SNAPSHOT OF INDIA’S ECONOMY

1.GDP
2019: India's economy grew at 4.0%, reflecting a slowdown due to
various domestic challenges.
2020: The GDP contracted by 7.3%, primarily due to the COVID-19
pandemic's impact on economic activities.
2021: A strong recovery with an 8.2% growth rate, driven by
reopening and policy support.
2022: Growth moderated to 6.8% as the initial rebound effects
waned.
2023: The economy expanded by 7.0%, supported by robust
domestic demand.
2024: Projected growth of 6.4%, indicating a slight slowdown due to
weaker investment and manufacturing performance.

YEAR -GDP GROWTH RATE (%)

2019 4.0
2020 -7.3
2021 8.2
2022 6.8
2023 7.0
2024 6.4
2.Alternative Measures of Growth
1. Human Development Index (HDI):
HDI combines indicators related to life expectancy, education, and
per capita income to assess a country’s overall development.
2. Inequality Adjusted Human Development Index:
This index considers not only average achievements in health,
education, and standard of living but also the distribution of these
achievements among the population.
3. Social Progress Index (SPI):
SPI evaluates a range of social and environmental indicators to gauge
the well-being and quality of life in a society.
4. Genuine Progress Index:
GPI goes beyond GDP by accounting for factors like income
distribution, environmental sustainability, and the value of unpaid
work.
5. Gross National Happiness (GNH):
GNH is a unique measure developed by Bhutan that assesses the
well-being and happiness of its citizens, considering factors like
mental health, community vitality, and environmental quality.
6. Happiness Index:
This measures subjective well-being and life satisfaction based on
surveys and self-reported data
7. Green GDP: Green GDP factors in the environmental costs
associated with economic activities, providing a more sustainable
perspective on growth.
3. Growth in Components of AD
Consumption (C):
- 2019: Moderate growth (~5%)
- 2020: Sharp contraction (-9%)
- 2021: Strong rebound (~15%)
- 2022-2024: Stabilized growth (~7-8%)
- Key Drivers: E-commerce, rising incomes, and digital payments.

-Investment (I):
- 2019: Sluggish growth (~4%)
- 2020: Decline (-10%)
- 2021: Recovery (~16%)
- 2022-2024: Sustained growth (~10-12%)
- Key Drivers: Government infrastructure spending, PLI schemes, FDI
inflows.

- Government Spending (G):

- 2019: Steady increase (~10%)
- 2020: Expanded spending (~20%)
- 2021-2024: Stabilized growth (~12-15%)
- Key Drivers: Infrastructure, welfare programs.
Net Exports (X-M):
- Exports: Strong rebound in 2021 (~40%), moderate growth in
2022-2024 (~7-10%).
- Imports: Recovery in 2021-2024 (~8-12%).
- Net Exports: Trade deficit narrowed in 2022-2024.

Growth Drivers (2019-2024)

Component 2019 2020 2021 2022-2024

Consumption ~5% -9% ~15% ~7-8%
Investment ~4% -10% ~16% ~10-12%
Govt Spending ~10% ~20% ~12% ~12-15%
Net Exports -1% -15% ~5% ~3-5%
4.INFLATION
As of December 2024, India's annual retail inflation rate eased to
5.22%, down from 5.38% in November, aligning with market
expectations and remaining within the Reserve Bank of India's (RBI)
target range of 2 percentage points around 4%. This deceleration
was primarily due to a slowdown in food inflation, which decreased
to 8.39% from 9.04% in the previous month.
Despite the moderation in retail inflation, wholesale price inflation
accelerated to 2.37% year-on-year in December, up from 1.89% in
November. This increase was influenced by a rise in vegetable prices
by 28.65% and cereal prices by 6.82%.
The recent depreciation of the Indian rupee has added complexity to
the inflation outlook. The weakening currency has heightened
inflation concerns, particularly due to India's reliance on foreign oil
imports and rising crude prices. This situation has led analysts to
reconsider the likelihood of imminent interest rate cuts by the RBI, as
a depreciated rupee could make imports more expensive and further
fuel inflation.
5. UNEMPLOYMENT
1. Current Status of Unemployment (2023–2024):
The unemployment rate has declined to around 4.1%, attributed to
economic recovery post-COVID-19 and growth in urban employment
sectors.
Urban unemployment is lower than rural unemployment due to the
expansion of formal job opportunities.
Challenges persist in rural areas, particularly during non-agricultural
seasons, and among women in both rural and urban settings.

