In an interview, DK Srivastava, Chief Policy Advisor — EY India, reflects on the macro and microeconomic policy shifts of 2024 and their impact on the daily lives of common man. He shares insights on inflation, income growth, and employment trends, RBI rate cuts while outlining key policy expectations for 2025. Edited excerpts:
What is your overall assessment of how 2024 has been for the common man?
I would assess that common man has not been in a terrible (dire) condition but had to navigate through challenging and subdued economic conditions. Common man looks for an economy that would be able to offer him a productive employment opportunity so that he can earn for himself and family. Employment situation has been compromised because of lower growth.
Inspite of government being able to offer minimum wage, the welfare improving dimension of common man is the opportunity to participate in productive employment in the economy. That I think the policies of the government have not met to a satisfactory situation. There was a set of Budget proposals for augmentation of employment. Those schemes have not actually taken off in full bloom. It is surprising that heart of the budget in terms of employment promoting schemes and infrastructure — both languished even though we are passing the calendar year now and only three months are left for fiscal year to end.
Do you see need for some relief on petrol pricing be passed on to Indian households?
Well global crude oil prices have remained on an average below $ 75 per barrel. I would consider that as a favourable situation for India. Indian crude basket has actually improved from April 2024 to December 2024 where average price had improved from $ 89 to about $ 73. All that benefit has not been passed on to consumers. Oil marketing companies had just passed on ₹ 2 per litre on petrol. There has not been additional concession on central excise although some State governments had reduced some part on VAT for petrol products. The petroleum situation is such that room for manoeuvres is limited. When the supply side situation improves through interventions, then India might be in a situation to actually bring down retail petroleum prices. Until that happens, we might have to live at current levels of retail prices. To that extent common man cannot expect relief coming his way through this route in 2025.
How do you see the Q2 GDP growth slowdown at 5.4 per cent impacting life of common man?
Well, the Q2 GDP growth at 5.4 per cent came as a surprise to most observers of Indian economy. The market expectation was 6.5 percent. We ourselves thought it would be 6.9 per cent or so. It was lower by more than one percentage point. The immediate reason is the government falling short of its capex growth target by massive margin. If GDP growth rate is allowed to come below 6 per cent, it would affect the common man quite significantly. Infact in Q2, urban incomes and urban employment saw significant slowdown and as result of that the expenditure growth on urban side was tepid. So, in the medium term, we hope the government will get back to its investment expenditure momentum and if that is done, we might be able to maintain cruise speed of 6.5 per cent of growth in medium term. If that is done, we can then focus on two other major issues of employment and inflation.
Given the recent economic slowdown, do you think common man is now worse off than 2023 in 2024?
2024 everybody has lowered their annual growth forecast to lower than 7 per cent. Our own forecast is at 6.5 per cent. What it means for the common man is that we will have at settle at growth rate at less than 7 per cent. It might signal that maintaining growth at 7 per cent year after year maybe difficult if that growth were to depend on domestic growth drivers. We have to wait for global conditions to improve before we aim for 7 per cent growth again. Unless we reach 6.5-7 per cent, we may not be able to create conditions for significant improvement in employment situation. That would affect common man profusely and impact their disposal incomes and even pinch their wallets.
Do you see case for RBI to cut rate in February to propel growth?
The level of CPI inflation and structure of CPI inflation are material for the welfare of common man. That has to be major consideration for policymakers. RBI’s mandate is to focus on overall CPI inflation, which in recent months have been well over 5 percent. Infact, it has been over 6.2 percent in October. As long as it remains high, well above mean target of 4 percent, RBI will find it difficult to reduce the repo rate.
The real concern for policymakers and common man is food inflation, which is supply side. Because of seasonal shortfalls particularly vegetables and other protein items like eggs, meat and manufactured products, food inflation has remained relatively high.
In February, the likelihood is strong that there would be 25 basis point reduction in policy rate. Finance ministry has been signalling that monetary authorities should begin to share some of the burden for driving growth.
Would all these translate to better second half for common man?
Any benefits to common man and improvement in private sector investments would take some time even if the rate reduction happens in February.
The transmission of that through the system will take time and it will be easily passing over the fiscal year before any positive effect becomes visible. One more point is nominal GDP growth has come down sharply. First two quarters has averaged 8.5 per cent, budgeted nominal growth is 10.5 per cent. Then achieving tax revenues may be compromised and budget targets may not be met. This will have issue on what government may have to do on welfare schemes.
Should government accelerate fiscal consolidation?
I think fiscal consolidation target of 4.5 per cent should be met. I think government should not aim at accelerating it beyond that very quickly. I think it should pursue fiscal consolidation path in medium term and take another 2-3 years to come to FRBM target of 3.3 per cent or 3.5 per cent before relaxing on capital expenditure growth.
The priority should still be maintaining government’s investment expenditure growth. That will help in infrastructure expansion, which is deficient in India, reduce the cost of producing and make us competitive. Fiscal consolidation we have to do incrementally and succeed in medium term.