India’s GDP obsession masks deeper economic fault lines

The obsession with Gross Domestic Product (GDP) prioritises quantitative economic expansion over quality of life, often masking rising inequality, environmental degradation, and the depletion of natural resources.

While GDP measures total economic output, it remains a poor proxy for societal welfare, ignoring unpaid labour, mental health outcomes, ecological costs, and the well-being of the majority.

Yet, growth projections continue to dominate the economic narrative. Moody’s outlook for the Indian economy projects that India will remain among the world’s fastest-growing economies through 2026–27, with real GDP growth estimated at 6.4% for FY27, the highest among G-20 nations.

Adding to the optimism, Goldman Sachs has raised India’s real GDP growth forecast for 2026 by 20 basis points to 6.9% year-on-year following the India–US trade deal, citing tariff relief after the US lowered duties to 18%. The brokerage has also revised down its current account deficit estimates, though it sees limited upside for the rupee.

However, the picture is not uniformly rosy. Goldman Sachs notes that exports of textiles and gems and jewellery to the US declined sequentially in October 2025, after exporters front-loaded shipments until August. This underlines the uneven sectoral impact of trade realignments, even as headline growth numbers improve.

The India–US trade deal has varied implications for India Inc from pharmaceuticals and textiles to gems and jewellery, offering relief to some sectors while exposing others to heightened competition and demand volatility.

Against this backdrop, fiscal policy choices are becoming increasingly constrained. The government faces three broad options, each carrying significant trade-offs.

First, it could increase the tax burden on the affluent, following international precedents. The UK’s 2025 Autumn Budget under Chancellor Rachel Reeves froze personal tax thresholds and modified inheritance and capital gains taxes to raise revenues largely from higher-income and asset-owning groups, pushing the tax-to-GDP ratio towards historic highs.

France, meanwhile, continues to levy a progressive wealth tax on real estate assets exceeding €1.3 million, with rates rising to 1.5% for holdings above €10 million. In India, higher wealth or income taxes could ease fiscal pressures, though economists warn that poorly designed measures may trigger capital flight.

Second, the government could reduce social expenditure, particularly on central sector and centrally sponsored schemes such as MGNREGA, housing programmes like PMAY, and education and health initiatives that support millions of poor and middle-class households.

While such cuts could save thousands of crores and narrow the fiscal gap, in an environment of agricultural slowdown, declining farm incomes, and persistent unemployment, austerity risks deepening rural distress and fuelling social discontent.

Third, the government could curb direct sovereign borrowing by routing debt through public sector undertakings such as the Food Corporation of India and the National Highways Authority of India, while extracting higher dividends from the RBI.

Though this approach offers short-term fiscal flexibility by keeping headline borrowing numbers lower, it raises serious concerns around transparency, off-budget liabilities, and long-term fiscal sustainability. Each of these paths — revenue enhancement, expenditure restraint, or creative financing — involves difficult economic, political, and social trade-offs.

The choices made will decisively shape India’s fiscal trajectory at a time of subdued GST collections and persistent demand weakness.

While advanced economies struggle with ageing populations and slowing productivity, India’s demographic dividend and rapid digital transformation provide a distinct structural advantage. The projection of 6.4% growth for FY27 sends a strong signal to global investors that India remains the most resilient growth story of the decade.

If these projections hold, India is firmly on track to become the world’s third-largest economy by 2030. The larger question, however, remains whether headline GDP growth alone can capture the true health of the economy.