Do India’s recent growth numbers settle the question of sustainability?

Prime Minister Narendra Modi said India is moving towards becoming the world’s third-largest economy, and the data shows global expectations from India are continuously rising.

Speaking at the Saurashtra and Kutch regional conference of the Vibrant Gujarat Summit, the Prime Minister also pointed out that India is the fastest growing large economy, inflation is under control, the agriculture production is achieving new records. India tops in the production of milk, generic medicines and vaccines.

This is reinforced by India’s latest GDP numbers and monetary policy decision that together stood for India’s “Goldilocks moment” – a phase where growth is robust, inflation is low, and macroeconomic conditions appear balanced.

The real GDP grew 8.2 per cent in Q2 2025-26, far above the 5.6 per cent recorded a year earlier, powered by strong performances in manufacturing (9.1 per cent), construction (7.2 per cent), and financial and business services (10.2 per cent), as reported in the National Statistics Office (NSO) quarterly release. Private consumption, too, grew at 7.9 per cent, indicating demand-side strength.

However, whether this “Goldilocks moment” is translated into sustained progress will determine not just the success of Viksit Bharat @2047, but also the livelihoods of millions entering the workforce every year. This is crucial because for India, growth is not a choice, it is a necessity.

India’s growth challenge is shaped by simple arithmetic. Every year, around 10 million people enter the working-age population. To provide them jobs and incomes, the economy has to grow well above 6 per cent, year after year. Anything less does not just mean slower progress. It means rising pressure on jobs, more people pushed into informal work, stagnant wages, and fewer chances to move up.

When growth falls short, the damage builds quietly. Young people struggle to find stable work, households remain insecure, and inequality becomes harder to reverse. Welfare schemes can reduce hardship, but they cannot replace the role of growth in creating jobs at scale.

The experience of other countries makes this clear. Economies like South Korea, Taiwan, and China moved from middle income to high income status only after sustaining high growth for long periods. They expanded manufacturing, raised productivity, and created large numbers of jobs. None made that transition with slow or stop-start growth.

For a country of India’s size, therefore, high growth is not about ambition and pride; it is about whether development is even possible.

Strong growth often announces itself loudly, but it rarely speaks in one voice. India’s real GDP grew by 8.2 per cent in Q2 of FY 2025-26, following 7.8 per cent growth in Q1. Together, these numbers signal a clear cyclical pickup.

However, the picture becomes more cautious when set against the First Advance Estimates (FAE) released by the Ministry of Statistics and Programme Implementation (MoSPI) on January 7, 2026. For FY 2025-26, GDP growth is projected at 7.4 per cent, up from 6.5 per cent last year, but well below what the strongest quarterly numbers might suggest. The message is subtle but important: momentum is real, but not yet secure.

Quarterly GDP captures short-term acceleration, often influenced by base effects, sectoral surges, and the timing of spending. Annual estimates smooth these movements and provide a more cautious view. The divergence between the two suggests that growth may slow in the second half of the year, despite a strong start.

A closer look at the sectoral composition explains why. Growth continues to rely heavily on services, particularly financial and public services, while agriculture and mining remain weak. Agriculture’s projected growth of just 3.1 per cent is especially concerning in an economy where a large share of employment and rural incomes still depend on the primary sector. Weak agricultural growth not only limits rural demand but also constrains the sustainability of consumption-led expansion.

India’s strong Q2 growth of 8.2 per cent was driven largely by private consumption, supported by easing inflation and resilient urban demand. The Reserve Bank of India (RBI) has acknowledged this role of household spending in sustaining recent momentum. But consumption is the weakest pillar of long-term growth if it is not backed by incomes.

Employment data show that job growth continues to lag output growth, particularly in manufacturing and small enterprises. Without stable jobs and rising wages, consumption becomes fragile. Without jobs, consumption turns into a short-lived stimulus rather than a durable growth engine.

Labour market reforms aim to encourage formalisation and flexibility, but their impact depends on implementation and job creation on the ground. At the same time, VB-G RAM G remains a critical stabiliser for rural incomes, preventing sharp collapses in consumption when job opportunities weaken. Its continued relevance is itself a signal of labour market fragility, which sits uncomfortably with the optimism suggested by headline growth numbers.

