IMF Questions Modi's GDP Data: Is India's Economy Half the Size of the Official Claim?
The Indian government reported faster-than-expected GDP growth of 8.2% for the September quarter. It came as a surprise to many economists who were expecting a slowdown based on the recent high-frequency indicators such as consumer goods sales and durable goods production, as well as two-wheeler sales. At the same time, The International Monetary Fund expressed doubts about the Indian government's GDP data.
The IMF has recently expressed doubts about Prime Minister Narendra Modi's BJP government's GDP data. It has particularly questioned the government's statistical methodologies, inflation measurement, and the estimates of the informal economy used in reporting the country's gross domestic product. Professor Arun Kumar of Jawaharlal Nehru University believes the IMF's concerns are valid. He thinks the real size of India's economy is only half of what is officially claimed. “The economy is almost 50% wrong – when the government says it’s $3.8 trillion, my estimate is it is probably still $2.5 trillion because we are overestimating the unorganized sector, which is actually declining. This is building up over a period of time,” Kumar told Indian journalist Karan Thapar.
In its recent assessment, the International Monetary Fund (IMF) has given a "C" grade to India's national accounts. In particular, the IMF has raised the issue of the government using 2011-12 as the base year as being outdated, the discrepancy between production and consumption data and the use of Wholesale Price Index, and not a Producer Price Index, to deflate many economic activities to derive real GDP from nominal GDP.
The source of the biggest error is the way India estimates the informal economy which, including agriculture, accounts for almost 45% of GDP. To do so, India uses the formal sector as a proxy to estimate the performance of the informal sector. But if the two sectors are moving in opposite directions, as has happened after demonetization, GST imposition and the pandemic, you could end up overestimating the unorganized sector.
Indian-American economist Ashoka Mody, author of "India is Broken", has argued that the current unemployment crisis in India is a direct result of the destruction of the informal sector, particularly the mom and pop stores that employed a large number of Indians.
Questions about the veracity of India's official GDP figures are not new. These have been raised by many top economists. For example, French economist Thomas Piketty argues in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated. Picketty writes as follows:
"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (households have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "
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https://www.travelandtourworld.com/news/article/indias-industrial-growth-slips-to-14-month-low-amid-festive-disruptions-gst-adjustments-and-global-trade-pressures-impacting-travel-and-tourism/
Industrial Growth Slips to a 14-Month Low
India’s industrial production expanded by only 0.4 percent in October, marking the weakest growth rate in 14 months. This represented a sharp decline from the previous month and a clear departure from the stronger industrial recovery that had been building earlier in the financial year.
The Index of Industrial Production (IIP), a key barometer of factory output, machinery use, and electricity generation, reflected widespread cooling rather than an isolated sectoral problem. What makes this slowdown more striking is that it occurred even as demand conditions improved following the indirect tax reductions announced in late September.
Ordinarily, the festive quarter supports strong industrial expansion as companies build inventories ahead of peak consumer purchases. However, this year’s festival clustering compressed working weeks and limited factory utilisation across large parts of the manufacturing belt. The consequence was an economy where people were buying more, but producing less.
https://www.cnbctv18.com/market/currency/rupee-at-record-low-us-dollar-rbi-intervention-policy-fpi-outflows-stop-loss-key-levels-19778137.htm
India's currency, the rupee, fell to a new record low of 89.95 against the US Dollar, on Tuesday, December 2, breaking past its previous record low of 89.78, which it fell to on Monday.
The currency has depreciated by over a rupee against the US Dollar since November 3, according to data available.
The fall in the currency comes just days ahead of the RBI policy and despite a strong GDP print of 8.2% for the second quarter reported on Friday.
Ashhish Vaidya of DBS Bank India told CNBC-TV18 that in the absence of any positive trigger in the near-term, he would not be surprised to see levels of 90 or even 92 on the currency against the US Dollar.
He ascribes a probability of anywhere between 60% to 70% for these levels to show up on the currency.
Anindya Banerjee of Kotak Securities said that so far, there has been no major intervention that has been observed by the Reserve Bank of India (RBI).
Banerjee said that there was a large Non-Deliverable Forward (NDF) expiry over the last few days, which needed to be rolled over or covered. He went on to add that in case the USD-INR breaches the mark of 90, stop losses will get triggered and there could be a swift move further down towards the 91 mark.
Jayesh Mehta of DSP Finance also attributed the fall in the currency to the daily selling from Foreign Portfolio Investors (FPIs) without any support from the RBI, and NDF expiry covering.
Mehta believes that the RBI should cut interest rates on Friday and should also announce Open Market Operations (OMOs) worth ₹2 lakh crore till March 2026.
According to Reuters reports, the RBI is likely to have sold dollars to prevent the currency to weaken past the mark of 90.
There is a case for the RBI to deliver a rate cut, according to Sakshi Gupta of HDFC Bank. She believes that the rupee is not a dominant driver for the RBI rate decision and that they will focus more on accessing the domestic growth.
After the initial weakness, the USD-INR currently trades at 89.93.
Read more at: https://www.deccanherald.com/business/markets/rupee-breaches-90-to-a-dollar-falls-6-paise-in-early-trade-3818018
Mumbai: The rupee breached 90-levels against the greenback for the first time on Wednesday, falling 6 paise to 90.02 in early trade, as banks kept buying US dollars at higher levels and FII outflows continued.
However, a weaker dollar index and a fall in global crude oil prices cushioned against a steeper decline, according to forex traders. At the interbank foreign exchange, the rupee opened at 89.96 against the greenback and slipped to a record intra-day low of 90.15 before recovering some ground to trade at 90.02, down 6 paise from its previous close.
