Crisis of Confidence: India Sliding
Embedded Files
FEBRUARY 2025
The Indian economy, once hailed as a global bright spot, is now grappling with a deepening slowdown.
The signs are everywhere: declining corporate profits, shrinking demand, and a middle class under severe strain.
While the government continues to project optimism, the ground reality tells a different story.
There are structural issues plaguing India’s economy, interplaying role of global and domestic factors, and the political implications of this economic malaise.
The Steel Sector: A Microcosm of India’s Economic Woes
The steel industry, often considered a barometer of economic health, is in trouble.
Tata Steel, one of India’s largest steel producers, reported a 36% decline in profits in its latest quarter, with overall revenue down by 3%.
“
While the government continues to project optimism, the ground reality tells a different story
The reasons are twofold: subdued global steel prices and geopolitical tensions that have slowed demand in key regions.
China, the world’s largest steel exporter, ships approximately 9 million tonnes of steel every month.
This oversupply has depressed global steel prices, including in India. Compounding the problem is the dumping of cheap Chinese steel into the Indian market.
Though companies like Tata Steel have not openly blamed Chinese dumping, their global operations in the UK and the Netherlands have also suffered, pointing to a broader trend of declining demand and profitability.
The Indian government’s restrictions on domestic coal production have further exacerbated the situation. Coal India, the state-run coal giant, saw its profits decline by 17% due to lower sales.
Meanwhile, private players like Adani are importing coal from China, that too well above market value, raising questions about the government’s policy coherence.
The Oil Sector: Contrasting Fortunes
The oil sector presents a stark contrast between global and domestic players.
While international oil companies like Shell and British Petroleum are posting record profits, India’s state-run Indian Oil Corporation Limited (IOCL) reported a staggering 76% decline in profit margins in its third quarter.
This is not just a reflection of global market dynamics but also a sign of inefficiencies within India’s public sector enterprises.
The Middle Class: Bearing the Brunt
The government’s reliance on oil excise duties to fund its welfare schemes has further strained the sector.
Over the past 11 years, BJP governments have distributed over ₹20 trillion in giveaways, including free grain and other subsidies.
While these measures may win votes, they come at the cost of long-term economic sustainability.
“
...private players like Adani are importing coal from China, that too well above market value...
The Indian middle class, the backbone of the country’s consumption-driven economy, is hurting.
Defined broadly as those earning between ₹12 lakhs to ₹5 crores annually, this demographic is facing a perfect storm of high taxes, stagnant incomes, and rising costs.
Consider these statistics:
- There is no classification of middle-class in India. It is a broad base subjective category, more so a rhetoric phrase.
Hence, any attempt to target middle-class will be futile by any Indian policy makers.
- The richer segment of the middle class (earning over ₹2 crores annually) pays almost twice as much tax, as a percentage of their income, as the top corporations or billionaires.
- Fuel prices remain high, even though India is getting cheap crude from Russia. It is squeezing household budgets.
- Private education costs have skyrocketed, with many middle-class families forced to opt for expensive private schools due to the poor quality of government education.
“
There is no classification of middle-class in India
The Prime Minister recently highlighted that Indians buy about 2.5 crore cars annually, more than the population of many countries.
However, this statistic masks a deeper issue: inventories of lower-end cars are piling up, while premium cars have waiting lists.
This reflects the growing divide within the middle class, with the lower-income segments cutting back on discretionary spending.
The Exodus of Wealth: A Silent Vote of No Confidence
One of the most alarming trends is the exodus of India’s wealthy.
According to the Henley Private Wealth Migration Report, an average of 5,000 Indian millionaires have migrated overseas annually over the past two years.
These individuals are not complaining publicly; instead, they are voting with their feet by moving their assets and families abroad.
This trend is not limited to millionaires. Even billionaires, while publicly praising the government, are not investing in India.
According to Forbes, India has around 200 billionaires, most of whom are entrepreneurs.
But, despite repeated appeals from the Finance Minister, these billionaires are holding back investments due to weak demand.
The question is: why are they not investing?
The answer lies in the collapse of demand, particularly from the middle class. Without a robust consumer base, even the most ambitious entrepreneurs see little reason to expand their businesses.
The Political Economy of Poverty and Populism
The BJP’s electoral strategy relies heavily on welfare schemes and direct transfers to the poor.
Over the past 11 years, the party has distributed over ₹20 trillion (About Rupees 2- Lakh Crores) in giveaways, including free grain, housing, and healthcare.
“
The question is: why are they not investing?
While these measures have helped the BJP win elections, they have also created a perverse incentive to keep a large section of the population classified as poor.
Consider the case of Haryana, India’s third-richest state by per capita income. Despite its affluence, 75% of Haryana’s population is classified as below the poverty line.
This anomaly raises serious questions about the government’s poverty estimates, which claim that India’s overall poverty rate is below 5%.
The answer lies in the political economy of poverty.
To win elections by distributing to the poor, you need to find enough poor people. If you can’t find them, you simply declare more of them poor.
This has led to the creation of two classes of the poor: the genuine income-linked poor and the electoral poor. The latter often outnumbers the former by at least ten times.
The Textile Sector: A Lost Opportunity
India’s textile sector, once a global leader, is now in decline. According to a report in the Times of India, around 5 lakh jobs may have been lost in the sector due to the economic slowdown.
Textile Minister Shankar Singh confirmed this in the Rajya Sabha, highlighting the challenges faced by the industry.
India was once known not only for the volume of its textile exports but also for the quality of its products, such as muslin cloth.
Today, countries like Bangladesh and Vietnam have overtaken India in low-cost textile manufacturing.
Vietnam, in particular, has signed trade agreements with the European Union and the UAE, giving its textile industry a competitive edge.
Tourism in Goa: A Case Study in Decline
The decline in India’s tourism sector is best exemplified by Goa, once a premier global destination.
In 2019, Goa welcomed 8.5 million tourists. By 2023, that number had plummeted to 1.5 million.
The reasons are manifold: overcharging by local taxi operators, increased competition from Southeast Asian countries, and a general decline in the quality of services.
“
Today, countries like Bangladesh and Vietnam have overtaken India in low-cost textile manufacturing.
Safety concerns, particularly for women, and religious bias have also contributed to Goa’s declining appeal.
These issues are not unique to Goa; they reflect broader challenges facing India’s tourism industry.
The Way Forward: Only Structural Reforms
India’s economic slowdown is not just a cyclical phenomenon; it is a structural crisis.
The government must address the root causes of the problem, including weak demand, high taxes, and inefficiencies in the public sector.
In the long term, the government should focus on reviving sectors like textiles and tourism by addressing issues like overcharging, safety concerns, and quality of services.
To create an environment conducive to private investment by reducing regulatory hurdles and improving infrastructure, is an urgent need of the hour.
“
Currently, India’s economic slowdown is not just a numbers game; it is a crisis of confidence
The middle class needs relief from high taxes and rising costs. The government should consider tax cuts and subsidies for essential services like education and healthcare.
While welfare schemes are necessary, they should be targeted more effectively to avoid creating perverse incentives.
Currently, India’s economic slowdown is not just a numbers game; it is a crisis of confidence.
The middle class, once the driving force of India’s growth story, is now disillusioned.
The wealthy are voting with their feet by leaving the country, while the poor are trapped in a cycle of dependency created by populist policies.
The government must act swiftly to restore confidence in the economy. Otherwise, India risks losing not just its economic momentum but also its place as a global economic powerhouse.
The time for rhetoric is over.
To Comment: connect@expertx.org
Support Us - It's advertisement free journalism, unbiased, providing high quality researched contents.
Google Sites
Report abuse