India’s GDP Growth: Challenges and Opportunities,2023

india's gdp growth


In late August of 2023, the National Statistics Office (NSO) declared that India’s GDP Growth (Gross Domestic Product) had increased significantly during the April-June quarter, exhibiting a remarkable 7.8% annual growth rate. This outstanding economic performance confirmed India’s position as the world’s fastest-growing major economy, which created a great deal of excitement and joy.

What has been India’s GDP Growth Trajectory in the Past?

  • Mid-2000s
    • In the mid-2000s, all economies benefited from historically strong growth in global commerce, which led to an annual 9% expansion in the Indian GDP.
    • This boom was unsustainable, and the real estate, construction, and banking sectors all experienced bubbles.
    • Following the global financial crisis of 2007–2008, growth soon decreased to 6% as global commerce declined.
  • 2012-15
    • GDP growth had dropped to around 4.5% by 2012–13, but thanks to a data correction in January 2015, growth surged for that year and the next three (the government resumed measuring GDP on market price rather than factory price).
    • The GDP growth rate increased numerically but not in actual terms due to this change in approach.
  • 2016-2018
    • After the implementation of the GST and demonetization, the slowdown resumed. Following the IL&FS bankruptcy in 2018, the finance-real estate bubble burst, and GDP growth dropped to 3.9% in the year before the pandemic.
  • Pre-Covid Years
    • The pre-Covid increase was far worse than the widely reported estimate suggests.
    • The GDP is measured by the Indian statistics authorities using the income from output.
    • As producers only get paid when someone purchases their goods, spending on Indian goods by both domestic and overseas consumers should, in theory, equal revenue.
    • However, the pre-COVID year saw only 1.9% growth in spending.
  • The Covid Years
    • Using that way of averaging, GDP increased by 2.9% during the pandemic year.
    • The sharp decline in demand was seen in the GDP growth rate, which had slowed from a booming 9% in the mid-2000s to 3%–4% prior to the pandemic.
    • The stark decline in private business fixed investment from a peak of 17% of GDP in 2007–2008 to 11% in 2019–20 is one way that this weakness was shown.
    • Private companies reduced their investments after realizing that international buyers had a limited hunger for Indian goods and that home consumers, frightened of losing their jobs and earning prospects, had limited purchasing power.
  • Post-Covid Years
    • Following the Covid-19 pandemic, the economy has fluctuated. It dropped precipitously, had a small recovery, slowed down significantly, and then had a dead cat bounce in late 2022.
    • This bouncing post-Covid phase can only be evaluated by calculating the average growth rate across the full-time frame.
    • That’s not even easy to understand. If we compare the last four quarters to the four quarters before the COVID-19 pandemic, we see that the average income and spending has grown at an annual rate of 4.2%.
    • Just comparing the most recent quarter to the quarter before Covid shows an annual rise of slightly more than 2%. The additional decline in private business investment to 10% of GDP in 2021–2022 is a clear indicator of post–Covid demand weakness.
    • Analysts predict that in 2022–2023, it will still be anemic.

What Are Primary Reasons Behind Decline in India’s GDP Growth Rate in Past Years?

  • A Weak External Demand
    • Another significant driver of economic development is external demand, which indicates how globally integrated and competitive the economy is. Nonetheless, from 2013 to 2014, India’s exports to GDP ratio has decreased. In 2011–12, the ratio was 25%; by 2019–20, it had dropped to 18%
    • A number of factors, including a slowdown in the global economy, the rupee’s appreciation, a decline in market share, and trade obstacles, might be blamed for this decline.
  • Low Capital Investment
    • From 39.8% of GDP in 2010 to an expected 29.3% in 2021, India’s investment rate decreased. This is a reflection of the economy’s lack of confidence and demand as well as structural obstacles including loan availability, environmental clearance, and land acquisition.
  • Policy Uncertainty and Shocks
    • Numerous policy adjustments and reforms carried out by the administration have had conflicting results for the economy. Among these are bankruptcy legislation, corporate tax reduction, demonetization, GST, and insolvency.
    • Even while some of these could be advantageous in the long run, they also brought about uncertainty and disturbances for consumers and companies in the immediate term.
  • Rising Inequality and Poverty
    • India has not seen equal or inclusive economic growth. While the income proportion of the poorest 50% of the population decreased from 24% to 15%, the income share of the richest 10% of the population climbed from 31% in 1980 to 56% in 2016. Additionally, since 2011, the poverty rate has remained constant at 20%.
  • Poor Performance of the Manufacturing Sector
    • Manufacturing is a key industry for economic expansion since it creates jobs, exports value, and value addition. But during the last ten years, India’s manufacturing sector has underperformed, with a real gross value added (GVA) decline of almost 3% in 2019–20.
    • Numerous factors, including demonetization, the introduction of the GST, tensions around international commerce, and a lack of competitiveness, can be blamed for this fall.
  • A Decline in Consumption
    • Another significant part of GDP is consumption, which represents peoples’ purchasing power and quality of life. But consumer spending in India has also decreased, from 60.5% of GDP in 2019–20 to 57.5% in 2021–2022.
    • Numerous factors, including slow income growth, high inflation, hardship in rural areas, job losses, and a lack of credit availability, might be blamed for this fall.
  • Reduced Savings
    • Household savings rates have dropped from 11.9% of GDP in 2019–20 to 5.1% of GDP in order to sustain spending. Credit card recipients are accruing alarming debt levels.

