India’s economy is strong as Finance Minister Nirmala Sitharaman gets ready to deliver the budget on Sunday. India is predicted to finish the year with 7.3% GDP growth and surpassing $4 trillion. It will also overtake Japan in Asia as Asia’s largest economy.
The central bank expects retail inflation to remain below the 2% target. The agricultural sector is doing well. A robust cereal production, stocked government graineries and rural incomes are all boosted by the agriculture. Consumer spending has also been stimulated by recent income tax reductions and GST rationalization. Reserve Bank of India describes the current phase as “Goldilocks”, where there is stable growth, low inflation, and job creation.
Hidden Problems at Work
The labor market is facing challenges despite the headlines. The demand for gigs is still high. India’s leading IT firms added just 17 net new employees during the first nine-month period of 2025. The slowdown is largely due AI disruptions that have affected the back office economy.
Exports that require a lot of labor are also in trouble. Exports are being affected by ongoing issues, such as the possibility of a 50% US tariff. Free trade agreements such as those with the European Union and other countries offer relief. However, competing against nations like Vietnam or Bangladesh is still a problem.
Foreign Capital and Private Investment
Weak private investments are a hindrance to long-term growth. Since 2012, corporate investments have remained flat at around 12 percent of the GDP. The excess capacity of factories discourages new investment. India is losing foreign investors and attracts much less direct investment from other Asian economies.
The government reforms including the updated labor code aim to improve business conditions. It is not yet clear if these reforms will bring foreign investment back.
Reforms in Budget and Fiscal Discipline
In the next budget, Finance Minister Sitharaman will likely focus on fiscal discipline and reforms. Some of the key initiatives could include encouraging exports, expanding incentives linked to production, and supporting MSMEs. The capital expenditures on roads, railways and telecom are likely to stay around 3%.
Prioritizing tax reductions in the previous budget created potential deficits. The government is likely to aim for a slight reduction or maintenance of the fiscal deficit this year rather than aggressive growth.
