Answer

India’s ascent to the world’s fourth-largest economy reflects the impact of structural reforms, robust domestic demand, and strategic positioning amid global economic shifts. Initiatives like GST, financial inclusion, and digital transformation have driven growth. Understanding these drivers offers insights into sustaining and amplifying this economic momentum.

Drivers of India’s growth: Domestic structural reforms

• Unified indirect tax regime (GST): Streamlined India’s fragmented tax structure, boosting compliance and revenue stability.
  Example: Gross GST collections averaged ₹1.84 lakh crore per month in early FY 2024–25, up 9.1 percent year-on-year.
• Production-Linked Incentive (PLI) schemes: Catalyzed manufacturing in electronics, pharmaceuticals and automobiles by incentivizing domestic value addition.
  Example: The manufacturing value of mobile phones has surged from ₹18,900 crore in FY14 to a staggering ₹4,22,000 crore in FY24.
• Record infrastructure capital expenditure: Accelerated highways, rail and energy projects, cutting logistics costs and easing bottlenecks.
  Example: Infrastructure capex rose from 1 percent of GDP in FY 2014 to 3.5 percent in FY 2024.
• Digital public-goods and financial inclusion: UPI and related reforms broadened access to payments and credit, fueling consumption and SME activity.
  Example: Unified Payments Interface (UPI) achieved a historic milestone by processing 16.58 billion financial transactions in a single month.
• Labor and ease-of-doing-business reforms: Simplified registration, compliance and dispute resolution, attracting investment in manufacturing and services.
  Example: India’s Doing Business ranking improved from 142nd in 2014 to 63rd in 2019. 

Drivers of India’s growth: Global economic realignments

• Supply-chain diversification (“China + 1”): Multinationals shifted production to India to reduce overreliance on China.
  Example: Foxconn announced a $1.5 billion display-module plant in Tamil Nadu in 2025 to supply a larger share of global iPhone output.
• Surging FDI inflows: Liberalized caps and investor-friendly policies attracted record foreign capital.
  Example: India logged $81 billion in FDI in FY 2024–25, more than double its 2013–14 level.
• Demographic dividend: A young workforce expanded the labor pool, underpinning growth in services, manufacturing and consumption.
  Example: The working-age population share rose to 65 percent, the highest among major economies.
• Boom in IT-BPM exports: Geopolitical tensions drove global firms to offshore technology and back-office work to India.
  Example: IT-BPM revenues reached $254 billion in FY 2024, with exports touching $200 billion.
• Green energy and climate finance: International capital flowed into India’s renewable-energy build-out under global decarbonization drives.
  Example: The share of renewable energy (RE) in India’s total foreign direct investment (FDI) inflows surged from approximately 1 per cent in FY21 to nearly 8 per cent in FY 2024-25.

Lessons for sustaining this momentum

• Deepen financial-sector reforms: Build a vibrant corporate bond market and pension system to fund long-term investment.
• Continue infrastructure push with quality focus: Pair capex with stringent oversight to avoid cost overruns and safety lapses.
  Example: Recent bridge failures highlight the need for stronger quality controls alongside record spending.
• Expand skill development and R&D: Align vocational training and research grants with industry needs to move up the value chain.
  Example: Doubling R&D tax incentives could lift India’s R&D spend closer to 2 percent of GDP.
• Bolster macroeconomic resilience: Maintain fiscal discipline and inflation control to safeguard against global shocks.
  Example: Reducing the fiscal deficit from 5.6 percent to around 4.7–4.8 percent of GDP creates room for countercyclical spending.
• Strengthen global partnerships: Leverage trade agreements and multilateral forums to secure market access and technology transfers.

India’s growth underscores the value of consistent reforms, innovation, and global integration. To sustain this momentum, policy focus must remain on infrastructure, human capital, and fostering a resilient economy. Leveraging these lessons will help India secure its position as a global economic powerhouse.

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