Indian Economy: Household Spending and Policy Re-prioritization

• The Indian economy is a mix of household consumption, private investment, government expenditure, and net exports.

• Government expenditure has seen robust growth due to the Modi government’s infrastructure push and interest-free loans.

• Despite increased capital expenditure, the rate of growth is not as rapid as in the early post-COVID-19 pandemic years.

• The private sector needs to increase investments to meet targets, as industrial capacity utilization has not reached 80% since March 2011.

• Net exports, especially merchandise, are struggling due to global trade uncertainty and U.S. tariffs on Indian imports.

• To encourage spending, the government has increased incomes and lowered prices.

• GST rate reforms, effective from September 22, have increased the proportion of rural monthly expenditure to nil or 5% GST rates.

• The government reduced income-tax rates in Budget 2025, but this alone is not enough to encourage spending behavior.

• Increased wages could increase disposable income, but India has an oversupply of labour and a skill deficit that needs urgent attention.

• The Indian economy, largely immune to global factors, needs more fiscal investment for a jump-start.

Policy Re-prioritization in India is important topic for Civil service exam (WBCS).

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