Read more at: https://www.deccanherald.com/business/markets/rupee-breaches-90-to-a-dollar-falls-6-paise-in-early-trade-3818018
https://markets.financialcontent.com/stocks/article/marketminute-2025-12-3-indian-rupee-plunges-past-90-against-us-dollar-amidst-deepening-economic-concerns
Mumbai, India – December 3, 2025 – The Indian Rupee (INR) today crossed a critical psychological threshold, breaching the 90 mark against the US Dollar (USD) for the first time in history. This unprecedented depreciation, with the currency hitting an intraday low of 90.30 before settling at 90.19, signals a period of heightened economic anxiety for India. The rupee's swift decline, marking it as Asia's worst-performing currency in 2025, is a stark indicator of persistent foreign capital outflows, a widening trade deficit exacerbated by surging gold imports, and a globally strong US Dollar.
The immediate implications are far-reaching, threatening to fuel imported inflation, increase the burden of foreign debt for Indian companies, and dampen overall market sentiment. While a weaker rupee typically benefits exporters, the current environment of global economic slowdown and specific US tariffs complicates this advantage, leaving policymakers and businesses grappling with a complex economic landscape.
Historic Slide: A Confluence of Global and Domestic Pressures
The Indian Rupee's journey to 90 against the US Dollar has been a culmination of several intertwined economic forces throughout 2025. On December 3, 2025, the currency fell sharply, extending a period of sustained depreciation that saw it dip below 89.95 on December 2 and a record low of 89.76 on December 1. This rapid descent from the 88+ level to 90 within a single week has sent jitters across financial markets.
A significant catalyst for this sharp depreciation was the announcement of sweeping US tariff hikes on April 2, 2025. India's tariff burden, at 50%, is considerably higher than that of other major economies, directly impacting approximately $45 billion worth of Indian exports, particularly in labor-intensive sectors. This, coupled with a prolonged delay in finalizing a comprehensive trade deal with the United States, has cast a long shadow over India's export competitiveness and investor confidence.
Adding to the pressure are persistent Foreign Portfolio Investor (FPI) withdrawals. Foreign investors have been consistent net sellers in the Indian markets, withdrawing nearly $17 billion from Indian equities in 2025 alone. This sustained selling has created unprecedented demand for the US dollar, widening the demand-supply gap in the foreign currency market. Factors driving these outflows include declining corporate profitability, concerns over stretched valuations, and the lingering uncertainty surrounding US-India trade negotiations.
India's heavy reliance on imports, particularly crude oil, electronics, and bullion, further exacerbates the situation. Rising global commodity prices inflate India's import bill, necessitating a significant demand for US dollars and putting continuous downward pressure on the rupee. The Reserve Bank of India (RBI) has adopted a more "hands-off" and "calibrated" approach to currency intervention, primarily aiming to curb "excessive volatility" rather than defending a specific exchange rate level. While the RBI has intervened by selling dollars (reportedly $30 billion between June and October 2025), its strategy appears to allow market forces greater sway, contributing to the rupee's swift depreciation.
Initial market reactions beyond just the stock market (where the Nifty slipped below 26,000 and the Sensex fell nearly 200 points) included heightened volatility in the foreign exchange market, rising bond yields due to inflation concerns, and increased hedging costs. The rupee's fall directly fuels imported inflation, particularly for crucial commodities, which can erode purchasing power and complicate the RBI's monetary policy decisions.
https://www.reuters.com/world/india/india-stock-benchmarks-set-open-higher-after-3-session-drop-2025-12-03/
ec 3 (Reuters) - India's equity benchmarks fell for a fourth consecutive session on Wednesday, as a delay in the trade deal with the United States and the rupee's slide to a record low dented sentiment.
The Nifty (.NSEI), opens new tab fell 0.18% to 25,986 and the Sensex (.BSESN), opens new tab shed 0.04% to 85,106.81. The indexes have lost 0.9% and 0.7%, respectively, in four sessions after hitting all-time highs on November 27.
NSE provisional data showed foreign outflows from the Indian equity market totalled 98.64 billion rupees (about $1.1 billion) in the last four sessions.
https://www.business-standard.com/markets/news/investors-unlikely-to-make-much-money-in-india-next-year-marc-faber-125120400270_1.html
Global markets are set to sign off a choppy year and welcome 2026 amid hopes of better days. Marc Faber, editor and publisher of ‘The Gloom, Boom & Doom Report’, tells Puneet Wadhwa in a telephone interview that Indonesia, Thailand, Brazil and Colombia are among markets that could do well in the year ahead. Edited excerpts:
Are global markets in for more surprises in 2026 as regards US tariffs?
I think the impact of the tariffs on the economy will not be good. It’s negative for everyone but especially for the US. Because of tariffs, the US will face a higher inflation rate. The Fed can cut the funds rate — and they will — but long-term treasury yields may not come down. The bond market may not like these rate cuts, and long-term interest rates could even rise.
If that happens, the Fed will eventually be forced to reverse course. In my opinion, the only way to sustainably bring interest rates down is by tight monetary policy. But since they won’t do that, the bond market could sell off — and that would be bad for the stock market.
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Will 2026 favour emerging markets (EMs) over developed markets?
EMs have underperformed the US significantly for the last 15 years. Going forward, I think EMs — especially Latin America and Indo-China/Southeast Asia — will outperform the US. Over the long run, India will also outperform the US.
When we spoke in May 2025, you did not expect strong Indian market returns over the next year. The benchmarks have hit new highs since then. Has that surprised you?
