VA Nageswaran: In turbulent world, India stands out for turning economic adversity into an advantage

Yet, India has navigated these shifts with surprising strength and has treated adversity not as an obstacle, but as an opportunity to reinforce its economic foundations.

Over the past 17 months, the economy has continued to expand at a healthy clip, recording 6.5% growth in constant prices in 2024-25, following three previous years of strong expansion. This sustained performance compares favourably with most major economies. Crucially, India has kept inflation under control even while the economy has grown briskly—a reflection of strengthened supply capacity and consistent macroeconomic management.

The fiscal anchor has been restored. From the peak of 9.2% during the pandemic years, the fiscal deficit is poised to fall to 4.4% of GDP this year, reaffirming the government’s commitment to long-term sustainability. Markets have recognized this discipline: India secured its first sovereign credit rating upgrade from a major rating agency in over a decade, and long-term borrowing costs have fallen significantly. These are not mere financial statistics but critical enablers of productive investment and social spending.

This stability has been matched by the visible transformation of physical infrastructure. Highways, urban mobility networks and logistics corridors have expanded at unprecedented speed, reducing bottlenecks that once burdened businesses and raised prices. This deeper, broader supply base has meant that growth today no longer generates the overheating pressures that once lurked behind every uptick in demand.

Monetary policy has aligned with this momentum. The central bank moved decisively to support the recovery—cutting rates, easing liquidity and unwinding temporary prudential constraints once their job was done. The result: credit flows have revived briskly, and India’s capital markets—larger, deeper and more confident—have let commercial financing expand consistently at nearly 30% annually over the past six years.

Corporate balance sheets, once repaired from the twin balance sheet crisis, are today healthier and more investment-ready than they have been at any time in the past decade. Private capital formation is accelerating.

Contrary to common commentary, foreign direct investment interest has not waned; in fact, India’s strong market performance offered foreign investors profitable exits, temporarily lowering net numbers while gross inflows held strong—a signal of confidence, not doubt. Recent central bank data indicate that both gross and net flows are increasing significantly once again.

The story is not only about corporate confidence. Households, too, have benefited. Tax relief in successive budgets, combined with softening inflation and rising agricultural output, has collectively bolstered real wages, particularly in rural India. Public and private data indicate strong job creation in the last two years—a fact often lost in noise but visible in the country’s lived experience of expanding consumption. It is no surprise, therefore, that India’s household savings ratio (percentage of GDP) improved in 2024-25.

Beyond macroeconomic stewardship, the government has utilised this period of stability to implement strategic reforms that could redefine India’s global role. A nearly ₹70,000-crore package is modernizing India’s shipbuilding industry, while legal reforms reduce compliance burdens and enhance maritime competitiveness. It also envisions the establishment of an Indian Ship Technology Centre.

In critical minerals, India has unlocked private participation in minerals essential for clean technology and electronics, while a new national mission and recycling incentives deepen supply resilience. Another key reform has been the omission of six minerals from the list of 12 atomic minerals. The mining and exploration of atomic minerals, which are currently done only by public sector units, have been very limited.

Just a few days ago, the Union Cabinet approved a ₹7,280-crore scheme to promote the manufacturing of Sintered Rare Earth Permanent Magnets (REPM), a first-of-its-kind initiative by the government to foster an REPM ecosystem, thereby enhancing self-reliance and positioning India as a key player in the global REPM market.

Notably, near-full fund allocation under the Semicon India Programme signals the most significant national effort yet to build a homegrown semiconductor ecosystem—a key determinant of economic sovereignty in the digital age. India’s semiconductor roadmap marks the transition from a design-dominated ecosystem to an integrated manufacturing and R&D hub. With over  ₹1.6 trillion in approved projects and deepening global partnerships, India is positioned to join the world’s top five semiconductor nations within the next decade.

This progress was tested by an unexpected shock this fiscal year—the US imposed a 50% tariff on Indian goods. Analysts rushed to downgrade India’s prospects. A fall to 6% growth was widely forecast. Yet, within three months, the country proved more resilient than expected: exporters adapted, domestic demand held firm and growth projections were revised upward to around 7%. Where others saw vulnerability, India demonstrated shock-absorption capacity.

Challenges remain, including the ongoing energy transition, the scale of job creation required to address India’s youth bulge, urban mobility gaps and a need to strengthen state capacity. These involve real trade-offs. Yet, they are being confronted from a position of greater economic strength and strategic clarity than ever before.

A fiscal boost through direct and indirect tax relief, ‘Ease of Doing Business’ through deregulation, enhanced credit flows to micro, small and medium enterprises through digital inclusion and the cumulative effects of a decade-long public infrastructure build-up that has increased the availability of uninterrupted power and connected smaller cities and remote villages to major urban centres and ports are all delivering results.

The real growth rate of the Indian economy in this fiscal year’s first half was 8%. The full year’s growth is expected to exceed 7% easily, marking the fifth consecutive year of high growth. India has entered a period of sustained high growth with low inflation. Purposeful policymaking—steady, pragmatic and long-horizon—is poised to turn it into a more enduring feature.

These are the author’s personal views and the second of a two-part series.

The author is chief economic advisor to the Government of India.