What is India's projected economic growth rate?

India's economy is projected to grow at 7.4% for the financial year ending March.

How has Prime Minister Modi's economic policy impacted India's debt?

Modi's policy of increased infrastructure spending has led to a rise in India's debt-to-GDP ratio to 81%.

Why is private investment low in India despite high growth?

Low private investment is linked to the government absorbing available credit, leading to higher interest rates and discouraging private sector borrowing.

Home / Business and Economy / India's Economy: Shimmering Growth Hides Fiscal Danger

India's Economy: Shimmering Growth Hides Fiscal Danger

19 Jan

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Summary

India projects 7.4% growth, yet faces a crucial fiscal decision.
Government spending doubled, driving debt to 81% of GDP.
Private investment remains low, creating a growth dependency cycle.

India's Economy: Shimmering Growth Hides Fiscal Danger

India's economy is projected for a robust 7.4% growth in the current financial year ending March. Despite this impressive figure, Prime Minister Narendra Modi faces a significant decision regarding the nation's economic policy direction. For over a decade, his administration has balanced fiscal restraint with substantial infrastructure investment. However, current economic conditions suggest this dual approach may no longer be sustainable.

The economy exhibits a "Goldilocks phase" with low inflation and manageable deficits, yet private investment remains surprisingly subdued. This has led to a structural shift where the public sector, specifically federal government capital spending, has doubled its share of GDP since 2014. Consequently, India's debt-to-GDP ratio has surged to 81%, a sharp increase from when the current government took office. This situation has resulted in higher interest rates and discouraged entrepreneurial activity, creating a self-reinforcing cycle of capital scarcity.