No, it hasn’t surprised me. I have always said: The Indian market may go up but the currency goes down. Yes, the Indian market is at a new high in rupee terms but in US dollar terms — and the dollar has not even been very strong — the market is down.
In fact, the last dollar-term high for India was in September 2024. In gold or silver terms, the Indian market is substantially lower. Investors should consider measuring their assets in gold or silver rather than paper currencies.
What returns should investors expect from India in the year ahead?
I don’t think investors will make a lot of money in India over the next year. In dollar terms, India is down over the last 12 months. Meanwhile, Brazil is up 55 per cent. Among major markets globally, India has not performed well over the past year. Some Indian stocks have risen, yes — but that is true in every market. In the US, technology stocks haven’t done well recently; what has done well are gold mining shares.
Global markets are complex. In Europe, the STOXX 50 index — despite poor economic conditions — is up 30 per cent over the last 12 months. So performance varies widely, but as a whole I don’t expect India to deliver strong returns over the next year.
https://youtu.be/8SYDPqB6Qhg?si=8qvGoQy0Lq4VTbZR
In this episode of Frontline Conversations, economist and retired professor from JNU, Arun Kumar, breaks down the turmoil inside India’s economic data ecosystem. He discusses the latest GDP numbers, the IMF’s “not fit for purpose” assessment, and India’s contradictory economic indicators all point to a deeper structural crisis.
Kumar explains why GDP growth is increasingly detached from lived economic realities, how the unorganised sector has been rendered invisible in official measurement, and why the 2011–12 base year has distorted national accounts for a decade. He also details the political pressures shaping data releases—from unemployment and consumption surveys to poverty estimates—and warns that the upcoming revision of the GDP series may still fail without census data and transparency in methodology.
Highlights:
-Why India’s GDP numbers are unreliable—and what the IMF got right
-How the shift to the MCA-21 database and removal of shell companies distorted growth estimates
-The systematic invisibilisation of the unorganised sector after demonetisation, GST and the pandemic
-Manipulation of data on employment, consumption, poverty and health
-The political logic behind “fastest growing economy” narratives
-Why GST cuts, corporate-friendly labour codes and tariff geopolitics are worsening inequality
Perfect for those interested in:
-Students of economics and public policy
-Researchers of political economy and development studies
-Informal sector and labour rights activists
-Think-tank analysts tracking India’s macroeconomic indicators
Credits:
Host: Sukumar Muralidharan
Camera: Vedaant Lakhera and Vitasta Kaul
Editing: Razal Pareed
Producers: Mridula Vijayarangakumar and Kavya Pradeep M
By Sudhanshu Tripathi
https://intpolicydigest.org/narendra-modi-will-leave-behind-a-broken-india/
As India’s Prime Minister Narendra Modi nears the end of what is likely to be his final term in office, a reckoning feels inevitable. After three terms marked by grand ambition, partisan dominance, and polarizing governance, Modi’s legacy is poised for intense scrutiny—not merely by political opponents, but by history itself.
Modi came to power promising transformation. Yet many of the most pressing challenges facing India today—economic stagnation, diplomatic friction, rising authoritarianism, and domestic unrest—have been exacerbated, not alleviated, under his leadership. India’s aspiration to reclaim its ancient stature as a Vishwaguru, a moral and civilizational leader on the world stage, now rings hollow in the cacophony of recent failures. The 2025 India-Pakistan war, China’s continued border incursions, and a visible lack of international solidarity during crises like Operation Sindoor all underscore a profound gap between rhetoric and geopolitical reality.
What began as a focused, energetic premiership has veered into an era of dysfunction. Modi’s weakening grip on foreign policy—manifested in frayed relations with key powers such as the U.S., UK, France, and Canada—reflects a broader loss of strategic coherence. The dream of elevating India into a global powerhouse has suffered repeated blows, not least from the absence of robust international alliances during moments of crisis. Instead, Modi’s leadership has appeared increasingly reactive, hamstrung by age, fatigue, and the consequences of wielding unchecked authority in a political landscape drained of serious opposition.
Domestically, his government faces mounting accusations of cronyism, corruption, and a willingness to sacrifice institutional integrity for political gain. From shielding BJP politicians accused of sexual assault—like Brij Bhushan Sharan Singh—to fostering a culture of impunity through the misuse of central investigative agencies, the Modi government has frequently weaponized the machinery of governance against its critics while turning a blind eye to wrongdoing within its ranks.
Nowhere is this institutional corrosion more visible than in the collapse of public trust in law enforcement and the judiciary. The ethnic violence in Manipur, for instance, spiraled into chaos without even a symbolic visit from the prime minister. Nor did he make a serious effort to restore confidence in security forces or engage with the humanitarian disaster on the ground.
Meanwhile, the BJP has mastered a kind of transactional politics that rewards defection. Politicians facing corruption charges have found themselves absolved the moment they pledge loyalty to the ruling party. Ajit Pawar, Chhagan Bhujbal, and others have undergone near-miraculous moral rehabilitations after joining the BJP—an alchemy that mocks the idea of justice and deepens public cynicism.
