ExplainSpeaking: The curious case of India’s economic growth – The Indian Express

Report on Indian Economic Indicators and Sustainable Development Goal Alignment

Introduction

This report provides an analysis of the Indian economy, focusing on a significant dichotomy between officially reported real Gross Domestic Product (GDP) growth and concurrent government fiscal policies aimed at stimulating demand. The assessment evaluates these contradictory signals through the lens of the United Nations Sustainable Development Goals (SDGs), with a particular emphasis on SDG 8 (Decent Work and Economic Growth), SDG 1 (No Poverty), SDG 9 (Industry, Innovation, and Infrastructure), and SDG 10 (Reduced Inequalities).

Contradictory Economic Indicators and SDG 8 Implications

High Real GDP Growth

Official economic data presents a narrative of robust economic performance. Key indicators include:

• A real GDP growth rate of 7.8% in the first quarter (Q1), which surpassed most forecasts.
• India’s position as the fastest-growing major global economy.
• Growth rates that are significantly higher than the nation’s long-term historical averages.

Concurrent Fiscal Stimulus Measures

In contrast to the high-growth narrative, government policy has been consistently focused on boosting aggregate demand through fiscal relief. These measures include:

• A substantial increase in the income tax exemption limit to Rs 12 lakhs per annum by February 2025, a significant rise from Rs 2.5 lakhs in January 2019.
• Reductions in the Goods and Services Tax (GST) rates to encourage consumption.
• These policies are explicitly designed to increase consumption, which is typically a response to economic slowdown, not rapid growth.

The Policy Paradox and its Relation to SDG 8

The coexistence of high reported growth and demand-boosting policies presents a paradox. High economic growth typically correlates with rising demand and inflationary pressure, negating the need for fiscal stimulus. This contradiction raises critical questions regarding the quality and inclusivity of the economic growth, a core tenet of SDG 8. If the benefits of growth were creating decent work and improving household incomes, consumption would be robust, and artificial stimulus would be unnecessary. The policy actions suggest that the reported growth may not be translating into broad-based prosperity, thereby hindering progress towards sustainable and inclusive economic development.

Nominal vs. Real GDP: A Perspective on Sustainable Economic Health

Rationale for Examining Nominal GDP

While real GDP is a standard metric, an analysis of nominal GDP provides a clearer picture of the economy’s alignment with sustainable development objectives for several reasons:

1. Observed Data: Nominal GDP is the directly collected data, making it less susceptible to statistical adjustments and potential overstatements of economic momentum.
2. Fiscal Benchmark: It is the benchmark for crucial fiscal variables, including tax collections and debt-to-GDP ratios. The health of nominal GDP growth directly impacts the state’s capacity to fund SDG-related initiatives.
3. Budgetary Foundation: All Union Budget calculations begin with nominal GDP projections, determining resource allocation for development programs.
4. Demand Indicator: Nominal GDP more accurately captures the state of aggregate demand in the economy, offering insights into household purchasing power and progress towards SDG 1 (No Poverty) and SDG 10 (Reduced Inequalities).

Analysis of Nominal GDP Data and Linkages to SDGs 1, 9, and 10

Key Components of Gross Domestic Product

An examination of the primary components of nominal GDP reveals underlying weaknesses:

1. Private Final Consumption Expenditure (PFCE): Accounting for 55-60% of GDP, this reflects household spending. Weakness in PFCE is a direct indicator of challenges in poverty reduction (SDG 1) and rising inequality (SDG 10).
2. Gross Fixed Capital Formation (GFCF): This investment component (25-30% of GDP) is fundamental to achieving SDG 9 (Industry, Innovation, and Infrastructure).
3. Government Final Consumption Expenditure (GFCE): This constitutes the remaining 10-15% of GDP.

Findings from Q1 Nominal Data

The nominal data reveals trends that challenge the narrative of robust, sustainable growth:

• Economic growth appears heavily dependent on government expenditure, which grew at 9.7%. The two primary private engines of the economy, PFCE and GFCF, grew at a slower rate than the overall GDP. This reliance on public spending over private sector dynamism is a concern for long-term progress towards the SDGs.
• The sluggishness in private consumption (PFCE) and private investment (GFCF) points to systemic weaknesses. Stagnant consumption suggests that income growth is not broad-based, while low investment hinders the job creation necessary for SDG 8 and the infrastructure development for SDG 9.
• A marked deceleration in nominal growth rates has been observed over the past two years, indicating a loss of economic momentum.
• Data on corporate income growth corroborates the trend of weak consumer demand, explaining the private sector’s hesitancy to commit to new capital investments.

