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We head into the New Year with India continuing to be the fastest growing large economy in a world marked by challenges. The latest World Economic Outlook of the International Monetary Fund (I MF) indicated a continued slowdown in global economic growth, with risks remaining tilted to the downside. This came amid the disruptions brought by US tariffs, which also brought 25% extra tariffs on Indian goods, making it a total of 50% on goods exported by India to the US.
On 28th November 25, the National Statistical Office (NSO) announced 8.2% GDP growth for Q2 of F.Y. 25-26. The growth in the face of a global slowdown, the punishing Trump tariffs and the 7.8% GDP growth of Q1 FY26, is noteworthy. GDP growth has been contributed by all three sectors of the economy viz. Primary-agriculture at 3.5%, Secondary-industry at 7.7% & manufacturing at 9.1% and Tertiary-services at 9.2%, indicating that the core of the economy is robust.
India has comprehensively transited from fragile five in 2013 to an enviable micro-economically stable geography represented by low inflation, low fiscal deficit, contained debt (just about 80%) to GDP ratio, endurable current account deficit and high forex reserves of over US $ 600 billion
Skeptics about these numbers and the upgrade in the GDP growth rate are not far to seek. Recently, the IMF rated India’s GDP Data quality as ‘C’, a low mark. "Economic change in all periods, depends more than most economists think, on what people believe," wrote Joel Mokyr, the 2025 Noble Laureate in Economics in the opening of his book, ‘The Enlightened Economy: An Economic History of Britain 1700-1850’, published in 2010. We may ask: what do people believe in the case of the India growth story?
With the revival of the economy post pandemic, the GDP growth of India has been exceeding expectations of the economists and analysts year after year. The GDP growth of 9.2% in F.Y. 2024 was dismissed as a statistical mirage driven by very low deflators and it was predicted that GDP growth would come down to earth the following year. But in F.Y. 2025, India delivered a GDP growth of 6.5%, taking the average GDP growth of the two years to 7.85%, far beyond the deflator washout hypothesis.
GDP growth of 9.2% in F.Y. 2024 was dismissed as a statistical mirage driven by very low deflators
India’s long term GDP growth since 2000 has been 6.5%. Seemingly, India’s potential GDP growth has moved up to over 7%. What is adding up to this surmise is an array of reforms and affirmative actions taken by the Union government in the last decade. Macro-economic reforms include the consolidation of the fragmented indirect tax regime into GST and its rationalis ation this year, legislative creation of the Exit Policy-Bankruptcy Code (IBC), Real Estate Regulatory Authority (RERA) and Monetary Policy Committee (MPC) etc.
India has since comprehensively transited from fragile five in 2013 to an enviable micro-economically stable geography represented by low inflation, low fiscal deficit, contained debt (just about 80%) to GDP ratio, endurable current account deficit and high forex reserves of over US $ 600 billion.
The RBI’s State of the Economy paper published in December noted, “Continued focus on macro-economic fundamentals and economic reforms should help unlock efficiencies and productive gains to firmly keep the economy on high -growth trajectory amidst a fast-changing global environment”. These major reforms have been supplemented by the cleanup of balance sheets of banks and corporates, creation of national digital public infrastructure to bridge the digital divide, a major shift in public expenditure from revenue heavy to capital formation-infrastructure build up and the steady decline of fiscal deficit of 500 basis points reduction in five years.
Lifting the potential GDP growth to over 8%, the minimum required rate for achieving developed economy status by 2047, warrants factor and institutional reforms covering the judiciary, public administration, police, among others, in addition to land reforms, electricity reforms etc
In addition, some of the affirmative action schemes like Lakhpati Didis, Mudra Loans, and support to Farmers’ Producers Organizations (FPO) etc. launched in the last decade are now playing out. It is estimated that at the end of 2025, there were one crore Lakhpati Didis as against the target of three crore. By now, 52 crore Mudra loans amounting to Rs. 33 lakh crore have been disbursed. National Agriculture Market, known as ‘e-NAM’, India’s electronic trading portal that networks existing Agriculture Produce Market Committees (APMCs) and individual farmers, making it a unified national market for agricultural commodities, has been put on a robust frame.
Such affirmative actions have provided financial support, led to job creation, skill enhancement, capacity building, and market linkages, instilling the empowerment and financial and social inclusion of the lowest strata of society, especially in rural areas and those engaged in agriculture.
Private sector investments continue to be sluggish even now
Confidence amongst professionals and institutions in the S table public policies is validated in part by the growing number of Global Capacity Centers (GCCs) built in India. Currently, there are nearly 1,800 GCCs employing over 19 lakh people which generated a revenue of US $64.6 billion by 2024. The number of GCCs continues to grow year after year and the revenue expected by 2030 is $100 billion.
‘Jan Viswas’ steps like self-attestation, self-assessment, decriminalization of hundreds of offenses/lapses, push for refund of public moneys by banks, insurance companies and mutual funds, and tax authorities etc. seem to indicate that direction of governance is moving, albeit slowly, from policing to an administrative state. Implementation of recently announced labour reforms, the Gauba Committee recommendations focusing on easing the burden for Macro, Small and Medium enterprises (MSMEs), Securities Market Code and SAKTI legislation etc. will likely aid growth.
These steps are leading to growing economic engagement, improving infrastructure, declining logistics cost, reducing financial repression and rising incremental capital output ratio (INCOR). Whereas these reforms may not look like the Big Bang reforms of 1991, the trail of bits and pieces of incremental steps seem to be favorably influencing the potential GDP growth of India.
However, lifting the potential GDP growth to over 8%, the minimum required rate for achieving developed economy status by 2047, warrants factor and institutional reforms covering the judiciary, public administration, police, among others, in addition to land reforms, electricity reforms etc. These are essential for the reduction in time and cost of enforcement of contracts, land acquisition, ease in the delivery of public service and raising of total factor productivity (TFP).
It is important to note that currently only one of the investment engines is firing at full throttle. This is the public sector. Public investments have budgetary limitations. The private sector investments continue to be sluggish even now. Government must engage with trade and industry bodies to understand why this is so and take appropriate measures to spur private sector investment. This is India’s moment to capitalize the demography and build a prosperous nation.