The health of India’s democracy itself appears to be faltering. The wholesale suspension of opposition MPs from Parliament to avoid uncomfortable debates amounts to a betrayal of democratic norms. When dissent is silenced and meaningful scrutiny is replaced by spectacle, it’s not just the opposition that suffers—it’s the republic as a whole.
https://youtu.be/6tcL0wkOcVk?si=y9hqmuB-kF0SYe_V
https://www.reuters.com/world/india/indian-rupee-weakens-record-low-us-trade-deal-limbo-persistent-outflows-2025-12-15/
Summary
Rupee down nearly 6% on year, worst performer among Asian FX
Lack of trade deal with US key drag
Foreign investors sell over $18 billion of Indian stocks YTD
MUMBAI, Dec 15 (Reuters) - The Indian rupee fell to a record low on Monday, pressured by a prolonged deadlock in U.S.-India trade negotiations and sustained foreign outflows from domestic equities and bonds.
The rupee weakened 0.3% to 90.74 against the U.S. dollar, eclipsing its previous all-time low of 90.55 hit on December 12.
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The currency, Asia's worst performer this year, avoided steeper losses amid likely central bank intervention, four traders told Reuters.
The rupee has declined nearly 6% against the dollar year-to-date, as steep U.S. tariffs of up to 50% on Indian goods hurt exports to its biggest market and diminish local equities' appeal to foreign investors.
Overseas investors have net sold Indian stocks worth more than $18 billion so far in 2025, making India one of the worst-hit markets in terms of portfolio outflows. Foreign investors have net sold bonds worth over $500 million in December.
India's trade data for November is due later in the day, with economists pencilling in a $32 billion goods deficit, down from a record high of $41 billion in October.
Remarks from India's chief economic adviser that the trade deal is likely only by March have bogged sentiment down, and outflows have been near-constant, a trader at a Mumbai-based bank said.
India and the European Union, meanwhile, are also unlikely to finalise a trade deal by this year's end, Bloomberg News reported on Friday.
This means the rupee has been unable to benefit from a broadly weaker dollar. The dollar index is down 1.1% so far this month.
"The next support (for rupee) is at 90.80, after which we could see a crossover of 91 towards 92. RBI has clearly let the market to determine the price and has been intervening only to control any excessive volatility," said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
Analysts at ANZ say that while an India-U.S. trade deal could spur a knee-jerk rebound in the rupee, its strength could fade if the RBI chooses to rebuild reserves by purchasing dollars.
India's foreign exchange reserves stood at $687.3 billion as of December 5, down from the year-to-date peak of $703 billion hit in early September.
India's benchmark equity indexes, the BSE Sensex (.BSESN), opens new tab and the Nifty 50 (.NSEI), opens new tab were down 0.2% each, tracking losses in regional shares as sentiment remained tepid heading into a week of key data releases and central bank meetings.
https://www.riazhaq.com/2025/11/imf-questions-modis-gdp-data-is-indias.html
On the other hand, Pakistan's unorganized GDP is significantly underestimated. It can be seen in the size of Pakistan's cash economy (currency in circulation) which is much larger as a percentage of the total economy than in India and Bangladesh.
https://propakistani.pk/2025/10/10/pakistans-real-economy-is-near-1-trillion-says-finance-minister-aurangzeb/
“Pakistan’s recorded economy stands at US$411 billion, but nearly half remains undocumented,” the (finance) minister (Aurngzeb) said. “The real size of our economy is closer to a trillion dollars.
https://www.riazhaq.com/2021/12/has-bangladesh-really-left-india-and.html
"Pakistan’s currency in circulation reaches Rs10.8 trillion ($38.5 billion) , up 27.4% of total money supply"
https://profit.pakistantoday.com.pk/2025/08/28/pakistans-currency-in-circulation-reaches-rs10-8-trillion-up-27-4-of-total-money-supply/
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Countries with most cash use in world in 2025: Pakistan in top 10; know where India ranks
List of top 10 countries with most cash usage in 2025: At the top of the list is Myanmar, where cash is used for about 98 per cent of everyday transactions.
https://indianexpress.com/article/trending/top-10-listing/countries-with-most-cash-use-in-world-in-2025-10361431/
With around 90 per cent of everyday transactions being performed in cash, Pakistan is likewise at the top of the list. Here, the sizable informal economy is crucial. Cash is preferred by many daily wage workers and small business owners, in part to avoid complex banking procedures and occasionally to avoid paying taxes.
How much Cash do Indians use in 2025?
Approximately 70 per cent of all transactions in India involve cash, despite the country not ranking among the top 10. However, India is notable for spearheading the revolution in digital payments. With just a smartphone, millions of individuals may now send and receive money without using cash thanks to the government-backed Unified Payments Interface (UPI). UPI has made digital transactions quick, simple, and accessible for both online and street merchants.
https://www.bloomberg.com/news/newsletters/2025-12-16/india-looks-to-boost-nuclear-power-demand-lags-gdp-growth-by-far
Why is India’s power demand up barely 1% if GDP growth is tracking 7%-8% this fiscal year?
It started with several reports that show power demand growth at 0.9% during April to November. That, too, on a weak base of 3% growth last fiscal year through March.
A key reason is a cooler summer and an extended monsoon — unseasonal rains in May and October lowered use of irrigation pumps in rural areas and air conditioners in cities, Murtuza Arsiwalla, director of research at Kotak Institutional Equities, told me.
But that doesn’t explain why power demand declined last month, making it the first November contraction in five years. Arsiwalla adds two more reasons to the list — a rise in off-grid power supply, such as captive and rooftop solar power, and moderation of industrial activity, which is 40% of all power consumption.
Typically, power demand growth is about 0.9 times GDP growth, with exceptions in some years. Right now, that ratio is running at about 0.1. Economists caution against reading too much into the correlation. One pointed to the less energy intensive services sector dominating economic growth. The other suggested rising energy efficiency across the economy, citing the modest increase in fuel consumption despite a pick-up in GDP growth post-pandemic as evidence.
