India is facing a severe economic downturn, evidenced by the Prime Minister’s public appeals for citizens to save fuel and farmers to avoid chemical fertilizers.
Present Economic Concerns
- Decline in GDP Ranking: India’s global GDP ranking has reportedly slipped, raising concerns about the country’s economic momentum.
- Economic ranking matters because it affects India’s global bargaining power and strategic influence.
- GDP Decline: India has slipped to 6th place in global GDP rankings.
- Capital Flight: Foreign portfolio investors have withdrawn large amounts of money from Indian markets.
- Flight of Capital: Foreign Portfolio Investors (FPIs) withdrew $20 billion from India in the first quarter of 2026 alone.
- Rising Trade Deficit: India’s trade deficit has increased due to higher imports and comparatively weaker exports.
- A major reason is the rising cost of oil imports, especially during geopolitical tensions in West Asia.
- Currency Crisis: The Rupee is hovering at 96-97 per USD and is underperforming compared to neighboring currencies like those of Pakistan and Bangladesh
- Poor Stock Market Performance: Weak market performance affects investor sentiment.
- It also reduces wealth creation and discourages long-term investment.
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Critical Policy Failures
- Ineffective Reforms: The government has focused on minor changes, such as decriminalizing colonial-era laws, which the source argues do not address core economic issues.
- State-Level Corruption: Establishing factories remains difficult due to excessive “NOC” requirements and permissions, which serve as opportunities for bribery.
- Lack of Competitiveness: The PLI (Production Linked Incentive) scheme is insufficient. Competitors like Vietnam, Indonesia, and Thailand offer better tax incentives and lower compliance costs, attracting companies that are leaving China.
- Lack of Feedback: The government fails to seek feedback from MNCs, domestic firms, and MSMEs regarding their operational challenges
State-Level Regulatory Bottlenecks
- Many industries face excessive permission requirements at the state level.
- Multiple approvals and NOCs create delays and increase corruption.
- Each additional permission can become an opportunity for rent-seeking by officials.
- Ease of doing business must improve not only at the central level but also at the state and district levels.
Production Linked Incentive Scheme: Benefits and Limits
- The Production Linked Incentive scheme has helped some sectors by encouraging domestic manufacturing.
- However, its impact remains limited compared to incentives offered by countries like Vietnam, Thailand, and Indonesia.
- Many companies leaving China prefer Southeast Asian countries because they offer better tax benefits, cheaper logistics, and stronger investor facilitation.
Need for Feedback-Based Governance: The government should actively seek feedback from:
- Multinational companies: To understand global investment challenges.
- Large domestic firms: To identify taxation and regulatory issues.
- MSMEs: To understand compliance burdens and credit-related difficulties.
- Exporters: To improve competitiveness in global markets.
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Economy and Global Power
- A strong economy is the foundation of international influence.
- If India’s economy weakens, its diplomatic and strategic importance will also reduce.
- Countries such as the United States, Russia, and other major powers engage seriously with economically strong nations.
Lessons from Deng Xiaoping
- Deng Xiaoping transformed China by introducing pragmatic economic reforms.
- He moved China away from rigid communist economic policies and encouraged market-oriented growth.
- India also needs bold reforms rather than incremental changes.
Way Forward
- India should focus on deep structural reforms.
- State-level regulatory reforms should be prioritised.
- India should provide competitive incentives to attract global manufacturing.
- Taxation and compliance systems should be simplified.
- MSMEs should receive easier credit, lower compliance burden, and better market access.
- Political leadership should focus primarily on economic growth and employment generation.
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Conclusion
- India cannot become a major global power without a strong and competitive economy. Small reforms are insufficient for the current challenges.
- India needs bold, coordinated, and feedback-based reforms at both central and state levels to attract investment, increase exports, strengthen manufacturing, and create employment.
19 May 2026
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