Indian Economy Growth: Challenges & Opportunities

indian economy


A detailed analysis of the Indian economy is necessary in light of the country’s sustained economic growth of above 7% for three years running. Up until 2018–19, the economy saw substantial real GDP growth; however, the following five years, until 2023–24, saw a significant slowdown due to disruptions caused by the pandemic. This should be the starting point for the incoming government’s policy agenda.

What is the Current Status of the Indian Economy in Various Sectors?

  • Robust growth
    • Over the past ten years, India’s economy has shown strong and steady development, propelling it from the world’s tenth to the fifth biggest and making it the fastest-growing G20 economy.
    • The GDP growth of India is expected by the International Monetary Fund (IMF) to be 6.8% in 2024–2025 and 6.5% in 2025–2026.
  • Current Account Deficit
    • According to the Economic Survey 2024, robust service exports and lower oil import costs are to blame for India’s current account deficit sharply declining to 1% of GDP in the first half of FY24.
  • Foreign Investment
    • Strong inflows of foreign institutional investors (FIIs) have increased foreign exchange reserves to almost $643 billion. In 2023–24, FII inflows totaled $41 billion, whereas net outflows were $5.5 billion in the year before.
  • Infrastructural Development
    • The country’s infrastructure has advanced remarkably as well; in the previous nine years, 74 new airports have been built.
    • The government’s capital expenditures (Capex) have increased dramatically. The ratio of capital expenditures to GDP increased to 3.3% in FY24 and is expected to rise to 3.4% in the next fiscal year.
  • Manufacturing Sector
    • The manufacturing sector’s capacity utilization rate is approaching 74%, which is close to the long-term average. In the next quarters, there may be indications of an acceleration of the private capital expenditure cycle.
  • Inflation
    • The Reserve Bank of India’s upper goal band for Consumer Price Index (CPI) inflation has dropped below 6%. However, core inflation has stayed around 4% in April 2024, mainly because of disinflation in the services sector.
  • Decline in Urban unemployment
    • Building on growth rates of 9.1% in FY22 and 7.2% in FY23, the economy is expected to have increased by 7.3% in 2023–2024. At the same time, the urban unemployment rate decreased to 6.6%.
  • Rural demand
    • Positive trends are being seen, as evidenced by the fact that the volume of Fast Moving Consumer Goods (FMCG) in rural regions increased from 2.2% to 6.2% in the second half of 2023, according to a Nielsen survey.

What are the Various Challenges Faced by the Indian Economy in the Past Five Years?

  • Slowdown in Economic Growth
    • India’s economy declined significantly in 2020 as a result of the COVID-19 epidemic, resulting in a negative growth rate.
    • But in 2021, the economy had a significant upturn, with growth reaching a pace of around 9%. Since then, the growth rate has leveled out at about 7%.
  • Unemployment and Underemployment
    • The COVID-19 epidemic made matters worse by causing several enterprises to close or scale back operations, which resulted in employment losses.
    • The Centre for Monitoring Indian Economy (CMIE) reports that between April and July 2020, there were around 1.8 crore fewer paid employment.
    • In August 2020, the unemployment rate was 7.4%, while in August 2019, it was 5.4%.
    • The Periodic Labour Force Survey (PLFS) report for 2021–2022 from the National Statistical Office (NSO) states that the unemployment rate for that year was 4.1%.
  • Challenges in Agriculture and Allied Sectors
    • The agriculture industry in India has not progressed at the same rate as the country’s GDP in recent times.
    • According to the Economic Survey 2022–23, over the previous six years, India’s agricultural and related industries have grown at an average annual rate of 4.6%; nonetheless, this is less than the required growth rate required to significantly raise farmer incomes.h.
    • The agricultural sector’s share of India’s GDP decreased over time, falling from 35% in 1990–1991 to 15% in FY23.
  • Slowing Household Consumption and Income Inequality
    • Extremely high levels of income disparity worsen the demand for consumption, particularly among the lowest income groups. This lowers the demand for investments and contributes even more to slow development.
    • India’s 2019–20 Gini coefficient, which measures income inequality, was 0.38, suggesting notable differences in income.
  • Infrastructure Deficit and Private Investment
    • The World Bank estimates that India has an infrastructure deficit of around $1.5 trillion.
    • The share of GDP attributed to private investment declined further, reaching a low of 19.6% in 2020–21.
    • India is predicted to have an infrastructure deficit of more than $1.4 trillion, with the transportation, energy, and healthcare sectors being the main areas of concern.
    • The level of private investment is still low; in FY 2020–21, private companies’ Gross Fixed Capital Formation (GFCF) decreased by -14.5%.
  • Export Challenges Amid Geopolitical Tensions
    • Global trade patterns can be disrupted by geopolitical tensions, such as border disputes and trade wars like the Russia-Ukraine war.
    • Exports from industries such as textiles have declined, and while worldwide commerce in footwear has increased by 5%, India’s exports have decreased.
    • Furthermore, obstacles stand in the way of India’s ambitions to become a major player in the global pharmaceutical sector. Growth in the country has lagged behind demand, at 9 percent, while the worldwide market has grown by 12 percent in the last four years.

