Optimism Under Siege: Can India Sustain Its Growth Story?

Optimism Under Siege: Can India Sustain Its Growth Story?

India’s latest Economic Survey 2025, Budget 2025-26, and Finance Bill project steady GDP growth of 6.4%, propelled by investments in agriculture, MSMEs, and infrastructure. While these documents convey fiscal prudence and optimism, they also acknowledge key global and domestic challenges, including geopolitical tensions, volatile commodity prices, and weak export demand. Beneath these headline figures lies a deeper story of structural imbalances threatening momentum. Addressing these risks through immediate and bold reforms will be critical for sustaining the nation’s economic trajectory.

The headline success story is public infrastructure spending, complemented by strategic policy engines highlighted in the Budget 2025-26. Agriculture, MSMEs, investments, and exports are positioned as the four engines of growth. Key infrastructure initiatives include a ₹1.5 lakh crore loan program to states for capital projects and the development of greenfield airports in Bihar. Additionally, programs like the 'Prime Minister Dhan-Dhaanya Krishi Yojana’ aim to develop agri-districts, and MSMEs benefit from expanded credit access with a ₹10 crore limit. However, despite these measures, the private sector—the real engine of sustained economic progress—remains hesitant. According to the Economic Survey 2025, private sector investments have grown only marginally at 2.8%, compared to the government’s 15% increase in capital expenditure. Businesses cite ongoing geopolitical uncertainties, fluctuating export demand, and high borrowing costs as primary deterrents to expansion.

This imbalance is concerning. Over-reliance on government-driven projects can create artificial short-term growth while crowding out more sustainable, market-driven expansion. Unless private capital is reignited, India risks a slowdown in productivity gains and employment growth.

The Survey is confident that inflation will stabilise soon, attributing price pressures to temporary shocks in the agricultural supply chain. However, the Budget 2025-26 introduces a comprehensive program to boost vegetable and fruit production, with institutional mechanisms for storage and supply chain improvements. Despite these efforts, recent heatwaves have led to a nearly 30% surge in onion prices and a doubling of tomato prices. The Budget aims to mitigate such shocks by investing in robust storage infrastructure, promoting sustainable farming practices, and improving supply chain mechanisms to buffer against climate-induced disruptions. Historical trends indicate that climate-driven price volatility is becoming a recurring challenge, which will continue to impact rural households already grappling with inflationary pressures across global fuel and fertiliser markets.

On paper, India's fiscal management appears impressive. The Budget 2025-26 continues to support significant capital outlays with a ₹1.5 lakh crore loan program for state infrastructure investments. However, election-year expenditures have surged by 20%, driven by increased spending on subsidies and welfare schemes. These measures, essential for political stability, are placing further strain on already stretched budgets.

India’s states, many of which depend heavily on central government transfers, present another weak spot. With limited capacity to raise revenues independently, they risk underperforming on crucial development projects, widening regional inequalities.

India’s services sector, driven by financial services, real estate, and IT, continues to shine. Yet, not all boats are rising with the tide. Industries tied to global markets, such as manufacturing, are struggling due to weak export demand and costly inputs. Sub-sectors like textiles and engineering goods have reported steep declines in export orders, while the automotive sector faces higher input costs due to global supply chain disruptions. The Economic Survey 2025 indicates that export growth slowed to 1.8%, with sectors like textiles and engineering goods facing steep declines due to increased global protectionism and currency fluctuations.

Additionally, input costs for critical raw materials rose by over 15% due to supply chain disruptions. Meanwhile, small and medium-sized enterprises (SMEs), which employ a significant share of the workforce, are seeing their margins squeezed by high borrowing costs and operational inefficiencies. Tariff-induced supply chain disruptions worsen these pressures, particularly for industries relying on imported components.

This divergence is dangerous. As formal employment opportunities stagnate, the informal sector and gig economy fill the gap, offering precarious, low-wage jobs that cannot sustain long-term economic security. Without structural reforms to boost industrial competitiveness, India’s demographic dividend may become a demographic liability.

India’s trade outlook, celebrated for its resilience, faces mounting challenges from global trade disruptions. U.S. tariffs of 10% on China and 25% on Mexico and Canada create ripple effects, influencing India's export competitiveness and global supply chains. These moves create ripple effects, influencing India's export competitiveness and supply chains. Export growth has decelerated to 1.8% amid increasing global protectionism. In comparison, imports of critical raw materials like electronics and solar components have surged by 12%, reflecting India's growing dependency on foreign supply chains. The Economic Survey 2025 and Budget documents highlight the vulnerability of India's balance of trade to geopolitical shifts and new environmental regulations like the EU's Carbon Border Adjustment Mechanism (CBAM). Regions heavily reliant on manufacturing exports, such as Gujarat and Maharashtra, are feeling the strain of these barriers. Additionally, key manufacturing sectors like steel and automotive are dealing with compliance costs and heightened competition as U.S.-China trade tensions push more Chinese exports into global markets, undercutting prices. While services exports and remittances provide cushioning, protectionist policies and currency fluctuations could wipe out these gains.

The survey downplays these risks, assuming domestic growth levers can compensate for a weakening global trade environment. This assumption is dangerous in an increasingly fragmented world economy where trade dependencies are weaponised and politicised.

Amid the hype surrounding India's burgeoning tech sector, concerns about employment loom large. The Budget 2025-26 has allocated ₹500 crore to establish a Centre of Excellence in AI for education, and five National Centres of Excellence for Skilling will be created to equip workers for both the 'Make in India' and 'Make for the World' initiatives. However, the gap between skilling efforts and automation remains significant. In traditional sectors like textiles and logistics, automation has displaced jobs by 12% and 15%, respectively, while retraining programs have only reached a small fraction of the affected workforce. Without targeted reforms, India risks widening its already troubling socio-economic divides.

India’s economy is not on the brink of crisis. The foundations remain solid—corporate and financial sector balance sheets are healthier than they were pre-pandemic, and significant infrastructure projects are progressing steadily. Yet, the current growth story is built on unstable pillars. Unless addressed, persistent inflation, uneven sectoral recovery, and weak private investment could derail the momentum.

Historically, policymakers have been criticised for resting on their laurels during periods of growth. This time, however, bold action is needed to break that cycle. The road to sustained prosperity will require bold reforms, more intelligent regulation, and a concerted effort to integrate into the rapidly evolving global economic landscape. Without these, the narrative of a paradise economy may quickly unravel.

India has a choice: sweat now or bleed later. The stakes are too high for business as usual.