To be sure, some analysts expect power demand to bounce back. Till that happens, the data casts a shadow over the strength of India’s economic recovery. It also spells trouble for an energy sector already concerned about oversupply and rising instances of solar power curtailment.
—————-
Tax collections of the Centre have grown only 4% between April and October 2025, way below the fiscal 2026 target of 11% growth
https://www.moneycontrol.com/news/opinion/india-s-gdp-outperformed-all-expectations-in-2025-but-low-nominal-growth-s-got-downsides-13721199.html
Had a fascinating chat with @arvindsubraman and Devesh Kapur.
They argue that India's official GDP data is wrong.
They posit that the liberalisation phase ended a decade+ back.
India's growth has fallen sharply since then.
https://x.com/shoaibdaniyal/status/2001998168041652333?s=61&t=mgTxrmITUbpo9NntN5677Q
https://youtu.be/KfEk0mEiK8I
In A Sixth of Humanity, political scientist Devesh Kapur and economist Arvind Subramanian set out to do something ambitious: chart India’s development journey from Nehru to Modi.
In this episode of Adda, they sit down with Shoaib Daniyal and break down the four stages of India’s development. Starting with Nehru’s planned economy, which they argue did not do what it set out to: import substitution. Rather than create a safe space for Indian industry to grow and then eventually take on international competition, it ended up nearly killing the private sector.
Interestingly, Modi might be doing something similar now by promoting so-called national champions like Adani and Ambani. Again, by allowing them to largely play in the domestic space, rather than making them take on international competition, these firms are not adding to India’s growth story.
Most shockingly, however, Kapur and Subramanian argue that India’s GDP growth has ground to a halt over the last decade or so, with them estimating that average growth has been only around 3%. For context, official data reported that India’s real GDP grew 8.2% in the second quarter of 2025-26.
@Ignis_Rex
India’s Missing Middle: A Society Without Values Cannot Create Prosperity
India’s absence from the global middle-class map is not a statistical anomaly—it is the logical consequence of a society that has never been built on principles, values, or institutions that sustain prosperity.
Bloomberg’s recent analysis rightly points out India’s fading presence in the global middle-income bracket. But the deeper truth is this: India is not merely unequal; it is structurally incapable of producing a middle class.
A Hollow Growth Story
For decades, India has been celebrated as “the next big market.” Economists and investors have projected a rising consumer base, a demographic dividend, and a vibrant democracy. Yet the reality is starkly different. India’s economy is polarized between a tiny elite and a vast underclass. The so-called middle class is a mirage—fragile, precarious, and dependent on patronage rather than merit.
Unlike China, which built factories, infrastructure, and disciplined institutions to lift hundreds of millions into middle-income status, India has relied on slogans, subsidies, and rent-seeking. The result is an economy where luxury malls flourish for the elite, while the majority struggle for subsistence. There is no broad-based demand, no stable middle-income consumer, and no genuine ladder of upward mobility.
Why Inequality Is Entrenched
India’s inequality is not simply economic—it is cultural and institutional.
- Caste and tribalism: Social hierarchies remain rigid. Meritocracy is suffocated by caste privilege, nepotism, and political favoritism.
- Corruption as culture: Rules are bent, contracts ignored, and corruption normalized. In India, dishonesty is not an exception—it is the operating principle.
- Absence of civic values: Societies that sustain a middle class are built on trust, accountability, and respect for law. India has none of these. Institutions are hollow, enforcement is arbitrary, and opportunism is the only ethic.
- Protectionistic policy that punish foreign manufacturers and brands for being successful in the Indian market and dare to compete successfully against local heroes. India normally used tax and custom procedures to harrass these foreign companies.
Why is value and principle important for a society? Without values, inequality becomes entrenched. Without principles, institutions collapse into corruption. And without institutions, there can be no middle class.
The Mirage of Democracy
India’s defenders point to its democracy as a safeguard. But democracy without values is merely populism. Elections are won through caste arithmetic, handouts, and manipulation. Policy is reactive, incoherent, and designed to appease factions rather than build institutions. The middle class, which in other societies acts as a stabilizing force, is too weak to play that role in India. Instead, politics amplifies division and entrenches inequality.
Global Implications
India’s failure to build a middle class has consequences beyond its borders.
- Economic fragility: Without a strong middle-income base, India’s growth story is unsustainable. Domestic demand will remain polarized, vulnerable to shocks, and incapable of driving global markets.
- Geopolitical weakness: India cannot credibly claim to rival China when it lacks the social and economic foundation of a middle class.
- Investor caution: For global capital, India offers opportunities at the top and bottom of the pyramid—but the broad consumer market that sustains long-term investment is missing.
Conclusion
India’s missing middle is not a temporary setback—it is the inevitable outcome of a society that has never embraced values of fairness, merit, or accountability. Until India confronts its cultural and institutional dysfunction, it will remain a deeply unequal society, incapable of producing prosperity for the majority of its people.
https://www.bloomberg.com/opinion/articles/2025-12-18/why-india-fell-off-the-global-middle-class-map
https://x.com/Ignis_Rex/status/2001987658726396311?s=20
Story by Saloni Goel
https://www.msn.com/en-in/money/markets/sensex-lags-pakistan-china-and-other-major-global-markets-this-year-by-wide-margin-what-to-expect-in-2026/ar-AA1T0uLf
After displaying sharp outperformance over the last few years, the Indian stock market has taken a back foot in 2025. The returns offered by major global peers have eclipsed Sensex's performance as the index remained in consolidation mode amid several headwinds like steep tariffs, record FII outflows and fading earnings growth.
