WHEN GROWTH STARTS COUNTING COSTS

India’s latest austerity push is not a sign of collapse. It reflects a government trying to preserve fiscal credibility without weakening the confidence that still drives growth and investment.

- PROF. VIKAS SINGH

India wants to be seen as the world’s fastest-growing major economy, a manufacturing alternative to China, and the next great investment story outside America. Yet the government is simultaneously talking about austerity, monetising household gold, reducing administrative expenditure, and encouraging work-from-home efficiencies to lower operating costs. Fast-growing economies sell ambition. Cautious economies begin discussing savings.

That contradiction explains India’s current economic mood.

The Centre has committed to reducing the fiscal deficit to 4.5% of GDP by 2025-26 while maintaining one of the world’s largest public infrastructure programmes. India is not facing a 1991-style crisis. Foreign exchange reserves remain strong. Banks are healthier than they were a decade ago. Tax collections have improved through digitisation and formalisation.

But governments do not begin discussing operational savings and dormant assets when fiscal pressures are absent.

The global environment has changed sharply. World trade is slowing. Geopolitical tensions are disrupting supply chains. Interest rates remain high across advanced economies, making global capital more expensive. Export momentum has weakened, while private investment still trails public capital expenditure as the main driver of growth.

That last point matters most.

India’s post-pandemic recovery has depended heavily on state-led capex. Roads, railways, logistics corridors, and manufacturing incentives became the engines compensating for uneven private demand. The strategy worked. India grew faster than most major economies while much of the world struggled with inflation and stagnation.

But public expenditure can accelerate growth only for so long. Eventually governments must ask whether every additional rupee spent is creating productive capacity or merely sustaining momentum that private investment has not yet taken over.