The Cracks Beneath the Peddled Story of India’s Growth
Introduction
For over a decade, the Narendra Modi government has projected India as the world’s fastest-growing major economy, an emerging manufacturing hub, a Vishvaguru, a global power, a preferred destination for global capital, and a Viksit Bharat on track for 2047. Yet, behind this carefully crafted narrative lies a more troubling reality. The economy faces multiple external shocks while carrying deep structural weaknesses that threaten its long-term prospects .
The warning signs are unmistakable. But instead of addressing them, the ruling establishment appears more focused on manufactured controversies, communal polarisation and divisive politics. As television studios debate temples, mosques, medieval rulers and invented enemies, the economy’s foundations continue to weaken .
Imported Energy, Growing Risks
The Vulnerability of Dependence
The most immediate challenge is India’s growing vulnerability to external shocks. The country imports nearly 90% of its crude oil and about half of its natural gas requirements. Every rise in global energy prices is quickly transmitted to the domestic economy. The recent rise in fuel prices underscores a stark reality: despite the rhetoric of renewable energy, self-reliance and global leadership, India remains heavily dependent on imported energy .
Before the West Asia war, around 40% of crude imports passed through the Strait of Hormuz. The exposure was greater for gas. India imports approximately 60% of the LPG it consumes, with 90% of those imports travelling through Hormuz. So, over half of domestic consumption was stuck at the chokepoint. Similarly, Hormuz accounted for around 55-60% of India’s LNG imports, on which several fertiliser plants, city-gas networks and industrial consumers depend .
The Cost of Dependency
The consequences are severe. Rising oil and liquefied natural gas prices widen the trade deficit, weaken the rupee and raise production costs across the economy. In FY2025-26, the Reserve Bank of India sold over $53 billion in the foreign exchange market to support the rupee — its largest intervention in more than a decade . Foreign exchange reserves have fallen from over $720 billion to around $681 billion . An economy with strong fundamentals should not have to spend such vast sums merely to slow its currency’s decline .
The rupee has fallen to a historic low of about ₹95 against the U.S. dollar . The speed of rupee depreciation has been unusually sharp, with the rupee taking only 152 days to depreciate from ₹90 to ₹95. According to SBI Research, the current depreciation is higher than what India’s underlying economic conditions would warrant . The rupee touched a record low of 96.96 against the dollar during the peak of the crisis .
The Fertiliser Challenge
Compounding the problem is the uncertainty surrounding fertilizers and agriculture. India’s apparent strength in manufacturing fertilisers masks a dangerous vulnerability. Domestic urea production depends heavily on imported LNG. Almost all the fertilisers India produces are linked to heavy imports such as LNG and potash. Any disruption in global gas supplies, any sharp increase in LNG prices or supply chain disruption immediately threatens fertilizer availability and affordability .
The challenge is compounded by the monsoon outlook. A weak monsoon affects far more than agriculture. Lower crop yields reduce rural incomes, weaken consumption, fuel food inflation. They also increase the need for government spending on relief, procurement and subsidies, which is unlikely under the Bharatiya Janata Party’s rule. These risks reinforce one another. Rising fuel costs, expensive fertilizers and a weak monsoon together create a vicious cycle that suppresses demand when the economy needs stronger domestic consumption .
The Energy Security Deficit
Strategic Petroleum Reserves
India’s current strategic petroleum reserves are equivalent to just about 9-10 days of the country’s net crude imports, far below other major import-dependent countries. Countries that rely heavily on crude imports—such as Japan and South Korea—maintain reserves sufficient for over 200 days .
Over 85 per cent of India’s crude oil imports come from just six countries, including Russia and key West Asian suppliers, limiting flexibility during supply shocks . For gas, India imports nearly half its supply as LNG but has no dedicated strategic gas storage facilities, leaving fertiliser plants and city gas networks exposed .
The Crisis Impact
These vulnerabilities were laid bare by the Hormuz crisis. India’s crude imports fell 13% between February and March 2026, while crude inventories declined about 15% after the war began. April crude-import volumes were 4.3% lower year-on-year, but the amount paid for them surged 52.3%. This captures the peculiar burden of an oil shock that leads to stagflation .
