Indian economy is experiencing a noticeable decline, with economic growth falling to a seven-quarter low level.
India’s Q2 FY25 GDP data revealed that the country’s economic growth had slowed, sinking to a seven-quarter low of 5.4%, significantly down from 8.1% in the prior year’s equivalent period and 6.7% the previous quarter.
The manufacturing sector has been particularly affected, with growth slowing to 2.2%. Unfavourable factors such as weather-related events, financial market volatility, and geopolitical tensions have added to inflationary pressures. Former Reserve Bank of India Governor Shaktikanta Das has highlighted these challenges, noting that rising protectionist tendencies could further undermine global growth and increase inflation.
India has exhibited a few protectionist tendencies in recent years. Thus, the average applied tariff rate in India has risen by nearly 25% over the past decade, reaching 11.1% in 2020-21. The government has also imposed higher import duties on a range of products, including electronics, textiles, and industrial goods, to promote the “Make in India” initiative and reduce reliance on foreign imports, as well as introduced bans on certain food items, such as wheat and rice, aiming to stabilize local markets.
Although these protectionist policies are designed to bolster domestic manufacturing and address trade imbalances, they have raised concerns about potential negative impacts on trade openness and economic growth. Some of the consequences have already been evident. For example, import restrictions led to increased prices for goods which rely on imported components, with consumers bearing the burden of higher costs due to limited competition from cheaper imports. Domestic industries depending on imported raw materials or intermediate goods also faced higher input costs, impacting their profitability and competitiveness.
Besides, higher costs for domestic manufacturers made some Indian exported goods less competitive in global markets. Moreover, reduced access to high-quality, affordable imported machinery and technology hindered efficiency gains, slowed the adoption of cutting-edge technology, and discouraged foreign investment and innovation, further slowing economic growth.
Local Micro, Small, and Medium Enterprises (MSMEs) are feeling the slowdown impact the most, due to rising costs, weak demand, and limited access to affordable credit. Meanwhile, these are exactly the same enterprises which constitute the backbone of the nation’s economy, generating about one-fourth of the country’s total manufacturing output, 22 crore jobs, and 40% of exports.
As MSMEs play a crucial role in India’s economy, their challenges are impacting the broader economy, highlighting the need for supportive measures to address rising costs, stimulate demand, and improve access to credit.
