Introduction

India’s economy is witnessing strong domestic demand supported by lower income tax and GST rates, easing inflation, a healthy monsoon, and lower interest rates. However, external uncertainties, high U.S. tariffs on Indian exports, and weak goods-export momentum pose headwinds. While consumption, services exports, and government capital expenditure show strength, India’s long-term growth will depend on sustained job creation and rising household incomes.

Why in the News? 

India’s domestic demand is rebounding strongly due to lower income taxes, GST rationalisation, easing inflation, and a good monsoon, marking a sharp contrast to earlier quarters of weak consumption. The IMF upgrading India’s GDP projection for FY25-26 from 6.4% to 6.6% signals strong resilience despite external headwinds. However, goods exports face pressure from U.S. reciprocal tariffs, and income growth has not kept pace with consumption, making it crucial to assess how India can sustain growth without widening inequalities.

What is driving the current revival in domestic demand?

1. Lower income tax & GST rates: Supported domestic demand as rationalisation reduced consumer burden.
2. Good monsoon: Enabled agricultural stability, boosting rural purchasing power.
3. Lower inflation & interest rates: Created favourable consumption conditions in the first half of the year.
4. Higher government capital expenditure: Surged by 40%, strengthening infrastructure demand and pushing growth.
5. Higher disbursements by Food & Public Distribution: Supported rural consumption and safety nets.

How is India’s export performance shaping up?

1. Non-oil goods exports grew 7% in the first half of the year, with overall goods exports rising 10%.
2. Electronics exports increased 10% in the same period, indicating success of PLI-supported segments.
3. Items like gems & jewellery, carpets, leather slowed due to global weak demand.
4. High U.S. tariffs: India’s exports to the U.S. are facing pressure, especially textiles and electronics.
5. Risk of global consolidation: Export growth may moderate due to volatility in global capital flows.

What is the role of India’s services exports?

1. Services remain the big buffer: Annual growth projected at around 10%, providing stability.
2. IT services: Still robust despite global slowdown.
3. Travel, transport, logistics, professional services: Showing strong expansion post-pandemic.
4. CAGR of services exports (FY20-FY25): Strong performance contributed substantially to overall GDP.

Why is investment activity picking up?

1. Government capital expenditure +40%: Major driver of infrastructure formation.
2. Private sector investment: Modest but improving, with pickup in power, cement, construction, pharma, and logistics.
3. Lower interest rates: Created enabling conditions for investment in the second half of the year.
4. High forex reserve ($690 billion): A comfort factor for foreign investors.

Why must jobs and household incomes grow now?

1. Strong consumption without matching income growth is unsustainable.
2. Sticky unemployment risks weakening domestic demand.
3. Labour-intensive sectors (textiles, leather, small manufacturing) face export pressure due to high U.S. tariffs.
4. Structural reform need: India requires higher household income growth, MSME support, and labour-market reforms to sustain growth.
5. Long-term challenge: Services-led growth creates fewer jobs, while global slowdown limits export-driven job creation.

Conclusion

India’s growth momentum is increasingly anchored in strong domestic demand supported by rationalised taxes, a good monsoon and inflation moderation. However, sustaining this trajectory requires broad-based income growth, job creation, and resilience in export sectors affected by global uncertainty. Without strengthening labour-intensive sectors and expanding household purchasing power, India’s growth revival may lose steam.

PYQ Relevance

[UPSC 2015] The nature of economic growth in India in recent times is often described as jobless growth. Do you agree? Give arguments in favour of your answer.

Linkage: Such articles recur because growth-jobs imbalance is a persistent structural issue in India, making it a favorite UPSC theme. The article directly reflects the GS-3 question on “jobless growth” as consumption rises but employment and incomes lag. It helps analyze why India’s recent growth remains demand-led but not job-led, a core UPSC economic concern.

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