Gas supplies proved harder to replace. LPG imports fell to nearly half their February level, while domestic LPG production declined around 10% from its March peak. LNG imports contracted 29.6% year-on-year in April. Qatar, which had supplied India with an average of 1 million tonnes of LNG each month in 2025, supplied virtually nothing during March and April .
The merchandise trade deficit widened from $20.7 billion in March 2026 to $28.38 billion in April . Rising oil and LNG prices widen the trade deficit, weaken the rupee and raise production costs across the economy .
Weakening Rural Safety Nets
The MGNREGA Question
A responsible government would respond to economic pressures by strengthening employment guarantees and social protection. Instead, the Modi government abolished the Planning Commission and has steadily weakened MGNREGA, one of the country’s most effective rural safety nets. As a result, millions of rural households now face greater economic uncertainty with fewer protections than they had a decade ago .
The transition from a fully Centrally funded wage guarantee to a 60:40 Centre-state cost-sharing model under the new VB-GRAMG scheme has triggered unease across states . Even BJP-ruled Bihar and Madhya Pradesh have flagged the increased wage burden under the new framework. For states with constrained fiscal space, the obligation to shoulder 40% of the wage expenditure can sideline other welfare priorities, especially in rural development .
The Centralisation Debate
Senior CPI(M) leader Brinda Karat has called for the withdrawal of the draft rules framed under the VB-GRAMG Act, alleging that they erode workers’ rights, centralise decision-making, weaken India’s federal structure and jeopardise the employment guarantee previously provided under MGNREGA . She argued that the rules represent “extreme concentration of all decision making in the hands of the union government” and amount to “an assault on the federal nature of the Constitution” .
The Congress has accused the Centre of pushing the reform without adequate consultation and weakening the rights-based character of rural employment. The party’s government in Telangana is planning to move the Supreme Court against VB-GRAMG . Jairam Ramesh alleged that BJP-ruled states including Madhya Pradesh, Bihar and Uttarakhand have objected to the “huge additional expenditure burden” the new scheme would impose on state governments .
The debate raises fundamental questions: is the right to work to be held hostage to the efficiency or inefficiency of state governments as decided by the union government? And what does the replacement of a rights-based guarantee with a centrally-managed scheme say about the government’s commitment to rural welfare? .
The External Sector: A Precarious Balance
Remittances and the Services Model
Beyond these immediate pressures lies a deeper structural concern. India’s external sector remains heavily dependent on services exports and remittances. The record $135 billion in remittances received in FY2024-25 has been a key factor in financing the current account deficit .
Even this strength carries a warning. Increasingly, India’s remittances come not from migrant workers in West Asia but from highly skilled professionals in the United States, the United Kingdom and other advanced economies. The rise of right-wing politics and anti-immigration sentiment—championed by leaders such as U.S. President Donald Trump—poses a growing threat to this model. At the same time, artificial intelligence (AI) is transforming software, data processing and other professional services in which Indian workers have traditionally excelled .
The danger is not that remittances will disappear overnight, but that one of the pillars supporting India’s external balance could gradually weaken. If remittance growth slows while energy imports remain high, pressure on the current account and the rupee will intensify .
Foreign Investment Concerns
International investors are already turning cautious. Foreign portfolio investors have withdrawn over ₹2.2 lakh crore from Indian equities this year, while India has slipped from sixth to seventh in global market-capitalisation rankings . Foreign exchange reserves have fallen to around $681 billion from a record high of $728.49 billion in February 2026 .
Net FDI has declined from $28 billion in 2022-23 to just $7.7 billion in the year that ended in March 2026 . Dhiraj Nim, an economist at Australia & New Zealand Banking Group, pointed to a number of factors that have combined to keep net FDI in India subdued. India is not a big player in the major tech sectors currently in vogue with foreign investors, such as chip manufacturing, electric vehicles or AI. At the same time, the growth of AI is posing a threat to India’s long-vaunted services sector, dampening investment .
The Middle-Income Trap
A Structural Diagnosis
Economists point to the widening gap between India’s foreign inflows and outflows as a structural factor that’s weighed on the currency and growth . India’s economy is suffering from schizophrenia, accentuated by external economic shock. Growth is high, consumer inflation low. But domestic investors are playing coy, and foreign investors are scrambling to exit. The stock market is in decline. Fresh graduates from our best institutions are taking entry-level jobs that aren’t paying enough for them to be eligible to pay income-tax .
