GDP growth is set to rebound, slowdown just temporary: FM

New Delhi Slowing economic growth is a temporary phenomenon as the Indian economy is set for a “speedy rebound”, and the depreciation in the Indian currency is on account of external factors, finance minister Nirmala Sitharaman said in the Lok Sabha while replying to the debate on Union Budget 2025-26, addressing the two issues raised by several members in the course of the discussion.

“In three years prior to 2024-25, the country’s GDP growth rate averaged about 8%. Only in two out of last 12 quarters, [the] growth rate touched 5.4 or remained below it. I want to inform the members that on account of strong economic foundation, a speedy rebound is happening and we shall take measures, which will , going forward , help in keeping our economy growing fastest as before,” she added, pointing out that the government’s continued emphasis on capital expenditure, and growing private consumption will power growth.

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Various domestic and global factors influence the exchange rate of Indian rupee, such as the movement of Dollar Index, trend in capital flow, level of interest rates, movement in crude prices, current account deficits, etc. So, the currency volatility across major countries is really extensive,” Sitharaman said.

The US Dollar Index rose 6.5% during October 2024 to January 2025. Major Asian currencies, such as South Korean won, Indonesian rupiah, Malaysian ringgit, depreciated by 8.1%, 6.4% and 5.9%, respectively in this period. G10 currencies also depreciated during this period by more than 5.5%. For instance, Japanese yen depreciated by 7%, British pound by 6.6% and 5.8% is the euro.

“This is even acknowledged… by the former RBI Governor Sri Raghuram Rajan, who even participated in the Bharat Jodo Yatra,” she said. The Yatra was an initiative of the Opposition, led by the Congress Party.

Quoting Rajan’s January 15, 2025 version on this matter, Sitharaman said: “ The fixation, of course, always is with the rupee-dollar exchange rate. The reality is the dollar has been strengthening against many currencies. If you look at euro versus dollar, dollar could buy 91 cents in the euro at the beginning of last year, and now it buys 98 cents. That’s about a 6% or 7% depreciation in the euro. That’s about what has happened to the rupee from about 83 to 86 change. May be even a little less than what has happened to the euro. So, it’s really a dollar issue.”

“If you look at the real, effective exchange rate of the rupee it has not depreciated that much. Some nominal depreciation might be useful for exports,” she added, again citing Rajan.

The finance minister also referred to India’s relative performance.

“We continue to remain the fastest growing economy,” she said. Private final consumption expenditure (a measure of consumption) is expected to grow by 7.3% in 2024-25 driven by good rural demand and the same is estimated to be 61.8% of the nominal GDP, which is the highest since 2002-03, she said.

India is expected to grow by 6.4% in 2024-25 and between 6.5% and 6.8% in 2025-26. The numbers are below the 8.2% growth in 2023-24, and the Economic Survey has admitted that the country’s economy needs to grow at the rate of 8% to meet the government’s target of making India a developed country by 2047.

Sitharaman also rebutted the Opposition’s charge that there has been a decline in household savings and said this has increased at a compound average growth rate of 8.9% from 2019-20 to 2022-23. “There is reallocation of savings by households to real assets,” she said, pointing to increased investments in real-estates post-Covid period.

Sitharaman also denied that the government has slashed public expenditure. Total expenditure of the Union budget for FY26 is projected at ?50.65 lakh crore, which is higher by about ?2.44 lakh crore and ?3.49 lakh crore than the budget estimates (BE) and revised estimates (RE) of 2024-25, the minister said. Capital expenditure, which was ?11.11 lakh crore last time, is now ?11.21 lakh crore, she added, and with grants and interest-free long-term loans to states, the effective capital expenditure for 2025-26 is pegged at ?15.48 lakh crore. The effective capital expenditure in FY26 is 4.3% of GDP.

Ahead of the finance minister’s speech, Samajwadi Party leader Akhilesh Yadav expressed concerns over India losing its growth momentum, the fall of the rupee against the US dollar and growing income inequality.