Jobs remain the biggest challenge as economy closes a mixed year

It’s been an unusual year for the Indian economy. If growth surpassed market expectations to settle at 8 percent in the first half of the fiscal, other macro indicators saw a mixed performance. Merchandise exports struggled amid steep US tariffs, while rupee plunged to new lows. The saving grace was that inflation softened and interest rates eased, making credit more affordable to both households and businesses. Even as growth holds up and private demand turns around, the industry remains reluctant to kick-start the much-awaited private investment cycle, thanks to trade uncertainties, a fragmenting global economy reshaped by wars and shifting supply-chain dynamics. Notwithstanding the government’s capital expenditure, if private investments and manufacturing activities do not pick up, job creation and wage rise will remain elusive.

The good news amid the prevailing uncertainties is that India’s growth forecasts hold promise both for this fiscal and the next. The IMF pegged it above 6.5 percent for each year, citing personal income tax reductions, an accommodative monetary policy, the ongoing GST reforms, and a likely trade deal with the US. But merchandise exports are coursing through a rough patch—not just to the US, but even to ASEAN economies, even though services exports, particularly IT and business-process management, are remaining robust. As if the export shock isn’t enough, currency volatility is brewing fresh trouble. The rupee is in a free fall, and the decline isn’t just limited against the US dollar but is ending up as a widespread depreciation. For instance, the RBI’s index marking changes against 40-odd currencies fell nearly 9.9 percent this year, which means rupee’s depreciation is not just a nominal adjustment but an erosion of purchasing power.