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For years, India’s booming economy fueled exuberance that the South Asian nation had entered a new era of faster growth, powering its markets to new heights and raising expectations it would exit the trenches of developing-nation status in a few decades.
Now, a deepening slowdown is raising concerns that a three-year boom wasn’t the start of a new era but a blip. The latest government figures show the economy will expand at a four-year low of 6.4% in the current fiscal year, a return to a slower pre-Covid norm.
Moreover, analysts say growth in the coming years will likely remain well below the 8% average of the past three years — and the pace Prime Minister Narendra Modi needs to meet his ambitious economic goals.
Concerns about the world’s fifth-largest economy had been mounting for weeks. Business spending has slowed, consumers have cut back as inflation remained high and wages slid, while corporate profits have taken a hit. Investors have already turned bearish, with the S&P BSE Sensex Index falling nearly 9% from its peak in less than a month and the rupee hitting a record low of 85.8725 per dollar on Wednesday.
The slowdown is casting doubt on whether the post-pandemic boom years were little more than a short-term rebound in pent-up consumer demand following two years of government-imposed lockdowns.
“What we are seeing now is that the economy is slowly going back to its potential growth rate of 6%-6.5%,” said Gaurav Kapur, chief economist of IndusInd Bank Ltd.
The new, slower rate of growth — still the envy of many nations and a world-beater, to be sure — presents fresh challenges for the Modi government following elections last year in which his Bharatiya Janata Party lost ground in parliament, largely over bread-and-butter economic worries like high inflation, which remains well above the central bank’s 4% target.
Modi wants to make India a “developed country” by 2047, a goal that requires growth closer to 8%. Most economists and multilateral institutions think the required target will be difficult to achieve consistently in coming years.
The International Monetary Fund predicts India’s growth will average 6.5% over the next few years, while the World Bank estimates 6.7%. Goldman Sachs Group Inc. sees growth of just 6% for the current fiscal year ending in March and 6.3% in financial year 2025-26.