The world’s 4th-largest economy has, in a few months, shrunk to being the 6th-largest. Global investors are fixated on two growth areas: AI, and commodities. India is not a player in either .
The Productivity Challenge
India’s predictable slide into economic mediocrity follows a well-trodden path into a middle-income trap. Countries from Brazil to Egypt to Thailand to the Philippines have trodden this path. The road to the middle-income trap is marked by episodes of high growth and low inflation, even in the face of structural weakness. Foreign investors talk up an economy as the next big thing—only to dump it when a crisis exposes underlying weaknesses, which are always the same: a structural demand problem and persistently low productivity .
When a developing country becomes prosperous, growth results in positive structural change: value of output increases, as does share of the formal sector and manufacturing. This has not happened in India. Share of manufacturing in GDP has fallen to the lowest level this century. As the IT sector has stalled with the rise of AI, informal services—personal and intermediate services—have been the backbone of growth. As a result, employment has stagnated .
The Jobs Crisis
India is facing an acute jobs and wages crisis. Young people have disproportionately felt the impact. Just 7% of the population is now prosperous enough to pay income tax, and no young person entering the job market, even with professional or postgraduate qualifications, is paid enough to be in even the lowest tax bracket. A top blue-collar job in Samsung or Apple pays less than ₹25,000 a month, one-fourth of the income tax threshold .
So, demand in the economy is weak. Once companies have soaked demand of the rich, even small changes in price result in excess supply, as airlines and automobile and FMCG companies have recently learned. Low investment means low demand for capital goods. Loan-fuelled consumption—as opposed to wage-fuelled consumption—means extreme price sensitivity with respect to discretionary purchases. Add to that low demand for food, and you end up with low inflation. But this signals economic weakness, not strength .
The Technology Gap
Missing the Next Economic Cycle
The 21st century will be defined by AI, semiconductors, advanced manufacturing, robotics and frontier science. Yet, India remains largely absent from these strategic sectors. Although the country has a vibrant startup ecosystem, much of it is concentrated in digital intermediation rather than technological innovation. Food delivery, ride-hailing and quick-commerce platforms may create high valuations, but they do not build technological sovereignty. Many of India’s celebrated startups still depend on organising abundant low-cost labour through digital platforms rather than developing globally competitive technologies .
The contrast with global leaders is striking. Taiwan dominates advanced semiconductor manufacturing through TSMC. South Korea commands critical positions through Samsung. The U.S. and China lead in AI, advanced chips and foundational technologies. India possesses immense engineering talent but remains heavily dependent on imported semiconductors, imported technology and imported capital equipment. Despite years of slogans about innovation and self-reliance, the country remains a marginal player in the industries that will define the future .
The Capital Concentration Threat
The blockbuster listing of SpaceX highlights a growing tendency for global risk capital to concentrate in large US technology firms. Expected listings by OpenAI and Anthropic may deepen this trend by drawing benchmark-driven investment into American markets and reinforcing a self-sustaining cycle of capital concentration. For emerging economies, this raises concerns beyond monetary spillovers and may constrain funding for domestic innovation. India’s equity markets remain weighted towards established sectors, limiting exposure to future growth industries. Without stronger support for technology champions, local markets risk becoming detached from the next economic cycle .
The Economics of Polarisation
Distraction from Real Issues
Perhaps the most serious indictment of the Modi decade is that the promised manufacturing revolution has not materialised. The demographic dividend remains unutilised. Millions of young people continue to confront precarious employment, stagnant wages and shrinking opportunities .
Every failure has been passed on to ordinary people with a dose of hyper-nationalism. Wealth and opportunity continue to concentrate in fewer hands. The burden is socialised; the benefits are privatised .
Electoral victories should not be mistaken for economic success. A government can win elections while pursuing policies that weaken the long-term foundations of economic development .
The tragedy of contemporary India is that while the economy sends increasingly urgent distress signals, public attention is repeatedly diverted towards communal polarisation and manufactured controversies. Citizens are encouraged to fear one another rather than question policies that affect their livelihoods .
