India must shift its policy focus to address the demand deficiency that ails its economy.

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Subscribe to enjoy similar stories. Two key pieces of economic data released last month have rung alarm bells on the state of India’s economy. The first was on retail inflation, which breached the 6% upper tolerance limit in October, climbing to 6.21%, the highest since August 2023.

Food inflation was 10.9%, the highest since July 2023. The second data-point was on growth in gross domestic product (GDP) in the second quarter of 2024-25, which, at 5.4%, was the lowest since the last quarter of 2022-23. Not only was this the sixth straight quarter of decline from a high of 8.2% in the first quarter of 2023-24, it also came as a shock to the government.

While the Reserve Bank of India had projected a growth rate of 7% as late as October, even the finance ministry was off the mark with a projection of 6.7%. This reflected the inability of our financial and monetary authorities to read the state of the Indian economy accurately. For manufacturing, the growth rate has been trending down from 14.3% in second quarter of 2023-24 to 2.2% in the latest quarter.

Overall, for the secondary sector, including construction and utilities, the decline has been from 13.7% to 3.9% during the period. This slump did not happen all of a sudden. It has been visible for the last six quarters, but there was no urgency to correct the policy prescriptions or even acknowledge the severity of the problem.

This was true for the issue of inflation as much as for the state of the economy. A host of economic indicators have been pointing to deficient demand. Wage data from rural areas has been signaling distress.