As India steps into 2025, the silver jubilee year of the current millennium, its economy – the fastest growing in the world — and its growth trajectory have been facing several challenges and some of them are highly disturbing, causing serious concern. Unfortunately, the Modi-led government is busy playing political games in order to remain in power and is not focusing on economic problems.

Though the powers-that-be are boasting about the Indian economy rising from its current position of the world’s fifth largest to the third globally, the pace of growth has started weakening. The economy grew well above expectations at 8.7 per cent in fiscal 2022, 7.2 per cent in fiscal 2023 and 8.2 per cent in fiscal 2024, but thereafter has slowed down sharply to 5.4 per cent in Q2 of fiscal 2025.

The declining GDP is attributed to certain factors which have emerged as challenges for the administration. These factors include a spiralling price inflation — a major problem for the common man – which the government seems blinkered to. Another factor is the worsening balance of payment, which has been left unadressed. The third factor is the continuing global geopolitical tensions – which, to be fair, is beyond the control of the Modi government. But neither is the government coming out with any innovative and effective strategies to reduce the adverse impact of these global conflicts on the Indian economy.

The economic drift is mainly due to the dismal performance by the manufacturing sector, as seen from half-yearly statistics. During the first half of fiscal 2025 (April-September 2024), the country’s GDP growth is at 6 per cent, as compared to 8.2 per cent in the corresponding period a year ago. It is worth noting that this poor growth rate is substantially lower than even the most pessimistic estimate. It goes without saying that the actual situation on the economic front is far removed from the policy hype generated by the Prime Minister and his cheerleaders.

Little wonder, this hype has miserably failed to enthuse the private sector, as private sector investment growth is disappointing at 5.4 per cent. Despite the much-ballyhooed PLI scheme and the ‘Make in India’ initiative, manufacturing growth has slowed to a shocking 2.2 per cent.

What is more, mass consumption growth is sputtering despite India emerging as the world’s most populous country. Besides, the savings-investment gap is widening. The latest financial stability report of the Reserve Bank of India shows that financial savings of households fell to 5.3 per cent of the GDP in fiscal 2023 from 7.3 per cent in fiscal 2022 – sharply below the 8 per cent average of the previous decade.

Furthermore, the value of the Indian currency is on a downward drift. In 1947, when India become independent, one dollar was available at one rupee. Today, for a dollar, one has to pay Rs 85.85. The situation is expected to worsen going ahead, but no concerted action is being planned to revive the rupee’s value.

Elevated food prices, high borrowing costs and stagnant real wage growth have weighed heavily on private consumption, which accounts for almost 60 per cent of the GDP. The time has come for the government to pay serious attention to the economy. India’s path to sustained growth requires a multi-faceted approach focusing on human capital, technological advancements, labour market reforms, land and property management, financial sector strengthening, tax simplification, infrastructure development and inclusive growth.

Undoubtedly, 2025 will be a defining year for India’s economy – at least on the issue of whether it can turn challenges into opportunities and continue its journey towards becoming the world’s third largest economy. The country’s economic success will depend on striking the right balance between optimism and pragmatism, and ensuring that growth benefits all segments of society.