Promises and pitfalls: The fast growth scenario
Key indicators including Goods and Service Tax (GST) collection, Purchasing Managers Index, export orders and monsoon forecast bode well for India. Is this trend sustainable? Can it push growth? What policy measures are needed? And what can come in the way?
Yes. A bunch of data released last week indicates an economy that is robust despite global headwinds. Gross GST collections in April at
₹
2.37 trillion was a record, 12.6% more than the same month last year. This indicates that revival in domestic consumption, especially rural demand, is gathering pace. The HSBC India Manufacturing Purchasing Managers' Index (PMI) rose to 58.2, the highest in 10 months. While confirming strong domestic demand, it also revealed that export orders grew at the fastest pace in 14 years. In FY25, non-petroleum merchandise exports reached an all-time high of $352.9 billion.
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The India Meteorological Department (IMD) forecasts above normal Southwest monsoon. That is good news on two fronts. One, this will mean higher agricultural output and consequently lower food prices. Lower inflation will allow the Reserve Bank of India (RBI) to cut interest rates faster. Secondly, prospects of a good monsoon will accelerate the revival in rural consumption. And
urban
consumption could improve due to a mix of income tax breaks, lower inflation and cheaper borrowing costs. An appreciating rupee and falling oil prices will reduce India's import bill and ease inflation further.
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There is a sharp increase in export orders, linked to the improvement in the PMI. This is due to businesses scrambling to get their orders to the US before its 90-day pause on tariff hikes ends on 9 July. And companies like Apple are re-aligning their supply chains to source more from India on a long-term basis as the US-China trade relationship worsens.
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India has been in talks to conclude trade deals with many countries such as the US, UK and European Union. Talks with the US are at an advanced stages. Successful conclusion of these talks will offer India a significant competitive advantage to tap large export markets. Continued focus on fiscal consolidation will also help. A narrower fiscal deficit will free funds for India Inc. to borrow at a lower cost when it seeks to expand capacity. These measures will eventually boost private investment and accelerate growth.
Tension has risen between India and Pakistan after the Pahalgam terror attack. As India weighs its options to retaliate, a sustained and full-fledged response could scare away investors and hurt economic growth. Also, it is not clear how US President Donald Trump will act when the tariff pause ends. The US economy has shrunk by 0.3% in the first quarter. The International Monetary Fund has not predicted a recession in the US, but the threat of one is real. India cannot escape a slowing US and global economy.
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