Conclusion: Reassessing Economic Momentum for SDG Attainment

The analysis of nominal GDP data indicates a significant slowdown, with growth rates hovering around 8-9%. In an economy with a baseline inflation rate of approximately 4%, this leaves limited scope for the high real GDP growth being reported. This underlying fragility explains the government’s persistent implementation of demand-side stimulus policies, despite official headline growth figures.

The divergence between reported real GDP growth and the economic reality suggested by nominal data and policy actions indicates that India’s economic trajectory may be insufficient to achieve its Sustainable Development Goals. The current model of growth appears to lack the inclusive and sustainable characteristics required to advance SDG 8 (Decent Work and Economic Growth), SDG 1 (No Poverty), SDG 10 (Reduced Inequalities), and SDG 9 (Industry, Innovation, and Infrastructure). A sustained policy focus on fostering broad-based private consumption and investment is essential for aligning the nation’s economic path with its long-term development objectives.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

1. SDG 8: Decent Work and Economic Growth
   • The entire article is centered on India’s economic growth, discussing metrics like real and nominal GDP growth rates (e.g., 7.8% in Q1). It analyzes the drivers of this growth, such as private consumption, investment, and government expenditure, and questions the robustness of the economic momentum. The government’s policy actions, like tax cuts, are aimed at stimulating the economy to create more jobs, which directly relates to this goal.
2. SDG 10: Reduced Inequalities
   • The article discusses specific fiscal policies, such as raising the income tax exemption limit significantly from Rs 2.5 lakhs in 2019 to Rs 12 lakhs in 2025. These policies directly affect the disposable income of individuals, particularly those in lower to middle-income brackets, and are tools for influencing income distribution and reducing inequality.
3. SDG 1: No Poverty
   • While not the primary focus, the article’s discussion on raising the income tax exemption limit is relevant to poverty reduction. By increasing the tax-free income threshold to Rs 12 lakhs, far above the average annual income mentioned (Rs 2.3 lakh), the government’s policy reduces the financial burden on a large portion of the population, which is a key strategy in poverty alleviation efforts.
4. SDG 9: Industry, Innovation, and Infrastructure
   • The article mentions Gross Fixed Capital Formation (GFCF), which represents investments made to raise the country’s productive capacity. It notes the weakness in private investment expenditures and the Finance Minister’s hope that boosting consumption will lead companies to “invest more and produce more.” This directly connects to the goal of promoting sustainable industrialization and investment.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Under SDG 8 (Decent Work and Economic Growth):
   • Target 8.1: “Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries.” The article extensively discusses India’s GDP growth rate, specifically citing the “GDP growth rate of 7.8% in the first quarter,” which directly aligns with the measurement aspect of this target.
   • Target 8.3: “Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation…” The article highlights the government’s use of tax cuts (GST and income tax) as a policy to boost consumption, which is intended to lead to more production and “more jobs,” as stated by the Finance Minister. This is a clear example of a development-oriented policy aimed at job creation.
2. Under SDG 10 (Reduced Inequalities):
   • Target 10.4: “Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality.” The article details the implementation of fiscal policies, such as raising the income tax exemption limit and cutting GST rates. These are explicit examples of the types of policies mentioned in this target, designed to influence the economic well-being of the population.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. For SDG 8 Targets:
   • Annual growth rate of real GDP: The article explicitly states the “real GDP growth rate of 7.8% in the first quarter (Q1).” This is a direct indicator for Target 8.1.
   • Nominal GDP growth rate: The article provides a detailed analysis of nominal GDP growth, citing an 8% rate for Q1 of the current year in its table, and argues for its importance in understanding economic demand.
   • Growth rates of GDP components: The article breaks down GDP into its components and provides their growth rates, such as Private Final Consumption Expenditure (PFCE), Gross Fixed Capital Formation (GFCF), and government expenditure. These serve as indicators of the sources of economic growth.
   • Job Creation (Implied): The Finance Minister’s statement that “More production will lead to more jobs” implies that the number of jobs created is a key indicator of the success of the government’s economic policies, relating to Target 8.3.
2. For SDG 10 Targets:
   • Income tax exemption limit: The article provides specific figures for this fiscal policy tool: “The income tax exemption limit in January 2019 was only Rs 2.5 lakhs pa,” which was raised to “Rs 7 lakhs per annum” and then to “Rs 12 lakhs per annum.” These figures are direct indicators of fiscal policy actions under Target 10.4.
   • Average annual income: The article mentions the “average annual income of an Indian in February 2025 was around Rs 2.3 lakh pa.” This data point provides context for the impact of the tax exemption policy and can be used as an indicator to assess income levels and inequality.
   • GST rates: The decision to “cut GST rates” is mentioned as another fiscal policy measure, serving as an indicator of government action to influence consumption and affordability.

4. Summary Table of SDGs, Targets, and Indicators

Source: indianexpress.com