Taking Stock of the Indian Economy with Prachi Mishra
Apr 24, 2025
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Prachi Mishra is a Professor of Economics and Director at the Isaac Center for Public Policy at Ashoka University, previously serving at the IMF. She discusses the current state of the Indian economy, focusing on growth trajectories and the potential overvaluation of the rupee. The conversation delves into trade policies, the stagnant manufacturing sector, and the vital role of services in addressing trade deficits. Prachi emphasizes the need for structural changes to align economic growth with India's development goals for 2047.
The podcast highlights India's current economic growth rate of 6.2%, emphasizing the importance of careful interpretation of GDP figures amidst cyclical adjustments.
Attention is drawn to the stagnation of manufacturing's share in GDP, suggesting a critical need for revitalizing labor-intensive industries to promote job creation.
Discussion on fiscal consolidation reveals ongoing challenges of high debt levels, necessitating a balance between sustainable spending and maintaining investor confidence in India's economic policies.
Deep dives
Current State of the Indian Economy
The podcast discusses the current state of the Indian economy, highlighting the distinction between cyclical and structural issues. Recent quarterly GDP figures indicate a year-on-year growth rate of 6.2% during the October to December quarter, a notable increase from the previous quarter’s 5.6%. Analysts emphasize the importance of interpreting these figures carefully, considering both seasonal changes in momentum and base effects from the previous year's performance. Factors contributing to the observed slowdown include significant monetary and fiscal tightening in response to past stimulus measures, which may indicate a cyclical adjustment rather than permanent structural damage.
Private Consumption and Employment Trends
The podcast examines trends in private consumption and capital formation, noting a lower-than-trend private fixed capital formation over the last decade. The analysis suggests that while there has been a recovery in demand post-COVID-19 pandemic, household consumption remains subdued, particularly in discretionary spending categories. This deficiency in demand is linked to weak real wage growth across various categories of workers, highlighting the challenges faced by the labor market. Furthermore, the impact of this dynamic on corporate earnings and small-ticket loans suggests a broader signal of economic cooling.
Structural Transformation of the Economy
Discussion on India's structural transformation points out that unlike the traditional path taken by developed economies, India has not witnessed a significant exodus of workers from agriculture to manufacturing and subsequently to services. The podcast emphasizes the need for careful analysis in evaluating India's economic progression, especially in light of ongoing disparities between richer and poorer states. While there have been discussions of an impending demographic dividend due to a youthful population, the potential remains untapped as necessary economic growth and developmental measures lag. Challenges such as differences in economic progress between states, particularly between Bihar and Odisha, underscore the need for focused policy solutions.
Challenges in Manufacturing Growth
The podcast delves into the stagnation of manufacturing's share in GDP, noting that India's manufacturing sector has increasingly become capital-intensive, rather than labor-intensive, which contradicts its labor-abundant status. This shift has critical implications for job creation and economic growth, suggesting a pressing need to stimulate labor-intensive manufacturing to accommodate employment needs. Failure to address these issues could exacerbate existing labor market problems, where high levels of informal employment persist. The call for policies supporting the scaling-up of labor-intensive sectors like textiles serves to illustrate potential pathways for future growth.
Trade Policy and International Dynamics
Trade policy is discussed in the context of India's historical shifts from autarky towards liberalization, and the challenges posed by recent geopolitical shifts and tariff announcements. The conversation reflects on how U.S. and Chinese trade policies affect India, particularly in terms of global supply chains and competitiveness in labor-intensive industries. Tariff dynamics and protectionism are shown to create a tension between fostering a competitive market and supporting local industries. The conclusion emphasizes the necessity for a balanced approach, integrating both trade policy and domestic industrial strategies to maximize competitive advantages.
Evaluating Fiscal Policy and Credit Ratings
The podcast discusses India's approach to fiscal consolidation, highlighting how recent fiscal policies have focused on maintaining low deficits and sustainable spending. Despite the pandemic-induced stimulus being more modest compared to advanced economies, the government has emphasized a shift toward durable fiscal management and improved spending quality. However, the burden of high debt and interest payments remains a challenge for fiscal sustainability. The interaction between discretionary fiscal consolidation and credit ratings reveals that while some policies may reduce debt ratios, maintaining investor confidence requires consistent fiscal performance and clear commitments to future consolidation.
Today my guest is Prachi Mishra, who is a Professor in the Department of Economics, and Director and Head of Isaac Center for Public Policy at Ashoka University. Prior to joining Ashoka, Prachi was Chief of the Systemic Issues Division and Advisor in the Research Department at the International Monetary Fund.
We spoke about the current state of the Indian economy, India’s growth trajectory, if the rupee is overvalued, India’s fiscal consolidation, and much more. We also spoke about Trade, but this episode was recorded before the big tariff announcements on April 2.