The extent of India's underperformance is such that it's also lagged its neighbour Pakistan, whose stock market has not only given high double-digit returns but also remains one of the top-performing global markets.
India vs Global markets
Sensex touched a record high this year. Yet, this feat was achieved after a gap of 14 months in November this year. The index has risen almost 9%, as the macro setup remained positive.
Yet, when compared to Pakistan, it's almost a sixth of the 52% return offered by the KSE 100 index this year, making it one of the best-performing markets globally. Pakistan’s surge is explained by its small market size alongside IMF support and domestic rate cuts that spurred liquidity.
Meanwhile, India’s underperformance this year is not about weak fundamentals, but about sentiment and missing foreign flows, said Harshal Dasani, Business Head at INVAsset PMS. Foreign investors have net sold Indian equities worth ₹156,852 crore in the last one year.
The weakness in the rupee, along with earnings slowdown, has reduced the Indian stock market's appeal for the FIIs. Another factor that has driven them away is the steep 50% tariff imposed by US President Donald Trump on Indian exports to the US.
Among other global markets, South Korea's KOSPI has topped the charts, with a massive 68% surge. Other Asian peers like China, Hong Kong and Japan have also delivered two or three times the returns by Sensex, having risen 16%, 28% and 29%, respectively in a year.
The mother market US has also delivered a stellar rally. Its broader S&P 500 index has seen a 15% rise. Meanwhile, the UK's FTSE 100 index has gained 21%.
Can Indian stock market reverse underperformance?
Analysts believe mojo can return to the Indian stock market once clarity emerges on the India-US trade deal front and flows return.
Dasani said that on most domestic and global parameters, India is positioned for a strong next leg. "Globally, conditions are supportive. Crude prices have remained below USD 70 per barrel, easing inflation and external pressures. Domestically, GDP growth is around 8.2%, RBI has cut rates, tax measures have supported consumption, and festive demand has lifted activity. Retail and domestic institutions continue to buy. The only overhang is FII caution, largely linked to uncertainty around India-US trade relations," he opined.
Pegging his view on when FIIs can likely return, Kranthi Bathini of Wealthmills Securities, said that earnings recovery coming to track will bring FIIs to the Indian markets again. He expects this to happen in the middle of 2026. Meanwhile, he remains bullish on the Indian stock market.
Global brokerages, too, have displayed their confidence in Indian equities, upgrading their ratings. Goldman Sachs, earlier in November, reversed its October 2024 downgrade, as it raised its rating for the Indian stock market to "overweight" from "neutral".
Similarly, in September this year, HSBC had upgraded its stance on Indian equities from "neutral" to "Overweight", citing improved valuations, supportive government policies, and resilient domestic
If economy is growing at more than 8% during the same period, how can housing sales be falling? Surely, someone will find a convoluted explanation, as they have about very low power consumption growth and below-target tax collections.
https://x.com/sushantsin/status/2004783345465786671?s=61&t=mgTxrmITUbpo9NntN5677Q
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Fewer houses sold in 2025 in top seven cities; Chennai bucks the trend
Hit by ever-increasing property prices, layoffs in the IT sector, geopolitical tensions, and other uncertainties, the sector reported a sharp dip in housing sales.
https://www.newindianexpress.com/amp/story/business/2025/Dec/26/fewer-houses-sold-in-2025-in-top-seven-cities-chennai-bucks-the-trend
India's realty sector in 2025 disappointed most developers with sales struggles plaguing all but top players.
Hit by ever-increasing property prices, layoffs in the IT sector, geopolitical tensions, and other uncertainties, the sector reported a sharp dip in housing sales. Real estate consultant firm ANAROCK Research's data indicates that housing sales in India's top 7 cities witnessed a 14% decline in 2025, with approx. 3,95,625 units sold in the year against 4,59,645 units in 2024.
Mumbai Metropolitan Region (MMR) witnessed the highest sales of approximately 1,27,875 units, registering an 18% yearly decline. Pune followed with approximately 65,135 units sold, declining by 20% y-o-y. The two western markets together led residential sales in 2025, comprising a 49% overall share.
Besides Chennai (up 15%), sales declined year-on-year in all the remaining six major markets. Hyderabad (down 23%), Pune (down 20%) and MMR (down 18%) registered sharply decline in sales.
Year of upheaval
"2025 has been a year of broad-spectrum upheaval including geopolitical turmoil, layoffs in the IT sector, tariff tensions and other uncertainties," said Anuj Puri, Chairman – ANAROCK Group.
"The year's trend was of sale volumes stabilising at around 4 lakh units across the top 7 cities, but growth in overall sales value. Our data shows that more than 21% of the new supply was launched in the above Rs 2.5 crore price bracket. Interestingly, the average residential price growth rate has tapered down from double digits in previous years to single digits in 2025," added Puri.
Prices in the top 7 cities collectively rose 8% annually, and only NCR saw double-digit growth at 23%, largely due to a higher new supply of pricier homes. The other major cities recorded single-digit price appreciation, ranging between 4-9% in 2025 as against last year’s 13-27% in 2024.
Out of NCR's total new supply of 61,775 units during the year, over 55% was priced over Rs 2.5 crore. Owing to a constant rise in property prices and better demand for luxury apartments, the overall sales value of housing units saw a 6% yearly jump -- from Rs 5.68 lakh crore in 2024 to over Rs 6 lakh crore in 2025.
