Is India becoming wealthier or struggling under its growth story? Wisdom Hatch founder Akshat Shrivastava, in a post on X, unpacked the mixed signals from India’s economy.
On the one hand, India is poised to become the world’s fourth-largest economy by GDP, surpassing Japan this year.
On the other, nearly 800 million citizens depend on free rations, household savings are at historic lows, and the rupee has depreciated to its weakest levels.
India’s GDP growth, a key indicator of economic health, is showing troubling trends, he writes.
“Since 2019, our average real GDP growth rate has hovered around 6%, which is concerning for a growing economy of India’s scale,” Shrivastava explains. By comparison, China grew at double-digit rates during its peak growth phase.
Private spending, which makes up 60% of India’s GDP, is slowing down. Over the last five years, its growth has averaged only 4.8%. “High taxes and declining household savings are key contributors to this slowdown,” he notes. India’s savings-to-GDP ratio is now at a 50-year low, leaving less disposable income to fuel economic growth.
Foreign investors are also sending mixed signals. While foreign direct investment (FDI) inflows increased by 26% in the first half of FY24-25, net FDI—a more accurate indicator after accounting for outflows—has dropped to a 12-year low. “This indicates foreign investors are not betting on India’s long-term prospects,” Shrivastava warns.
The weakening rupee should, in theory, attract FDI, as investors can buy more with their foreign currency. However, even with the INR dropping from 54 to 86 against the dollar over the last decade, FDI and foreign institutional investor (FII) participation have declined. Shrivastava highlights, “Domestic consumption alone cannot drive massive growth. Real growth requires foreign investments or exporting goods and services.”
To reverse these trends, Shrivastava suggests tax cuts and better fiscal policies. “Tax rationalization is necessary to widen the base beyond the current 2% level. This would propel markets, boost consumption, and encourage growth.”
His advice to investors? Diversify globally, invest in high-growth sectors like AI and semiconductors, and prepare for a high-inflation environment. “Your wealth is in your hands.”
