is always good to grow our exports and trade, building stronger brands doesn’t have to wait for this and can and should work independently. It is true that exposure to international markets and allowing international companies to operate here in India would certainly up the focus on marketing and on building differentiated brands, but it is not dependent on it, as I say.
Take the example of Titan watches which has seen competition grow from international brands that are now in India, but hasn’t done enough, in my opinion, to raise the quality and performance of their products and has done even less in communicating a clear and differentiated positioning that can compete with international brands. It was Ogilvy in India, where I worked in two stints at their Delhi office, that helped build the brand in the late 1980s, when it became a good alternative to international brands of wristwatches. Now that many of those international brands are here, I don’t think Titan has stepped up its efforts to actually take them on and position itself as an international brand as well. This is a pity, since I think the company is quite geared up for the task and don’t know what they are waiting for. I have yet to share my thoughts on Titan’s brand strategy and communication ideas that I lost to termites ages ago at my aged parents’ place in Goa. But I am sure that this doesn’t have to wait for exports or for more trade, or for best practices to flow to India from elsewhere.
Indian companies ought to raise the level of their product offerings, the quality of their products and customer service across the board, even with all the competition we already have here in India. And, as I have just written, think up new product categories and ideas and innovate, as many parts of the Indian market are ready to consume new products and brands. Differentiation and growing new markets for consumption in India is where India Inc can make a big difference in growing their own businesses and the Indian economy.
This will have a positive impact on the way international companies also see India as a growth market and will hopefully increase their participation and expansion as well in India. Time for India Inc to become much more innovative, competitive and dynamic. Time for us to think through Trump tariffs, diversify our export markets, and pursue a China+1 strategy that is based on India’s long-term potential as a market.
The featured image of the Powai Lake area in Mumbai at the start of this post is from Pixabay.
Peripatetic Perch 