2. Reasons for Unemployment:

Economic Slowdown (2019–2020): Pre-pandemic, India's GDP growth
slowed, reducing job creation, especially in manufacturing and
construction.
COVID-19 Pandemic (2020–2021): Widespread lockdowns caused
significant job losses, particularly in informal sectors, where 84% of
the workforce is concentrated.
Sectoral Shifts: Decline in agricultural employment and inadequate
absorption into non-agricultural sectors like manufacturing and
services led to rural unemployment.
Underemployment: Visible underemployment remains high ,
especially for rural women and casual laborers, indicating job
instability and seasonal employment.
Skill Mismatch: A growing educated workforce has faced difficulties
finding employment matching their qualifications due to limited high-
skill job opportunities.
Measures Taken (2019–2024):
Government Initiatives:
1. Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA): Increased budget allocation during the pandemic to
provide a safety net for rural households.
Created millions of person-days of work, addressing seasonal
unemployment in rural areas.
2. Prime Minister’s Employment Generation Programme (PMEGP):
Encouraged entrepreneurship by providing financial assistance for
self-employment ventures in rural and urban areas.
3. Atmanirbhar Bharat (Self-Reliant India) Initiative:
Supported MSMEs through credit guarantees and subsidies to boost
job creation during the pandemic.
4. Skill Development Programs:
Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Focused on skilling
youth for modern industries, including technology and
manufacturing sectors.
National Skill Development Mission aimed at aligning education with
employable skills.
5. Urban Employment Programs:
Deendayal Antyodaya Yojana – National Urban Livelihoods Mission
(DAY-NULM): Supported the urban poor by promoting self-
employment and wage-based jobs.
Recommendations for Improvement:
1. Enhance Job Formalization:
Incentivize companies to formalize employment and provide social
security benefits.
2. Support Rural Employment:
Strengthen rural non-agricultural sectors, like food processing and
renewable energy, to diversify job opportunities.
3. Improve Female Workforce Participation:
Encourage flexible work policies and childcare support to bring more
women into the workforce.
4. Focus on Emerging Sectors:
Invest in green jobs, AI, robotics, and other advanced industries to
absorb skilled labor.
6.FISCAL POLICY
India’s recent Fiscal Measures: -
India's fiscal policy for 2024-25 prioritizes growth and prudence,
reducing gross market borrowing to ₹14.01 trillion, setting a 4.9%
fiscal deficit target, aiming below 4.5%, and lowering the
disinvestment target to under ₹300 billion.
Expectations for Union Budget 2025-26: -
1. Economic Growth and Fiscal Deficit: The government projects
10.3%-10.5% nominal growth (up from 9.7%), driven by capital
spending, agriculture, and exports. Fiscal deficit aims to drop
below 4.5% of GDP.
2. Tax Reforms: Proposed personal income tax cuts and raising the
basic exemption limit from ₹3 lakh to ₹5 lakh aim to boost
demand and benefit the middle class.
3. Capital Expenditure: Indian Railways may see a 15%-20% increase
in allocation, exceeding ₹3 lakh crore from ₹2.65 lakh crore.
4. Disinvestment: Disinvestment and asset monetization targets are
lowered by 40% to under ₹300 billion, citing challenges.
5. Sector-Specific Measures: Support for MSMEs includes tax cuts,
electronics manufacturing incentives, reduced fuel taxes,
enhanced state-backed schemes, and consumption vouchers for
low-income groups.