The Policy Trilemma
The crisis confronted the RBI with an uncomfortable policy trilemma. Raising interest rates to contain imported inflation would have weakened domestic demand and jeopardised India’s strong growth momentum. Defending the rupee through sustained dollar sales would have depleted foreign-exchange reserves. Yet inaction risked allowing higher energy, freight, and input costs to spread across the economy .
A durable reopening of the strait relaxes these constraints. Lower crude prices reduce India’s import bill and inflationary pressures, support the rupee, and give the RBI greater freedom for monetary policy. The episode, however, exposed how quickly a distant maritime disruption can constrain Indian economic policy .
The Need for a Different Path
Rebuilding the Foundations
India possesses the resources, talent and productive capacity to chart a different path. But doing so requires confronting the policies that have brought the country to this point. It requires defending public investment, strengthening social protection, rebuilding employment generation, investing in science and technology, reducing external dependence and restoring economic priorities to the centre of public life .
The report by the Council on Energy, Environment and Water argues that clean energy can reduce India’s exposure to continuously imported fossil fuels. However, clean energy can create a different kind of strategic dependence: on critical minerals, technologies, and industrial inputs. This dependence must be managed through domestic manufacturing, supply-chain diversification, recycling, and strategic international partnerships .
The Long-Term Imperative
Stronger and more durable solutions lie in attracting higher gross foreign direct investment, boosting exports, reassessing tariff policy, and reviewing currency management in a more uncertain global environment . Periods of lower energy prices should enable reform, not delay it .
Above all, what is required is a resolute and united struggle against policies that enrich a few corporates while burdening millions with poverty. The choice before the country is stark: continue down the present path of division and economic fragility, or build a broad democratic movement with left-of-centre economics, capable of defending livelihoods, jobs and the future itself. The time to wake up is now, before it is too late .
Q&A
Q1: What are India’s key energy security vulnerabilities exposed by the Hormuz crisis?
India imports nearly 90% of its crude oil and about half of its natural gas requirements . Its strategic petroleum reserves cover only 9-10 days of imports, compared to over 200 days for Japan and South Korea . Over 85% of crude imports come from just six countries . Before the war, around 40% of crude imports and 90% of LPG imports passed through the Strait of Hormuz, making India extremely vulnerable to chokepoint disruptions . India also has no dedicated strategic gas storage facilities, leaving fertiliser plants and city gas networks exposed .
Q2: How did the government respond to the currency crisis, and what were the consequences?
The RBI sold over $53 billion in the foreign exchange market in FY2025-26 to support the rupee—its largest intervention in more than a decade . Foreign exchange reserves fell from over $720 billion to around $681 billion . The rupee touched a historic low of 96.96 against the dollar . The government also coordinated with RBI to attract foreign inflows through measures like cutting capital gains tax on bonds, with estimates suggesting up to $45-50 billion in possible inflows .
Q3: What are the main concerns about the transition from MGNREGA to VB-GRAMG?
The new scheme shifts from a fully Centrally funded wage guarantee to a 60:40 Centre-state cost-sharing model, placing significant financial burden on states . Even BJP-ruled states like Bihar and Madhya Pradesh have expressed concerns . Critics argue the draft rules represent “extreme concentration of decision making in the hands of the union government” and weaken the federal structure . The rights-based character of rural employment is being replaced with a centrally-managed scheme .
Q4: Why is India’s economic growth not translating into widespread prosperity?
India is facing an acute jobs and wages crisis. Just 7% of the population is prosperous enough to pay income tax, and no young person entering the job market, even with professional qualifications, is paid enough to be in the lowest tax bracket . High GDP growth has not resulted in positive structural change—the share of manufacturing in GDP has fallen to its lowest level this century, employment has stagnated, and growth has been driven by informal services . This pattern is characteristic of the middle-income trap, where economies grow without transforming structurally .
Q5: What policy changes are needed to address India’s economic vulnerabilities?
India needs to attract higher gross foreign direct investment, boost exports, reassess tariff policy, and review currency management . It must invest in science and technology and reduce external dependence . On energy, domestic crude and gas output should be raised, subsidies rationalised, fiscal space restored, and revenue losses reversed . Periods of lower energy prices should enable reform, not delay it . The CEEW report recommends optimising gas system utilisation, accelerating EV adoption, electrifying industry, and building resilient green technology supply chains .
