India is on track to have headline economic indicators in 2026 that will be envied by many other major economies.
The economy is booming, the inflation rate is low, and there is political stability.
A Financial Times article said that, despite these encouraging numbers, there is a growing disconnect between the macroeconomic performance and actual economic realities.
This dichotomy is what will shape the coming year for investors as well as policymakers.
The growth rate is increasing, but the gains are uneven
India’s economic growth surprised to the upside by 2025.
The Reserve Bank of India raised its 2026 growth forecast to 6.8%, from 6.5%.
The central bank has the room it needs to cut interest rates further this year, as inflation is low and has been for many quarters.
The wealthy are disproportionately capturing this growth.
The property market illustrates the inequality clearly. Ultra-luxury apartment projects priced over $1 million sell out within days, but middle-income housing continues to have unsold stock for many quarters.
Volumes are increasing, but not value
The wellbeing of households is affected by two structural factors.
First, there is the issue of employment. The first is employment.
Many job seekers in cities are now working gigs. However, these jobs often do not offer stability, protection, or opportunities for upward mobility.
Part of the increase in employment numbers is due to a change in definitions that counted unpaid family helpers as employees, boosting participation by women in particular.
Second, household debt. In March 2025 household liabilities will exceed 41% GDP, according to RBI data. Nearly half of the borrowings are for consumption, not asset creation.
Many households are forced to borrow to keep up their living standards because of a slowing wage growth rate, insecurity at work, and an unsustainable savings rate.
In 2026, the macro-picture remains positive but there is a risk that it will continue to grow without resulting in a broader increase in income and job opportunities.
India’s economy may be booming this year, while wallets in general will only see a limited amount of relief.
Portfolios lagged behind equity markets as they rose
India’s equity market reflects the imbalances in its economy.
Benchmark indexes reached new heights in 2025. However, gains were concentrated on a small group of stocks.
Nearly half of small and mid-cap stocks delivered negative returns, and the majority traded in a narrow range.
Portfolios of many retail investors do not reflect headline index performance.
The outlook for 2026 remains cautiously positive, depending on the corporate earnings as well as liquidity conditions.
The potential US Federal Reserve cut in rates could increase global risk appetite. However, the relationship between lower US interest rates and foreign flows into India is weakening.
Foreign portfolio investors have continued to withdraw money even after US interest rates were cut last year.
Companies that are primarily focused on the domestic market will be dependent upon a recovery in capital spending and consumer demand.
Even though tariffs are currently not applicable to services, the technology sector may benefit from a stabilisation of trade relations with the US, especially in relation to issues like H1B Visas.
In 2025 primary markets will continue to be a key driver for activity.
Reliance Jio’s anticipated listing in the first six months of this year is a potentially landmark transaction.
The annual Budget Speech of Finance Minister Nirmala Sitharaman, which is usually delivered early in February, will also be a catalyst. However, expectations may not reach their full potential due to the lack of fiscal room.
Politic stability with new frictions
The Prime Minister Narendra Modi government will enter 2026 in relative ease.
The ruling Bharatiya Janata Party does not consider the state elections held in Assam and Kerala as crucial to its national standing.
Assam seems secure while southern states are still difficult terrain
West Bengal will be expected to have the highest level of competition.
The government can take difficult and unpopular actions if it wants to.
BJP led administration faces greater scrutiny after over a decade at the helm.
The criticism has increased in the mainstream media, as well as on social networks. This includes outlets that were previously seen to be firmly progovernment.
This shift is evident in recent opposition to the expansion of mining permits on the Aravalli Range.
Modi faces internal challenges rather than external ones, as the opposition is fragmented.
Even though his base of support is stable, questions about succession in 2029 linger.
The key question for 2026 is whether the government can use political stability effectively to deal with economic pressures without creating backlash.
Although definitive answers might not be forthcoming this year, policy decisions made today will most likely influence the narrative leading up to the next election cycle.
The ICD published this post India’s economic strength and low inflation: do the people really feel it?
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