Source: https://blog-pfm.imf.org/en/pfmblog/2024/11/india-fiscal-
strategy-and-management-at-a-crossroads-finding-the-right-balance-
for-growth
7.MONETARY POLICY

Initiatives by the Reserve Bank of India (RBI):

The Reserve Bank of India (RBI) has implemented numerous policy
initiatives over the years to regulate and develop India's financial
system. Below is a chronological overview of significant policy
measures of past five years.

 2020: RBI reduced the repo rate and introduced loan moratoriums
to counter COVID-19 impacts.
 2022: UPI 2.0 launched with overdraft facilities and invoice
features, boosting digital payments.
 2024: Draft guidelines proposed a 5% run-off factor for retail
deposits to enhance banks' liquidity resilience; Unified Lending
Interface (ULI) launched to expedite credit for small and rural
borrowers.
 2025: RBI initiated daily Variable Rate Repo (VRR) auctions to
address a ₹1.65 trillion liquidity shortfall and engaged in Open
Market Operations (OMOs) to regulate the money supply and
stabilize interest rates.
The Reserve Bank of India (RBI) has adjusted the repo rate numerous
times in past five years.
Date Repo rate
April 2019 6.00%
October 2019 5.15 %
April 2020 4.40%
May 2020 4.00 %
February 2023 6.50 %
August 2024 6.50 %

This table highlights the fluctuations in the repo rate over the years,
reflecting the RBI's responses to various economic conditions.

Instruments of Monetary Policy

1. Cash Reserve Ratio (CRR)
CRR mandates banks to keep a portion of their Net Demand and
Time Liabilities (NDTL) as reserves with the RBI. It directly impacts
the liquidity available for lending in the economy.
2020-2024: Reduced to 3% during the COVID-19 pandemic to inject
liquidity into the banking system. Restored to 4% by 2024.
Current Status (as of 2025): CRR stands at 4%, as per the December
2024 revision.
2. Statutory Liquidity Ratio (SLR)
SLR is the percentage of NDTL banks must invest in liquid assets such
as cash, gold, or government-approved securities.
2019: Reduced to 18.75% and later aligned with Basel III norms at
18% by 2020. Current Status (as of 2025): SLR is fixed at 18%.
3. Open Market Operations (OMOs)
OMOs involve buying and selling government securities to manage
liquidity in the economy.
2020: OMOs were used extensively during the COVID-19 pandemic to
stabilize markets.
4. Liquidity Adjustment Facility (LAF)
Allows banks to borrow (repo) or lend (reverse repo) funds to the RBI
to manage short-term liquidity mismatches.
2020 (COVID-19): Repo rate reduced to 4.0% to encourage lending,
while reverse repo was set at 3.35% to discourage parking excess
funds with the RBI. Current Status (as of 2025):
Repo rate: 6.50%
Reverse repo rate: 3.35%
5. Marginal Standing Facility (MSF)
Provides banks with an overnight borrowing facility from the RBI at a
rate higher than the repo rate, typically serving as the last resort.
COVID-19 (2020): MSF was relaxed, allowing banks to borrow up to
3% of their NDTL instead of the usual 2%.
Current Status (as of 2025): MSF rate is 6.75%.
6. Standing Deposit Facility (SDF)
Absorbs liquidity without requiring collateral. Acts as an alternative
to the reverse repo mechanism.
2022-2023: Used during surplus liquidity conditions.
2025: SDF rate is maintained at 3.25%.

8.EXTERNAL FACTORS
Exports and Imports:
• 2019: Merchandise exports stood at approximately USD 330.07
billion, while imports were around USD 514.07 billion, resulting in a
trade deficit of USD 184 billion.

• 2020: Exports slightly decreased to USD 314.31 billion, and imports

reduced to USD 467.19 billion, narrowing the trade deficit to USD
158.88 billion.