Also read: India’s GDP Growth: Challenges and Opportunities,2023

What Are the Various Measures Implemented to Promote the Development of the Various Sectors of the Indian Economy?

  • New Economic Policy, 2020
    • NEP 2020 includes a significant stimulus program worth Rs 20 lakh crore, or 10% of GDP, which is intended to support several economic sectors.
    • In addition, several changes in the areas of agriculture, labor, education, health, defense, mining, electricity, and taxes are included in the strategy. Its goal is to promote self-sufficiency in India’s economy following the Covid-19 crisis.
  • Strategic Disinvestment
    • Public sector enterprises (PSEs), which are businesses owned or run by the government, are also being privatized in India.
    • Enhancing PSEs’ productivity, profitability, and competitiveness as well as relieving the financial load and freeing up funds for development are the objectives of privatization.
  • Comprehensive Labour Codes
    • To simplify and group central labor regulations into four primary areas—wages, labor relations, social security, and occupational safety and health—four codes have been implemented.
    • These laws are designed to provide employers more freedom in managing their workforces, make company registration and compliance processes easier, increase the number of informal workers who are covered by social security, and increase the power of trade unions and collective bargaining.

Which potential sectors of the Indian economy require special attention?

  • Creating Employment Opportunities
    • The creation of jobs, which is mostly the responsibility of the private sector, needs a supportive atmosphere.
    • Although the government can temporarily fill vacancies, growth driven by consumption is necessary for long-term employment creation.
    • As a result, initiatives to increase consumption will also help create jobs indirectly.
  • Reviving Private Investment
    • The private sector’s involvement is essential, even if the government has been aggressive in capital investment, especially in the building of infrastructure.
    • Growth has been fueled by investments in industries like roads and railroads, but private businesses, which are motivated by profit, require favorable conditions.
    • The Production-Linked Incentive (PLI) program needs to be extended, especially to help small and medium-sized businesses (SMEs), since it has demonstrated little success.
    • Incentives such as investment allowances might be introduced to encourage private investment.
  • Agricultural Reform
    • It is essential to address the issues facing the agriculture industry, especially in light of controversial farm policies.
    • Farmers can benefit from government involvement in agriculture through state cooperatives and the clarification of agricultural trade policies.
    • Standardizing distribution and procurement practices is also necessary to reduce market disruptions.
    • Reexamining prohibitions on agricultural commodity futures trading can improve overall productivity and market efficiency.
  • Boosting Household Consumption
    • Despite its volatility, household consumption has recovered since the epidemic.
    • Nonetheless, there is still a low demand for consumer products, in part because of rising inflation and excess capacity.
    • Fiscal actions like reevaluating tax rates and streamlining GST slabs are crucial to boost consumption.
    • It’s also critical to address falling family savings with redesigned tax arrangements.
  • Integration into Global Supply Chains
    • India has to take a strategic approach to its involvement in international supply chains, especially when it comes to exporting goods.
    • To increase exports, this means negotiating more free trade agreements with significant trading partners.
    • Even if the IT industry has performed very well in services exports, balanced economic growth requires a focus on goods exports.


In conclusion, the Indian economy has demonstrated robust growth and resilience, overcoming pandemic-induced challenges. While achieving impressive strides in infrastructure, foreign investment, and service exports, significant issues such as unemployment, income inequality, and slow private investment persist. Addressing these challenges through targeted policies will be crucial for sustaining economic growth and fostering inclusive development.

Frequently Asked Questions(FAQs)

  • What are the main challenges facing the Indian economy?

    The main challenges include infrastructure deficiencies, unemployment, income inequality, environmental concerns, and bureaucratic hurdles.

  • What are the economic opportunities in India?

    India has a cheap cost of living. This makes it easier for the business to get inexpensive labor and gives individuals the chance to live better lives for comparatively less money. Another advantage for India is its people.

  • What role does digital transformation play in economic growth?

    Digital transformation enhances efficiency, transparency, and innovation, driving economic growth through initiatives like Digital India and the rise of technological start-ups.

  • How significant is the Make in India initiative for economic development?

    The Make in India initiative is crucial for boosting the manufacturing sector, creating jobs, and increasing exports, thereby strengthening the economy.


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