What are the Positive Factors that Can Help India Recover from the Slump?

  • A Large and Young Population
    • Over 1.4 billion people call India home, and over 40% of them are said to be under 25 years old. This suggests a sizable and expanding labor and consumer base, which offers a significant demographic dividend for economic growth.
    • But this also necessitates a sufficient investment in the development of human capital, including skills, health, and education.
  • A Resilient and Diversified Economy
    • India’s economy is diverse, including many different industries and geographical areas. This helps preserve macroeconomic stability by acting as a buffer against shocks that are exclusive to a given sector or area.
    • Furthermore, India has demonstrated the ability to bounce back from a number of crises in the past, including the COVID-19 epidemic in 2020–21 and the global financial crisis in 2007–08.
  • A Reform-Oriented and Proactive Government
    • The Indian government is dedicated to adopting policies and reforms that can promote development and economic progress.
    • The Atmanirbhar Bharat package, the production-linked incentive scheme, the national infrastructure pipeline, and the labor code legislation are a few of the recent actions that the administration has made.
    • These projects do, however, also need to be implemented well and coordinated amongst several stakeholders.

Also read: Freedom of Press in India in 2023

What Needs to be Done to Make India’s GDP Growth Rate More Robust?

  • Boosting Investment and Consumption
    • About 70% of India’s GDP comes from domestic demand, which is primarily driven by these two factors.
    • The government may keep enacting changes that lower interest rates, bad loans, regulatory obstacles, and policy uncertainty in order to boost investment.
    • The government may encourage job creation, rural development, income growth, inflation management, and credit availability in order to boost consumption.
  • Enhancing Manufacturing and Exports
    • These are the main drivers of employment, foreign demand, and value addition that India may use to diversify its economy and join the world market.
    • The government may keep implementing programs like the national infrastructure pipeline, the production-linked incentive scheme, and the Atmanirbhar Bharat package to boost manufacturing and exports.
    • Trade obstacles, market share loss, and currency appreciation are among the other concerns that the government may handle.
  • Investing in human capital and social services
    • These are the key elements that will raise the production and living standards of India’s sizable and youthful populace.
    • The government may keep carrying out initiatives that improve education, health, skills, nutrition, water, sanitation, energy, housing, and healthcare in order to invest in human capital and social services.
    • The government can also guarantee that these services are well administered and reach the individuals who genuinely need them.
  • Maintaining Macroeconomic Stability and Resilience
    • These are the prerequisites for maintaining economic expansion and managing a range of shocks and uncertainties.
    • The government may carry on implementing responsible fiscal and monetary policies that strike a balance between growth and inflation goals in order to preserve macroeconomic stability and resilience.


India’s GDP growth in 2023 has shown both remarkable achievements and significant challenges. Despite a history of economic fluctuations and various hindrances such as weak external demand, low capital investment, policy uncertainties, rising inequality, poor manufacturing performance, declining consumption, and reduced savings, there are hopeful signs. India’s large and young population, a resilient and diversified economy, and a proactive government committed to reforms offer opportunities for recovery. To achieve more robust GDP growth, India needs to focus on boosting investment and consumption, enhancing manufacturing and exports, investing in human capital and social services, and maintaining macroeconomic stability and resilience. These efforts will be essential for sustaining and accelerating India’s economic growth in the coming years.

Frequently Asked Questions(FAQs)

  1. What is GDP growth, and why is it important for a country like India?

    GDP growth measures a country’s economic performance and is vital for India as it reflects the nation’s economic health and development prospects.

  2. What historical trends in India’s GDP growth have been particularly noteworthy?

    India’s transition from an agrarian economy to a technology-driven one and consistent annual GDP growth exceeding 7% are remarkable trends.

  3. What role does income inequality play in India’s GDP growth?

    Income inequality hinders inclusive growth and must be addressed for sustained GDP growth.

  4. How can technology and innovation drive India’s GDP growth?

    India’s thriving technology sector and investments in research and development can foster innovation and competitiveness, thereby boosting GDP.

  5. Why is sustainability important for India’s GDP growth?

    Sustainability is essential to ensure that economic growth is environmentally responsible and can be maintained in the long run.


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