2026 & Growth Metrics: India’s Economy Resembles A Sedan Caught In Traffic Jam

As the year 2025 winds up and a new year dawns, India’s economy is at a crossroads, as things are simply not what they used to be. Perhaps the best way to describe a new year mood is to invoke Bollywood poet Gulzar’s lyrics from Haal chaal theek thak hai (All is well) – a song from Mere Apne, a 1971 movie set in the backdrop of student unrest, unemployment, and profound social and political change in India.

That satirical song features young men singing of unemployment with memorable lyrics: “BA kiya hai, MA kiya/lagta hai woh bhi aive kiya” (Have studied BA and MA, but it doesn’t seem to help anyway). Looking at opposition leader Rahul Gandhi’s controversial statement echoing an off-the-cuff remark by US President Donald Trump on India’s economy being “dead” would seem superficially true. But then there are no street protests of the kind that marked the period when Mere Apne was made. Industrial areas are buzzing with demand for helpers and delivery boys, and other unskilled or semi-skilled workers, suggesting that livelihood is not a problem, unless you are a graduate looking for stable, remunerative, and long-term jobs. Perhaps that’s the reason Prime Minister Narendra Modi’s BJP-led government chose to water down the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and replace it with a new law that places higher fiscal burdens on State governments.

Unemployment Rate

The official unemployment rate for people above the age of 15 fell to 4.7% in November, the lowest since 5.1% in April, according to the Periodic Labour Force Survey of the National Statistical Office.

The GDP numbers are good enough for optimists to think that India is on an economic highway that is “just right” – inflation is low, growth is among the highest in the world, and rate cuts suggest further expansion ahead. In other words, the market should be looking at a Goldilocks period, because the girl in the famous English fairy tale tests three soups in a bear’s household and finds one warm enough in a “just right” way.

Here's where there is a twist in the fairy tale. There’s plenty in the air that takes us to the story of Little Red Riding Hood, another fairy tale girl who has to suffer the prospect of being snared by a wolf. No prizes for guessing that the "big bad wolf" in the global economy today is Trump, whose trigger-happy tariff and visa restrictions on high-tech workers have frozen many an economic pundit on their tracks since markets and entrepreneurs hate uncertainty. There is plenty of uncertainty in Delhi’s polluted air that is triggering new conversations on economics and the environment, as well. 

Shifting Global Dynamics

The Ukraine war drags on, and the year was marked by US pressures on India to wind down or wind up its cheap oil purchases from Russia. A much-awaited trade agreement with Washington is yet to materialise. On that hangs the future of critical industries like textiles, diamonds, pharmaceuticals, and information technology that give India a trade surplus with the US. It doesn’t help India that artificial intelligence (AI) is in the throes of disrupting the conventional technology industry, potentially a long-term positive given India’s software power, but a job-stealer or growth roadblock in the short run.

The US is India’s largest trading partner, and bilateral trade totalled close to $132 billion in the fiscal year 2024/25, in which India enjoyed a $41-billion surplus. 

In such a context, whether India’s economy is having a Goldilocks or Red Riding Hood moment depends on who you are speaking to.

What Statistics Suggest

Officially, the numbers look quite respectable, with officials asserting India is the world’s fastest-growing major economy. The government said in November that India was on its way to becoming the world’s third-largest economy by 2030, up from the current fourth slot as it spoke of decisive policies, structural reforms, and “deepening global integration”. As proof, it pointed to an 8% inflation-adjusted GDP growth in the April-September first half of the year to March 2026, and a consumer price inflation that hit a historic low of 0.25%, with industrial growth at 4% year-on-year.

However, projections by global agencies show that the first-half growth is not easily sustainable. The Reserve Bank of India forecasts overall FY2026 growth at 6.8%. The World Bank, the IMF, and rating agencies like S&P and Moody’s variously estimate the 2026 growth rate from 6.2% to 6.5%.

The government can take credit for undertaking reform measures such as liberal income tax reduction, cuts in goods and services tax (GST) rates to stimulate consumption, a new legal code that simplifies labour laws and mandates social security measures, and permission for 100% foreign direct investment (FDI) in the insurance sector.

The fiscal deficit, an indicator of macroeconomic health, is also expected to stay at the target of 4.4% of GDP in the year to March 2026.

Trade Agreements

All that, however, does not clear the clouds over the economy, a good deal of that on the export-import scenario. Achievements during the year include bilateral trade agreements with Oman, the UK, and New Zealand, but the big pacts awaited, those with the EU and the US, remain elusive so far. That cast a shadow that weakened the Indian rupee.

Towards the year-end, the rupee breached the ₹90 per US dollar mark, hitting an all-time low, marking a 5% depreciation over the year. Surging gold imports, declining foreign portfolio investor inflows, and the sword of US tariffs hung over the currency. Notably, the rupee weakened against other major currencies as well. The weighted average of the rupee’s exchange rate against 40 key trading partners had dipped by as much as 8% by October. Analysts expect the rupee to depreciate a bit more over the next two years – and that’s ominous in the backdrop of a shrinkage in foreign exchange reserves.

The rupee-dollar tango only reminds us of Gulzar’s lyrics in the haal-chaal song, which also says: Gol mol roti ka pahiya chala, peeche peeche chandi ka rupaiya chala/roti ko bechari ko cheel le gayi, chandi le ke muh kala kawwa chala (The roti moved like a wheel, behind it ran the silver rupee/An eagle took away the poor roti, and the black crow took the silver).

That sounds like a surreal representation of the American eagle and the silver dollar in a tango with India’s staple dish – which, in a way, ties in with the tariff tangle. The shocking import duty Washington slapped in August on Indian goods stands at 50%, which includes a specific 25% penalty linked to India’s purchase of Russian oil.  

All this happened in the backdrop of a restlessness in the bond markets that suggested that the Goldilocks optimism may have been overstated. The key stock market index, the Nifty, barely moved during the year despite a 1.25 percentage point cut over the year in benchmark interest rates. Bond prices stayed firm. 

Overall, financial markets were unimpressed by the RBI’s benchmark rate cuts, but a frenzy of initial public offerings (IPOs) of shares by companies, many of them maturing startups, held the optimistic mood.

Silver Splurge

But the big story of the year from the investor’s point of view was the surge in silver and gold that outperformed stocks – something you would not ordinarily expect in a developing major economy. The reasons were global. Gold delivered 60% to 70% returns in 2025, squarely outperforming the benchmark Nifty 50 index that gained a modest 10% over the year. Silver rose as much as 150%.

Gold surged as US interest rates declined, Central banks worldwide bought more to diversify their reserves, and geopolitical tensions, while silver became sought-after again as an industrial “critical” mineral of use in solar energy and electric vehicle industries. Bullion has outperformed the Nifty even over a 25-year period, which is a big surprise for most.

With banks not inclined to cut rates much, the RBI in the last week of the year announced bond purchase auctions and currency swaps totalling close to ₹290,000 crore.

At A Crossroads

That is a clear sign that the Indian economy is looking like a cross between the contrasting tales of Goldilocks and Little Red Riding Hood.

A lot will depend on the trade deals expected with the US and the EU. If the fine print on the agreements reads well, some of the uncertainties faced by entrepreneurs and investors may ease, triggering a new round of growth. But that still leaves questions on job creation as Modi’s BJP faces State elections in West Bengal and Tamil Nadu, both ruled by opposition parties.

You could say India’s economy looks like a luxury sedan caught in one of Bengaluru’s infamous traffic jams. The vehicle looks strong and sturdy, but its movement depends on various external factors.  

(The writer is a senior journalist covering a diverse range of subjects, including economy, technology, and politics. Views are personal.)