• 2021: Exports increased to USD 420 billion, with imports rising to

USD 612 billion, leading to a trade deficit of USD 192 billion.

• 2022: Exports surged to USD 676.53 billion, and imports reached

USD 760.06 billion, resulting in a reduced trade deficit of USD 83.53
billion.

• 2023: Exports further climbed to USD 770.18 billion, while imports

were USD 892.18 billion, leading to a trade deficit of USD 122 billion.
Current/Capital account deficit/surplus & movement of currency
Current Account Deficit (CAD):
• FY 2022-23: The CAD widened to 2% of GDP, influenced by a higher
merchandise trade deficit.
• FY 2023-24: The CAD narrowed significantly to 0.7% of GDP,
attributed to a decrease in the merchandise trade deficit and robust
services exports.
Capital Account:
FY 2023-24: India experienced substantial Foreign Portfolio
Investment (FPI) inflows, offsetting a moderation in Foreign Direct
Investment (FDI). This contributed to a surplus in the capital and
financial account, recorded at USD 39.89 million in the second
quarter of 2024,
Currency Movement:
• The Indian rupee remained relatively stable against the US dollar
during FY 2023-24, supported by robust portfolio inflows and
substantial foreign exchange reserves.

9. BUSINESS CYCLE
The current shape of India's business cycles.
The World Bank, in its report, highlighted that South Asia's growth is
expected to rise to 6.2 per cent in 2025-26, underpinned by India’s
robust performance. "In India, growth is projected to remain steady
at 6.7 per cent a year for the two fiscal years beginning in April
2025," it stated.
The services sector is forecasted to continue expanding, while
manufacturing activity is expected to strengthen, supported by
government initiatives aimed at improving the business environment.
Investment growth in India is anticipated to stabilise, with
moderating public investment offset by a rise in private investments,
the report added.
However, growth in India is projected to soften to 6.5 per cent in the
fiscal year 2024-25, reflecting a slowdown in investment and weak
manufacturing growth. Despite this, private consumption remains
resilient, driven by improved rural incomes and a recovery in
agricultural output.

Conclusion:
1. 2024-25 (Moderation Phase):
● Growth is projected to soften to 6.5%, indicating a slowdown phase
in the business cycle.
● Key Factors for Softening:
○ Investment Slowdown: Both public and private investments are
moderating.
○ Weak Manufacturing Growth: Reflecting constraints in industrial
activities.
● Stabilizing Force: Resilient private consumption, bolstered by better
rural incomes and agricultural
recovery.
2. 2025-26 (Recovery Phase):
● Growth is expected to rise to 6.7%, signalling a recovery phase in
the business cycle.
● Key Drivers of Recovery:
○ Continued expansion in the services sector.
○ Strengthened manufacturing activity due to supportive
government policies.
○ Stabilized investment growth, with increased private investments
compensating for a slower pace in public investment.
Stabilized investment growth, with increased private investments
compensating for a slower pace in public investment.

Shape of the Business Cycle:

The graph above represents the business cycle for India's GDP growth
as projected by the World Bank:
1. 2024-25 (Softening Phase): GDP growth decreases to 6.5%,
reflecting a slowdown.
2. 2025-26 (Recovery Phase): Growth rebounds to 6.7%, showing
recovery.
3. 2026-27 (Stabilization Phase): Growth stabilizes at 6.7%,
maintaining momentum.
The curve highlights the transition from slowdown to recovery and
stabilization, indicating India's economic resilience.
GUIDED BY: Prof Tania Sen

PRESENTED BY:
Gopisetti Anusha - 24BSP2546
Shruti Bhavsar - 24BSP1907
Shashvat Hegde - 24BSP1838
Parth Bhanushali-24BSP1338
Nishita Patel - 24BSP1273
Vishal Jaiswar - 24BSP2717