India Economy 2024: K-Shaped Recovery, Inflation Risks, and Global Tariff Impact | Analysis

Global economic instability, driven by U.S. tariff policies and inflationary pressures, compounds India’s domestic challenges, including a K-shaped recovery marked by stagnant wages and slumping consumer spending.

At a recent summit held in Washington, DC, JPMorgan Chase CEO Jamie Dimon  acknowledged the fear spreading across companies in the US following President Donald Trump’s tariff decisions with the terse observation: “Uncertainty is not a good thing.”

It certainly is not. And it is sometimes even worse than a guaranteed disaster.

Since its peak in September last year, India’s benchmark Nifty has lost close to 15 per cent. One could argue it is just a minor blip for a market that more than doubled since the COVID-19 pandemic but the problem for India’s stock market is that there is much more it does not know, than it does.

In a short but intense seven weeks, the Trump administration has ripped out every fuse that prevents the US economy from short-circuiting. Inflation is predicted to surge; economic and financial indicators are flashing red. President Trump has refused to rule out the possibility of a recession and admitted that the US economy may soon be facing “a little disturbance”. He has also shrugged the current state of financial markets as no big deal.

In some ways, he is right. Equity markets in the US have had a few knocks—the S&P 500 is now down 9 per cent from its record high just one month ago, and big tech stocks like Nvidia and Tesla have seen some serious-sized falls. The damage to stock markets has been meaningful but not as dangerous and worrying as the data on consumer sentiment and inflation expectations that indicates a distinctly downward drift in public sentiment around the “on again, off again” nature of things; tariff threats directed at countries like Canada, Mexico, and China; a rash of layoffs and budget cuts by DOGE (Department of Government Efficiency); and the complete absence of conversation or attention around the most critical issue for US voters: rising grocery prices.

CEOs in the US are worried; financial investment houses are trying to talk the market’s anxiety down and the ducking and weaving around economic policy clarity, or the lack of it, has made the whole world a much more uncertain place to live in. The US stock market has lost 4 trillion dollars in value since its February peak.

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Back home, India, until late last month, was clocking up a pretty dismal run itself. Quickly ranking as one of the worst-performing global markets, Indian stocks have, as has been widely reported, seen their worst run in 29 years, wiping 1 trillion dollars in wealth and registering a fall of close to 20 per cent on the wider midcap index.

But this is not about the stock market. As more and more global uncertainty grows, every country, India included, will need to hunker down and ensure domestic growth parameters remain stable and, to whatever degree they can, be protected from the sharp and scattershot nature of America’s economic approach. This may, in theory, have been easier to do if the Indian economy was in a more robust state.

For several quarters now, India has been revealing large-sized holes in its growth canvas. Inflation that has been on a sharp run for many quarters, has shown the first early signs of cooling in a meaningful manner. The worry is that it may be too little, too late.

India’s K-shaped post-pandemic recovery has been exacerbated over the last few years, with insipid consumer spending for the vast majority and increasing wealth for very few. Slumping consumer spending has been marked by two key features. One, India’s middle class, once the country’s most powerful armament, has been disempowered with close to no growth in wages and uncomfortably high household costs thanks to inflation. After a brief sign of relief, two-wheeler and entry-level passenger vehicle sales are slumping again, a clear indicator of how hamstrung a bulk of India’s families are. Savings are low, jobs are scarce.

Two, the widening North-South divide within India. A good exemplar is Tamil Nadu, which has consistently outpaced the national average on per capita income growth on the one hand, and Bihar on the other with a per capita income of Rs.5,028 per month—lower order hitters like Andhra Pradesh have four times that number in per capita income.

There is a third element worth watching over the next few months. While a bulk of trading activity for the Indian stock market tends to be concentrated across Gujarat and Maharashtra, the stock market boom post COVID saw a surge in SIPs (Systematic Investment Plan) from retail investors. Since September last year, there is now a perceptible drop in monthly contributions by investors and a rise in discontinuation of plans. For those that could afford to salt away some money, stock market investments provided a welcome cushion in the face of not much else by way of savings or earnings growth. That has changed.

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Other things have changed too. Overall growth numbers have been scaled down for many economists, landing closer to the 6 per cent mark than the RBI’s target of 6.7 per cent. But this does not factor in weakening global demand. When both levers, i.e. domestic growth and global tailwinds, begin to falter, the fear is you will see precisely what the stock market is displaying at this point in time: deep distress.

The question here is, in this period of uncertainty and global whiplash, which countries will withstand the knocks and which ones will be left weaker and more vulnerable. India may look to improving rural demand or the tax give-away announced in the recently concluded budget for succour. Or it may see an ill-timed “coming together” of economic stresses it has been gathering along the way.

That is the thing with uncertainty. In the words of the wonderful writer Margaret Drabble, “When nothing is sure, everything is possible”.

Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.