Shift in the economy: Goldilocks to Cinderella

The Indian economy in FY26 was termed a Goldilocks economy (borrowing from the popular fairytale), a bit of a cliché.

- Madan Sabnavis

But things looked just right and the cliché seemed apt: The growth rate was healthy, inflation stood at just 2.1%, and the external balance was marked by a low current account deficit. This was against the backdrop of the Trump tariff tantrums, making it all the more significant.

However, things have started to change. The picture today seems more like Cinderella’s tale, of having to retreat after a great evening. The West Asia crisis casts a shadow across the world. Many felt Iran would fold soon after the death of Ayatollah Ali Khamenei. But more than two months have passed; each side is claiming victory and the Strait of Hormuz remains shut, leaving economies vulnerable as global fuel and fertiliser markets reflect the pressure from a choked commerce route.

Let us look at what this means for us.

First, the growth rate is sure to be affected. The Reserve Bank of India (RBI) forecasts 6.8% for FY27 though talk elsewhere suggests even 6.5% — well below the 7.6% recorded in FY26. While the Purchasing Managers’ Index — an indicator of the health of the manufacturing and services sector — still looks encouraging, this may not translate to higher growth. There is a base effect at play here.