India’s Economic Strength
By Dhurjati Mukherjee
The much-touted economic strength of India has come into question. Not just because of reports of GDP over estimation but the future trend of growth, hampered by geopolitical conditions and the rising prices of oil and gas. Stagnant real wages and somewhat static manufacturing growth data revealed that consumption as well as every macro-economic indicator has been growing more slowly over time.
It would thus not be wrong to say that if real growth was over-estimated over the last decade or so, then total GDP is smaller than what has been revealed. In this connection, one may refer to a recently published document on overestimation of the GDP. In March 2026, the paper titled ‘India’s 20 Years of GDP Misestimation: New Evidence’ by three well-known economists, including Arvind Subramanian, showed that growth was estimated over the past 12 years.
Thus, it would not be prudent to say that we are the 4th largest economy, as claimed. Going by government statistics, the average real growth rate over the last decade, excluding the Covid fall and spike has been just 6 percent. But taking into consideration the decline in consumption, private investment and sales over the past decade, it is amply clear that India’s growth story faces a demand problem. Moreover, in the present geopolitical situation, it is doubtful if the 6 percent figure would be reached in the current fiscal.
Economists expect the government may not be able to meet its fiscal goals with Standard Chartered expecting a slippage of 0.7-0.9 percentage points of GDP. Meanwhile Prof. Deepanshu Mohan an economist at the O.P. Jindal University in an interview stated that India may have to course correct in its geopolitical alignments to strengthen food and energy security for sustained economic growth. If there is over inter-dependence on the US, specially led by President Donald Trump, it could harm the Indian economy. Painting rosy pictures of the Indian economy in the long-term may be a strategy but what will happen in the coming two years is a big challenge before us.
At present, the RBI faces a delicate balancing act between supporting economic growth and containing inflation as external shocks from the West Asan conflict disrupt macro-economic stability. With crude prices surging and supply chains under strain, the RBI decided to adopt a ‘wait and watch’ policy and kept the repo rate unchanged at 5.25 percent while maintaining its neutral stance.
Meanwhile, portfolio investors recorded outflows of $16.6 billion in FY26 with March alone accounting for $13.6 billion – the highest since March 2020. Added to this, the rupee exhibited significant volatility, weakening past the Rs-90 mark earlier this year and touching a low of Rs 98 before recovering to around Rs 93 following RBI’s intervention to curb speculative positions against the domestic currency. India’s balance of payments is also expected to slip into a deficit of 431 billion in FY27, adding to macro-economic pressures.
A country like ours that depends on imports for almost 90 percent of its oil cannot be an oasis of industrial progress and security at a time crude price is oscillating around $100 a barrel and chances are that it may stay at that level for weeks, even months to come. There is no justification of India’s capability withstanding such shocks, specially gas and this has led to sectors like pharma and fertilizers suffering. It goes without saying that unless true energy supplies ate reduced rates from whatever sources, it would indeed be difficult for the Indian economy to face stiff challenges and withstand competition.
There are reports that crude oil sustaining over $100 per barrel is expected to push inflation above 6 percent and trigger rate hikes. Economists at HSBC stated that we are at a crossroads as Brent has averaged $100 in March and this is likely to more or less continue this month though there are apprehensions of some reduction in price.
Meanwhile, what is needed at this juncture is strengthening the manufacturing base for which all types of support, specially highlevels of infrastructure are necessary coupled with induction of cost-effective modern technology. Though India is not lagging, manufacturing has to be geared up in a big way for which research has to be encouraged to innovate and help accelerate the process. It needs to be once again reiterated that the private sector in the country is profit-oriented and does not want to spend on R&D and this attitude must change.
Whatever strategy India adopts, the challenge on the economic front remains due to geopolitical conditions. The US-India deal is yet to be signed while the West Asian conflict has not stopped, and its effects are expected to continue for several months. Exports have declined and gas supply may be affected in the long term.
There is no doubt that the economy is becoming fragile and recovery in the short-term appears quite unlikely. Analysts are of the opinion that with oil prices touching ranging above $110 a few days ago the ceasefire brought it down to $90 presently. Even then, there are expectations that petrol and diesel prices may rise after the recent state elections.
Meanwhile, the government has cut special additional excise duty on petrol and diesel by Rs 10 per litre each to limit OMC under-recoveries, reimposed windfall taxes on exports and granted customs duty relief on select petrochemical inputs until June 2026. Government officials are considering austerity measures, including spending curbs in ministries with installed capacity to use allotted funds though spending on roads, railways and airports is expected may not be affected to sustain the growth momentum.
Meanwhile, as some analysts predicted, the much-awaited truce has not materialized as demands of both Washington and Tehran remained poles apart and may be difficult to reconcile, even in the near future. In such a situation, the Hormuz blockade will have serious consequences for the Indian economy. Though he RBI recently stated that crude oil prices may average $85 per barrel, this may not happen in the first quarter of this fiscal, which is expected to be challenging in view of the global situation. As the RBI governor rightly observed it would be prudent to watch the changing circumstances and the evolving growth-inflation outlook. — INFA