India recorded eight per cent growth for first half of this fiscal while inflation touches all-time lows. India optimists have welcomed this as a triumph of macro-economic management while detractors have built on rhetoric drawing from International Monetary Fund (IMF) remarks on technicalities of GDP computation to growth statistics having dissonance with lived reality. Rupee brushing past 90 per US Dollar level has been a sort of vindication for India sceptics. Truth, however, is more nuanced.
In a globalised world, no economy can remain insulated of developments from one corner to other. India’s story cannot be comprehended in isolation either.
Global Economy: Caught in Crosswinds of Debt and Demography
Debt and demographics have emerged as twin challenges before global economy, reinforcing each other as higher dependencies of aging societies make it harder to adhere to fiscal discipline necessary to bring debt down. As a result, long term interest rates have started to crawl upwards even as monetary policy turned accommodative. The hardening attitude to immigration has further complicated the demographics situation in Advanced Economies, raising wages locally and thereby undermining cost competitiveness.
Further, the USA tariff war means there is no easy way to keep costs down by outsourcing supplies. Inflation has begun to show up, making the Federal Reserve struggle to ease rates further. The USA economy is seen growing below historical averages in second half of decade of 2020s.
The Chinese economy, meanwhile, has much bigger problems to deal than trade disruptions. In decade to 2025, China’s GDP has grown by 70%, from USD 11.3 trillion in 2015 to USD 19.4 trillion, while General Government Debt to GDP has more than doubled, from 40.8% in 2015 to 96.3%. In current dollars, China’s economy has grown at meagre 1.6% CAGR in post Covid years 2021-25, implying incremental debt losing effectiveness in stimulating economy.
China’s property prices have lost a quarter of value from post Covid highs with households losing significant wealth in process. Moreover, with median age touching 40, there is little hope of reviving demand organically.
In fact, China story echoes like Japan’s, wherein late 1980s asset price collapse coincided with demographic peak and consequent debt build-up. Japan has been embattling deflation for past three decades.
Rupee’s Decline Not a Vote on Economy Strength
Indian economy is stark contrast to challenges enumerated above. Home to largest population on planet with median age around 29 years, our working age population is seen growing to a billion-size over next two decades, keeping dependency ratios in check. Our general government debt-to-GDP remains around 80% and seen declining by 5-6% over next five years. Our services sector robust performance has built resilience to external sector dynamics. India has made giant strides in energy security with renewable energy accounting for almost half of electricity generation capacity of country. India’s oil dependency for growth has thus come down. Net petroleum oil imports have fallen from 5.5% of GDP in three years to 2014 to 3.0% of GDP in three years to 2025.
With a share in global merchandise trade below 2%, we should worry less on saturating global demand and work for raising our share commensurate with contribution in global GDP. This calls for concerted play of policies, be it fiscal, monetary and industrial.
While high real GDP growth of last two quarters has invited scepticism due to unusual fall in deflator, it is very hard to bet against India’s outperformance in medium to long term.
The IMF in its latest World Economic Outlook expects India to contribute about 10% of World GDP growth by 2030 as against 3.6% share in World GDP growth in 2025. India will be third largest economy in nominal exchange rates, only behind the USA and China. Excluding USA and China, India’s share in rest of world GDP growth will be around 15% by 2030. Put differently, no investor having sense of global growth dynamics can overlook India for long.
India’s outperformance is structural with high savings and investment rates, young demographics, urbanisation, technological deepening, fiscal prudence, monetary policy credibility and democratic institutions guarding against political disruptions, among others.
From the fundamental’s perspective, Indian rupee seems a bit oversold. The 40-country real effective exchange rate estimated at 97.47 and 94.55 respectively for trade weighted and exports weighted measures in October 2025, implying no significant valuation gaps to bridge through depreciation. The rupee however lost 1.7%, further, against US dollar in November-December 2025 so far, as portfolio investors pulled away opportunistically from richly valued Indian assets, and relative cheaper valuation of other markets.
In hindsight, the fall of rupee might prove a blessing in disguise as country looks for alternative markets to export the goods turned away from the USA. Importantly, as Chinese are likely scouting for the same, offering steep discounts to accommodate their surplus produce, the weaker rupee could hand some advantage for our exporters.
The harder part, however, is undertaking reforms that raise India’s productivity. We have seen a few already, viz. rationalisation of direct and indirect taxes, streamlining labour laws, capex push for logistics efficiency and openness to foreign investment. We must build on this to capitalise India opportunity ahead.
