ECONOMY GROWS FASTER THAN EXPECTED, BUT WARNINGS REMAIN

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Context

Despite being one of the world's fastest-growing major economies, India's high-growth narrative is tempered by structural concerns regarding job creation, inequality, and sustainability.

Indian Economic Status

Key Drivers of Indian Economic Growth

Services Sector Dominance

Contributing approximately 55% to the National Gross Value Added (GVA). (Source: PIB)

Robust Domestic Consumption

A rising middle class and increasing urbanization fuel strong domestic demand, which is a stable pillar of economic growth.

Government-led Capital Expenditure

Government's focus on infrastructure through initiatives like the National Infrastructure Pipeline (NIP) and PM Gati Shakti is boosting capital formation and encouraging private investment. For FY26, the capital expenditure outlay is set at ₹11.21 lakh crore. (Source: Union Budget 2025-26)

Thriving Digital Economy

India's Digital Public Infrastructure (DPI), especially the Unified Payments Interface (UPI), is enhancing economic efficiency and formalization. UPI processed over 228 billion transactions in 2023. (Source: NPCI)

Manufacturing Sector Push

Initiatives like "Make in India" and the Production-Linked Incentive (PLI) schemes are aimed at increasing the manufacturing sector's share in GDP and creating employment.

Resilient External Sector

For FY26 (April-August 2025) the total exports of services were estimated to be $165.22 billion, a 110.53% rise as compared to the same period of the previous year. (Source: IBEF)

Key Structural Reforms

Implementation of the Goods and Services Tax (GST) has unified the domestic market, and continuous efforts to improve the ease of doing business have made the investment climate more favorable.

Structural Concerns

Employment & Labour Market

Unemployment Rate: The overall unemployment rate fell to 4.7% in November 2025, the lowest since 2018 (Source: Periodic Labour Force Survey).

Rural vs Urban Divide: Urban unemployment at 6.5% remains higher than rural unemployment at 3.9% (Nov 2025), indicating a persistent structural imbalance in the labor market.

Youth Unemployment: The unemployment rate for the 15-29 age group, though easing, remains high at 14.9% (Nov 2025), pointing to a mismatch between skills and available jobs.

Structural Issues: Over 44% of the workforce remains engaged in agriculture, which has a declining share in GDP, indicating issues of disguised unemployment and the need for labor market reforms.

Mismatch in Skills: The India Skills Report 2024 found that overall youth employability was 51.25%; gap between the skills of graduates and the demands of modern industries.

External Sector Stability

Trade Deficit: Merchandise trade deficit recorded an all-time high of $41.7 billion in October 2025, driven by a surge in gold imports. (Source: PIB)

Global Headwinds: Slowing growth in major economies like the US, EU, and China, along with geopolitical uncertainties, could dampen India's export growth potential.

US Tariff:  The US tariff on India now totals 50% on most Indian exports.

• Heavily Impacted: Textiles and apparel, gems and jewelry, leather and footwear, marine products (shrimp), chemicals, and auto components.

K-Shaped Recovery 

A K-shaped recovery describes an uneven economic rebound where different sectors or demographic groups recover at drastically different rates.

• Consumption Disparity: Demand for premium goods is strong, but mass-market consumption shows stress with a slowdown in demand for daily products. (Source: SBI)
• Corporate vs Household Income: Large businesses have benefited from policies like corporate tax cuts, but real wage growth remains stagnant.

Way Forward

Prioritize Job-Rich Growth: Shift focus from 'jobless' to 'job-rich' growth by promoting labor-intensive manufacturing, reforming labor laws, and investing heavily in skilling and apprenticeship programs aligned with industry needs.

Address Rural Distress: Move beyond income support to enhance agricultural productivity, diversify rural economies into non-farm sectors, and improve rural infrastructure to boost incomes and create sustainable demand.

Stimulate Private Investment: Continue efforts to improve the ease of doing business, ensure policy stability, and address sector-specific bottlenecks to build investor confidence and encourage private capital expenditure.

Maintain Fiscal Prudence: Recommendations of the N.K. Singh Committee on the FRBM Act, which advocates for a combined debt-to-GDP ratio of 60% (40% for the Centre and 20% for states) serves as a sound long-term fiscal anchor.

Enhance Social Infrastructure: Long-term growth potential is linked to human capital. Increased public investment in health and education is non-negotiable for building a productive, skilled, and resilient workforce.

Skill Development: Initiatives like Skill India Mission must be aligned with the demands of new-age industries, including AI, automation, and green technology.

Green Growth: Pursue a path of sustainable development by investing in renewable energy, promoting a circular economy, and enforcing robust environmental regulations.

Strengthening Social Safety Nets: Enhancing social security for both formal and informal workers is essential to build resilience and reduce vulnerability.

Conclusion

High economic growth rate is paradoxical due to persistent challenges in job creation, inequality, and environmental sustainability, necessitating a shift in policymaking focus from the quantity to the quality of growth for meaningful and inclusive progress.

Source: INDIAN EXPRESS