New Delhi: India’s economy continues to project confidence on headline indicators, but conversations with policymakers, economists, and industry executives suggest early stress signals are forming beneath the surface of strong growth data, raising questions about how durable the current momentum really is.
While official projections and multilateral agencies remain optimistic about India’s medium-term growth outlook, uneven demand recovery, currency pressure, and cautious private investment are beginning to shape internal policy discussions in New Delhi, according to people familiar with the matter.
Economic activity remains supported by government capital expenditure, infrastructure projects, and services exports. However, broad-based consumption recovery is still patchy, especially in lower-income and rural segments, where discretionary spending has not rebounded at the same pace as urban demand.
A senior government economist, speaking on condition of anonymity, said that while GDP growth remains comfortably above global averages, the composition of growth is becoming more concentrated, increasing vulnerability to external shocks. Investment-led expansion is holding, but household demand is not firing on all cylinders.
The Indian rupee’s recent weakness has drawn public attention, but officials stress it does not signal a balance-of-payments crisis. Policymakers view the depreciation as a reflection of global dollar strength, portfolio outflows, and lingering trade uncertainty rather than domestic instability.
The Reserve Bank of India has continued to intervene selectively in currency markets, focusing on containing volatility rather than defending a specific level. Economists describe this approach as pragmatic, though they caution that a weaker rupee could eventually feed into imported inflation expectations if global conditions remain tight.
Despite repeated policy nudges, private sector capital expenditure remains cautious, particularly among mid-sized manufacturers. Industry executives cite uncertain global demand, geopolitical risks, and evolving trade relationships as reasons for delaying large expansion plans.
Large corporates have continued to invest selectively, but broader participation across sectors remains limited. Economists warn that if this pattern persists, job creation could slow over the next two years, even if headline growth remains strong.
Sources familiar with policy deliberations say internal discussions are increasingly focused on protecting export competitiveness, preventing inflation spillovers from imported goods, improving the flow of credit to small and medium enterprises, and building buffers against potential global financial tightening.
The tone within government circles is not alarmist, but noticeably more cautious than earlier in the year, reflecting a shift toward risk management rather than growth acceleration alone.
India enters 2026 as one of the few major economies with solid growth prospects, but analysts say long-term resilience will depend on whether domestic demand broadens and private investment strengthens. Without that balance, growth could become overly dependent on government spending and services exports, making the economy more sensitive to global volatility.
