Cyclical factors, often short-term and reversible, have recently weighed on growth. The 2024–25 slowdown to 6.4% reflects global trade contraction, reduced government capex ahead of elections, and inflationary pressures. Private consumption, contributing 60% of GDP, dipped as rural demand faltered—partly due to erratic monsoons affecting agricultural incomes. Exports, too, faced headwinds: merchandise shipments grew at 2–3% in FY25, down from 12% in FY23, mirroring global demand slumps The RBI’s 25 bps rate cut in December 2024 aimed to counter these drags, but transmission remains sluggish amid risk-averse lending.
However, cyclicality alone doesn’t explain India’s challenges. Structural issues—deep-seated inefficiencies requiring systemic reforms—are equally culpable. The investment rate, stagnant at 29–30% of GDP since 2019, underscores stagnant private capex, with corporate debt overhang and stalled projects plaguing sectors like power and infrastructure. Manufacturing’s inability to ascend value chains, despite PLI schemes, reveals skill gaps and R&D underinvestment—India spends 0.7% of GDP on R&D versus 2–3% in developed economies. Labor market rigidities persist: 83% of the workforce remains informally employed, limiting productivity gains.
Yet, structural strengths provide resilience. Demographics are a cornerstone: with 67% of the population under 35, India adds 12 million workers annually, a dividend if harnessed through education and formal job creation. Digital infrastructure is another pillar: UPI’s 100 billion annual transactions and Aadhaar’s biometric database have revolutionized financial inclusion, enabling initiatives like ONDC and Account Aggregator to boost SME credit. The rise of unicorns (120+ as of 2025) in fintech, edtech, and SaaS signals private-sector innovation, albeit concentrated in services.
The interplay of these forces shapes sectoral outcomes. Agriculture, employing 45% of the workforce but contributing 17% of GDP, epitomizes structural stagnation. Low mechanization, fragmented landholdings, and weak market linkages perpetuate low productivity—contrast this with Israel, where agri-tech boosts yields 5x. Conversely, IT’s rise reflects structural advantages: English proficiency, cost arbitrage, and global demand for digital services. However, overreliance on services risks “premature deindustrialization,” where manufacturing plateaus before reaching maturity, a phenomenon observed in Latin America.
Policy responses have been mixed. The 2025 Union Budget’s focus on fiscal consolidation (4.4% deficit target) and capex (₹11.2 trillion outlay) balances cyclical support with structural intent. PLI expansions into drones and solar modules aim to diversify manufacturing, while the PM-DAKSH skilling initiative targets 500,000 workers annually. However, land and labor reforms remain pending, hindering industrial growth.
Global comparisons offer insights. China’s 1990–2010 boom was structurally rooted in manufacturing exports and urbanization, while Brazil’s growth sputtered due to cyclical commodity dependence. India’s path is hybrid: services drive growth, but manufacturing lags, creating a dual economy. The PM Gati Shakti initiative, integrating infrastructure planning, could bridge this gap if implementation accelerates.
For investors, the implications are nuanced. Cyclical plays include consumer staples and autos, poised to rebound with rural demand recovery. Structural bets lie in renewables (500 GW target by 2030), semiconductors ($10 billion incentive pool), and fintech (80 million underserved SMEs) Risks include political inertia in reforms and global shocks—oil prices, geopolitics—that could derail cyclical recovery.
In conclusion, India’s economy is neither purely cyclical nor structural but a mosaic of both. The cyclical downturn of 2024–25, exacerbated by external shocks, masks deeper structural potential. Realizing this potential requires addressing rigidities in labor, education, and governance while leveraging digital and demographic tailwinds. For wealth managers, this duality underscores the need for a balanced portfolio: defensive sectors to weather cycles and strategic allocations to structural growth engines. As the adage goes, India grows at night while the government sleeps—but sustained progress demands waking up to reform realities.