The share of new supply of homes priced more than Rs 2.5 crore in the top 7 cities made up a significant 21% in 2025, as against 18% in 2024. New launches in the top 7 cities saw a 2% annual increase -– from 4,12,520 units in 2024 to 4,19,170 units in 2025.
MMR and Bengaluru saw the maximum new launches, together accounting for almost 48% of the new supply in the year.
Former Chief Economic Advisor Arvind Subramanian claimed India's GDP growth was significantly overestimated (by ~2.5 percentage points annually) between 2011-12 and 2016-17, suggesting actual growth was around 4.5% instead of the reported 7%, due to changes in data sources and methodology, particularly affecting manufacturing, sparking debate and rebuttal from the government.
Subramanian's Core Argument (2019):
Overestimation: In a Harvard working paper, Subramanian argued that India's GDP growth was overstated by roughly 2.5 percentage points per year between FY12 and FY17.
Actual vs. Reported: He suggested real growth was closer to 4.5%, compared to the official 7% average for that period.
Evidence: He cited breakdowns in correlations between GDP and 17 high-frequency indicators (like industrial production, exports) and issues with manufacturing sector data after methodological changes.
Government Response & Ongoing Debate:
Rejection: The Economic Advisory Council to the Prime Minister (EAC-PM) rejected his findings, calling them sensationalist and promising a rebuttal that never fully materialized.
Economic Survey Chapter: The 2019-20 Economic Survey included a chapter titled "Is India's GDP Growth Overstated? No!" to counter his claims, noted Scroll.in and the federal.com as sources..
Recent Comments (2024-2025): Subramanian continued to express bewilderment at more recent (2023-24) GDP figures, finding them inconsistent with other economic indicators, adding to ongoing questions about India's data credibility.
In essence, Subramanian's work highlighted concerns about the reliability of India's GDP data, proposing that the economy's post-GFC performance was solid but not spectacular as officially reported.
India’s former chief economic adviser is skeptical of the 7.4% growth estimate for this fiscal year through March.
“We should be cautious about both the level and direction in which India’s economy is headed.”
“It would be very odd for capital to be fleeing a country where growth, at 7.4%, is so much greater than anywhere in the world.”
https://x.com/menakadoshi/status/2009661382447534574?s=61&t=mgTxrmITUbpo9NntN5677Q
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Risks Remain Elevated for India Investors, Warns Former Adviser
Subramanian advised lowering expectations for next year’s growth.
https://www.bloomberg.com/news/newsletters/2026-01-09/india-gdp-growth-uneven-all-stock-deals-like-devyani-sapphire-becoming-popular
Today we decode the latest growth estimates through the lens of a former government adviser, and explore the appeal of all-stock deals.
India’s former chief economic adviser is skeptical of the 7.4% growth estimate for this fiscal year through March. “We should be cautious about both the level and direction in which India’s economy is headed,” Arvind Subramanian told me this morning in an interview on Bloomberg Television.
“It would be very odd for capital to be fleeing a country where growth, at 7.4%, is so much greater than anywhere in the world,” he said, flagging the disconnect.
@SushantSin
When even Ruchir Sharma says that India is slipping from the global spotlight because no one takes the official GDP growth figures seriously, in light of all the other contrarian indicators, India's economic crisis has to be in all alarms flashing mode.
https://x.com/SushantSin/status/2010759796602126428?s=20
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Ruchir Sharma
https://www.ft.com/content/999a8dd3-a494-4bf9-892f-22446b9de73b
India is still reporting world-beating economic growth but no longer getting any love for it. Flows of foreign money into the country have dried up, suggesting outsiders believe that the reported GDP growth rate of over 8 per cent masks underlying weaknesses.
Most strikingly, corporate revenue normally grows (or shrinks) with the economy — in any country. But last year corporate revenue growth for listed companies in India decelerated to barely half the GDP growth rate. Rather than taking comfort in the headline real GDP figures, which are likely to be boosted by technical factors related to adjustments for inflation, policymakers would be wise to address some key faultlines.
Among the leading signs of weakness: India is losing more people and attracting a lot less money than it used to. This decade, a net total of 675,000 people emigrated each year, up from 325,000 in the 2010s. Only Pakistan, Bangladesh and Ukraine have seen a larger exodus while China is haemorrhaging people at the same pace as it did in the last decade, 300,000 a year. A chunk of this outflow from India is “brain drain” — a loss of exactly the skilled workers it needs to compete in advanced fields. As a result, one-third of Silicon Valley’s tech workforce is now Indian.
Employment growth continues to be weak; even at the famed Indian Institutes of Technology, 38 per cent graduated without a single job offer from a campus recruiter in 2024. Many Indians are leaving to find work in the few countries still friendly to immigrants, such as the UAE and Saudi Arabia, drawn in by the region’s construction boom.
A sense of limits is reshaping capital flows as well. India has long attracted only modest capital from abroad, thanks in large measure to the lingering “Licence Raj”, which can make it prohibitively expensive to acquire land or hire and fire workers. Asian economies that have sustained rapid growth — such as China and Vietnam more recently — saw net foreign direct investment surge above 4 per cent of GDP during their boom phases.
That figure never surpassed 1.5 per cent in India, and it is now just 0.1 per cent. Over the past decade, India dropped in the rankings for net FDI/GDP, from 12th to 19th among the 25 largest emerging countries. While the net numbers have been depressed recently by foreigners repatriating past profits, gross flows are low too, with India ranking below most emerging markets last year.
