Vishleshan for Regulatory Exams 9th October 2025: Don’t Mistake Consumption for Competitiveness!

Staying updated on economic and regulatory issues is non-negotiable for exams like RBI, SEBI, or NABARD. Every topic matters. Every update can turn into a question. In today’s Vishleshan, we focus on ”Don’t Mistake Consumption for Competitiveness!” This issue is timely. Its relevance is growing. And its impact is deeply linked with policy and regulation. Understanding it now will not just help in exams but also sharpen your perspective.

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Don’t Mistake Consumption for Competitiveness!

Context: Sole reliance on domestic private consumption cannot provide a durable solution to growth acceleration, and it is important to ease the constraints on other engines of growth. This requires policy introspection.

Link to the Article: Business Standard

The article examines the celebration of the Indian economy’s resilience, which both the Finance Minister and the RBI Governor attribute to strong domestic consumption. While acknowledging India’s impressive stability amidst global turmoil, the author cautions against complacency. The piece argues that relying solely on domestic consumption is not a durable strategy for achieving the long-term goal of becoming a developed nation. It warns against the allure of protectionism (“Atmanirbhar Bharat” rhetoric) and makes a strong case for deeper, more fundamental reforms in labour, land, and public administration to boost investment, productivity, and global competitiveness.

An Overview of Economic Resilience:

Economic resilience refers to an economy’s ability to withstand, adapt to, and recover from shocks and disruptions. It’s not just about bouncing back to the previous state, but also about the capacity to “bounce forward” by adapting its structure to future challenges.

When the International Monetary Fund (IMF) calls the Indian economy “resilient,” it means that despite significant global headwinds—like geopolitical conflicts, supply chain disruptions, volatile commodity prices, and aggressive trade policies (like the Trump tariffs)—India has maintained macroeconomic stability and a high growth trajectory. It has the capacity to absorb these external shocks without derailing its core economic functions.

Evidence of India’s Resilience:

India’s resilience is validated by its strong performance relative to the rest of the world.

• High GDP Growth Projections: Both the IMF and the World Bank have consistently projected India to be the fastest-growing major economy in the world.
  • For 2025-26, the RBI has upgraded its growth forecast for India to 6.8%. The World Bank recently raised its forecast to 6.5%.
• Contrast with Global Slowdown: This is happening at a time when global growth is slowing down. The IMF’s projection for global growth in 2025 is around 3.0%, less than half of India’s projected rate. This stark difference highlights India’s outperformance.

Factors Behind India’s Resilience:

Several factors contribute to this economic strength:

• Strong Domestic Consumption: A large and young population with rising incomes creates a massive domestic market. This acts as a significant buffer when global demand for exports weakens.
• Stable Financial System: Reforms over the last decade have led to healthier bank balance sheets, a well-regulated financial market, and a robust digital payment infrastructure, preventing the kind of financial contagion seen in other economies.
• Prudent Monetary Policy: The RBI’s proactive management of inflation has helped maintain price stability, which is crucial for sustainable growth.
• Government’s Capital Expenditure (Capex) Push: Increased public spending on infrastructure (roads, railways, ports) creates long-term assets, improves logistical efficiency, and “crowds in” private investment.
• Growing Services Sector: India’s dynamic IT and services sector has been a consistent engine of growth and a major source of foreign exchange earnings.
• Sufficient Forex Reserves: A strong cushion of foreign exchange reserves gives India the ability to manage external vulnerabilities, such as currency volatility and import shocks.

Recent Measures to Boost Consumption:

The government has taken several steps to further stimulate domestic consumption:

• Income Tax Rebates: The Union Budget has provided relief to taxpayers, particularly in the middle-income brackets, by revising tax slabs and increasing rebate limits. This leaves more disposable income in the hands of consumers, encouraging them to spend.
• GST Slab Revisions: Recent GST reforms have simplified the tax structure and reduced rates on a wide range of consumer goods, from household essentials to automobiles and electronics. This makes goods more affordable and is aimed directly at boosting consumption demand.

Decoding the Article: An Analysis

The Central Thesis: A Warning Against Complacency

While the article starts by acknowledging the praise for India’s resilience from the Finance Minister and the RBI Governor, its core message is a cautionary one. The author argues that being content with a 6.5% growth rate anchored solely by domestic consumption is a “misplaced” comfort. Achieving the “aspirational target” of developed-country status requires a much higher and more diversified growth engine.

The Problem with Consumption-Led Growth:

The article points out a key weakness in the current growth story:

• Subdued Private Investment: Despite the government’s efforts to boost capital expenditure, private investment remains sluggish.
• Capital Flight: In a worrying trend, Indian corporates are choosing to invest abroad rather than at home. The article cites RBI data showing a 40% increase in overseas direct investment to $36 billion in 2024-25. This suggests that the domestic environment may not be seen as conducive enough for long-term investment.

The Dangers of an “Autarchic” Turn:

The author expresses a “lurking fear” that the combination of a turbulent global environment and a strong domestic market could push India towards autarky—an inward-looking policy of economic self-sufficiency that shuns international trade.

• “Atmanirbhar Bharat” Rhetoric: The author warns that this slogan, while appealing, could be misused by inefficient domestic producers to demand protection from global competition.
• Protectionism as a Tax: The article makes a powerful point that protectionism is not just a tax on foreign producers but also on domestic consumers (who pay higher prices for inferior goods) and exporters (who face retaliatory tariffs and lose competitiveness).

The Real Path Forward: Deep, Structural Reforms

The author argues that instead of building protective walls, India should use the current global challenges as a “wakeup call” and an “opportunity to reform.” The only durable solution is to enhance productivity and global competitiveness. The article calls for fundamental, “hard-nosed reforms” that go beyond the surface:

1. Factor Market Reforms: This is the core policy prescription. The author explicitly calls for reforms in labour and land markets, which are notoriously rigid and are seen as major impediments to investment and industrial growth.
2. Continued Fiscal Consolidation: With the household sector’s net financial saving being low (around 5.1%), the government must continue to reduce its deficit to lower the cost of capital for private investors.
3. Revival of Disinvestment: Public investments should be financed through a renewed push for the privatisation of state-owned enterprises.
4. Public Administration Reform: This is crucial to ensure the rule of law, protect property rights, and enforce contracts efficiently. A weak legal and administrative framework is a major deterrent to long-term investment.

In conclusion, the article presents a nuanced and critical perspective. It acknowledges India’s current strength but argues that this resilience should be a foundation for deeper reforms, not an excuse for complacency and protectionism. True self-reliance comes from being strong enough to compete globally, not from shielding oneself from it.