In this context, it is also worth recalling the concerns raised by the International Monetary Fund (IMF). The IMF has flagged weaknesses in India’s GDP measurement, an outdated 2011-12 base year, limited coverage of the informal sector, reliance on proxy indicators, and the absence of seasonally adjusted quarterly data. These are not technical quibbles. They affect how confidently we can read short-term growth.

The government has acknowledged this. MoSPI has initiated a comprehensive overhaul of GDP measurement. A new base year of 2022-23 is proposed to be introduced in February 2026. The methodological reforms outlined in its discussion paper include: 1. Expanded use of MCA-21 corporate data (an e-Governance initiative by the Ministry of Corporate Affairs).

2. Better coverage of LLPs (Limited Liability Partnerships).

3. Improved classification of multi-activity firms.

4. Updated agricultural ratios and revised construction estimates.

4. Informal-sector updates using Periodic Labour Force Survey (PLFS) and the Annual Survey of Unincorporated Enterprises (ASUSE), and wider application of double deflation.

These changes will make India’s GDP estimates more robust and credible. This underlines the need for caution in interpreting strong quarterly prints as definitive evidence of durable growth, especially when real time policy decisions are based on such data.

In December 2025, the RBI’s Monetary Policy Committee unanimously decided to reduce the policy repo rate by 25 basis points to 5.25 per cent, while maintaining a neutral stance and projecting continued strong growth alongside low inflation.

The MPC’s decision is grounded in clear logic. Inflation has fallen sharply from about 5-6 per cent to near 2-3 per cent, with the RBI expecting it to fall further. Growth momentum is strong, with Q2 GDP expanding at over 8 per cent. In such a setting, the RBI believes it has room to stimulate without risking price instability. The repo-rate cut is intended to reduce borrowing costs, lower EMIs, and encourage spending by households and firms.

But it is crucial to recognise the limits of monetary policy. Central banks do not generate growth; they manage conditions. Productivity gains, employment creation, and income growth depend on investment, skills, infrastructure, and institutional quality, not interest rates alone.

The fact that rate cuts have been accompanied by liquidity tools, such as open market operations and foreign exchange swaps, underscores that underlying financial conditions remain tight rather than comfortably loose. This pattern signals caution rather than widespread macroeconomic comfort.

Further, the high growth also has to survive external pressures. Trade, capital flows, and currency movements affect how long growth can be sustained. A weaker rupee may help exports, but it raises import costs, especially for energy, which forms a large part of India’s imports. This quickly feeds into prices and costs across the economy.

Capital flows are equally important. When global conditions change, money can move out quickly, tightening domestic financial conditions even if growth at home looks strong.

Recent episodes of the rupee slipping past key psychological levels show that external pressures can build despite good domestic numbers. This underlines a simple point: India’s growth cannot depend only on internal demand. It also needs to be able to withstand global uncertainty.

India’s recent growth numbers offer encouragement, but they do not settle the question of sustainability. Strong quarterly prints, easing inflation, and policy support can lift momentum for a time, but they cannot substitute for steady job creation and rising incomes. To make growth durable, job creation needs to move to the centre of policy, especially in labour-intensive sectors and MSMEs.

Rural incomes need strengthening, as weak agriculture continues to limit demand. Programmes like VB-G RAM G remain important stabilisers, not substitutes for jobs. Consumption-led growth will last only if backed by stable employment and rising wages.

At the same time, data credibility needs to be treated as a policy priority. The ongoing GDP methodology overhaul is necessary to improve measurement and policy confidence. Finally, external resilience can be strengthened through export competitiveness, stable capital flows, and careful management of currency volatility. For Viksit Bharat @2047, growth must be not just fast, but steady, inclusive, and reliable.

Strong headline growth numbers do not automatically translate into development. Analyse this statement in the context of India’s growth, jobs, and income distribution challenges.

Examine the significance of employment-intensive sectors and MSMEs in making India’s growth durable and inclusive.

How do factors like capital flows, exchange rate movements, and energy imports—affect the sustainability of India’s growth?

Weak agricultural growth not only limits rural demand but also constrains the sustainability of consumption-led expansion. Explain.

(Pushpendra Singh is an Assistant Professor of Economics at Somaiya Vidyavihar University, Mumbai, and Archana Singh is an Assistant Professor of Gender and Economics at the International Institute for Population Sciences, Mumbai.)