In addition to India’s long-standing reputation as a difficult place to do business, new risks have been holding back foreign investors including New Delhi’s deteriorating relations with its neighbours, the tariff battle with Washington and doubts about its tech potential. China and South Korea spend more than 2.5 per cent of GDP on research and development; India’s outlays last year were just 0.65 per cent of GDP. It is no surprise then that it has no serious players in AI.
These shortcomings are souring financial markets. After a long drought, stock markets in the emerging world finally saw net inflows last year. India, however, experienced record net outflows of $19bn. The intense foreign selling was countered by domestic buyers, with households keen to increase their historically low exposure to equities. Nonetheless, the Indian stock market significantly lagged behind its peers last year.
Tax collection figures are a concern, with New Delhi’s net tax intake not even hitting the halfway mark of what it expects to collect by March 31 in the first eight months of the current fiscal year.
A new federal budget is due February 1, and the government may need to address the gap in tax revenue, potentially by asking investors to pick up the slack or tightening its belt through measures such as cutting capital expenditure.
https://www.bloomberg.com/opinion/articles/2026-01-12/india-has-7-4-growth-but-where-are-the-taxes
India is once again the world’s fastest-growing major economy, despite facing punitive US tariffs for buying Russian oil. Yet, capital is fleeing, the currency is sagging, businesses aren’t investing, and tax revenue is faltering.
That last point has the most immediate significance. Tax collection figures are hard numbers, whereas gross domestic product is a statistical artifact. The ministry responsible for the calculations is predicting an acceleration in GDP growth — to 7.4%, from 6.5% previously. Yet in the first eight months of the current fiscal year, New Delhi’s net tax intake didn’t even hit the halfway mark of what it expects to collect by March 31.
A new federal budget is due Feb. 1, and the bond markets are on edge. Consumption taxes were slashed in September, but if the relief fails to lift economic activity on a sustained basis, investors may be asked to pick up the lingering slack in government revenue.
That challenge could get complicated if the actual state of the economy is not as rosy as the numbers suggest. An outdated base year and reliance on a corporate database that doesn’t directly measure informal activity are well-known methodological infirmities of national-income estimation in India. Businesses that have used cheery growth figures as guideposts have often been flummoxed by a more humdrum reality.
There is a third source of confusion. Nominal GDP, measured at current prices, has slowed sharply since the end of the pandemic and exhaustion of pent-up demand. But real, or inflation-adjusted, GDP growth is holding strong, suggesting that the impact of price changes is perhaps not being captured correctly in official data.
All three problems are likely to be addressed when the government announces a new GDP series toward the end of next month. Even if the revamp doesn’t satisfy all critics, it will hopefully present a more accurate picture directionally — whether growth is headed higher or lower — in the world’s most-populous nation.
That will be of enormous help to policymakers who are currently flying blind. For instance, the central bank’s chief has looked at high reported growth and low inflation to conclude that the economy is in the middle of a rare Goldilocks period. But what if, as the economist Dhananjay Sinha and his colleagues at Systematix, a Mumbai-based brokerage, have argued, the real situation is more a gridlock of “weak tax buoyancy and shrinking fiscal space?”
The sub-par tax collection is unlikely to lead to a blowout increase in the full-year deficit, which will somehow be managed around its budgeted level of 4.4% of GDP. But the manner in which Prime Minister Narendra Modi’s government tightens its belt, for instance by hitting the brakes on capital expenditure or pushing the burden to state governments, could have implications for growth in the coming fiscal year.
India’s 28 states have recently been put on the hook for 40% of the cost of a revised rural jobs program. This is when they’re struggling with a resource squeeze from the Modi government’s decision to cut the nationwide goods and services tax. Those GST rate reductions were aimed to spur local consumption in the face of harsh US tariffs, though their net effect has been to temporarily boost festive-season sales of automobiles and white goods. After meeting the extra
Tax collection figures are a concern, with New Delhi’s net tax intake not even hitting the halfway mark of what it expects to collect by March 31 in the first eight months of the current fiscal year.
A new federal budget is due February 1, and the government may need to address the gap in tax revenue, potentially by asking investors to pick up the slack or tightening its belt through measures such as cutting capital expenditure.
https://www.bloomberg.com/opinion/articles/2026-01-12/india-has-7-4-growth-but-where-are-the-taxes
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India’s 28 states have recently been put on the hook for 40% of the cost of a revised rural jobs program. This is when they’re struggling with a resource squeeze from the Modi government’s decision to cut the nationwide goods and services tax. Those GST rate reductions were aimed to spur local consumption in the face of harsh US tariffs, though their net effect has been to temporarily boost festive-season sales of automobiles and white goods. After meeting the extra demand for retail credit, banks are strapped for liquidity. In the absence of cheap deposits, they aren’t keen to absorb an elevated supply of state government debt.
Bond vigilantes have no worries about inflation. Consumer prices are barely moving higher. If anything, the concern is the opposite: Subdued rural prices suggest weak income growth in villages and anemic demand. The 3.4% drop in tax collections up to November isn’t something debt investors would dismiss out of hand. Back in 2013, it was the Federal Reserve’s decision to taper its monetary easing that exposed India’s unsustainable fiscal and monetary policies. A shadow of that fragility is looming again, though the drivers of discomfort are different.
This time around, the worry is less technical, and more political. Recent comments by US Commerce Secretary Howard Lutnick suggest that the Trump administration is in no mood to give India an early reprieve from 50% tariffs. That puts a question mark over New Delhi’s upcoming budget: Should it play to the gallery of domestic equity investors by lunging for growth? Or should it choose fiscal restraint to keep a lid on rising borrowing costs — both for itself and the private sector? There are no easy answers.