Scale, Stability, and the Learning Curve
As India enters 2026, it does so at a moment of paradox. The country stands on the cusp of an extraordinary economic milestone: by the close of the financial year, it has overtaken Japan to become the world’s fourth-largest economy. Yet this achievement unfolds against a backdrop of disquiet—strained relations with a volatile neighbour that recently came perilously close to open conflict; an opposition politics growing shriller even as its popular footing weakens; pollution levels in major cities, including the capital, that are both alarming and deeply disconcerting; and an economy that, while fundamentally resilient, occasionally appears unsettled.
This coexistence of confidence and unease may well define India’s present moment.
In sheer scale, India’s economic ascent has been remarkable. At the turn of the millennium, it barely figured among the world’s largest economies. Today it has surpassed a string of advanced and emerging nations, including Britain, France, Canada, and Brazil. Projections suggest that by the end of this decade, India will trail only the United States and China. Skyscrapers now puncture urban skylines, highways pulse with traffic, equity markets hum with retail participation, and hundreds of millions have exited extreme poverty. A middle class—estimated at around 400 million and steadily expanding—has emerged as a visible social, economic, and political force.
These are not cosmetic gains. They reflect decades of incremental reform, demographic momentum, and, crucially, a growing capacity to absorb shocks that once routinely destabilised the economy.
Yet size, as economists repeatedly caution, is not synonymous with prosperity. Measured by income per person, India remains a relatively poor country. Adjusted for purchasing power, its per capita GDP still places it well below the average for emerging economies and far behind advanced nations it now rivals in aggregate output. Tens of millions continue to survive on very low incomes, while hundreds of millions more hover just above official poverty thresholds. India’s middling performance on indicators of hunger, environmental sustainability, press freedom, and democratic quality is frequently cited as evidence of the distance still to be travelled from growth to broader well-being.
Such comparisons are not without merit. But neither are they always equipped to capture the complexity of a civilisation-sized democracy navigating economic transformation at scale. India’s challenges are real; so too is the difficulty of addressing them within the constraints of its social diversity, federal structure, and democratic politics.
And yet—this is where India’s story diverges sharply from many of its neighbours—there is an unmistakable sense of macroeconomic steadiness.
South Asia today is a region marked by turbulence. Pakistan remains mired in fiscal distress and political unrest. Sri Lanka is still clawing its way back from bankruptcy. Bangladesh and Nepal have witnessed mass protests driven by youth unemployment, inequality, and political privilege. India, by contrast, has weathered global trade disruptions, energy shocks, and even a limited military confrontation without financial panic or capital flight. Government bond yields remain comparatively low. Foreign-exchange reserves hover around $700 billion, enough to cover many months of imports. Growth continues at a pace—roughly 6 to 8 percent annually—that most economies can only envy.
This stability is certainly not accidental—but it does demand constant maintenance. India has lived through repeated balance-of-payments crises in its post-independence history, from the food shortages of the 1960s to the near-default of 1991. Even as recently as 2013, it was counted among the world’s most fragile emerging markets. What has changed since then is not merely fortune, but institutional hardening: a cleaner banking system, stricter recognition of bad loans, a functioning bankruptcy framework, more disciplined fiscal management, and a services-export engine that earns foreign exchange with remarkable consistency.
Oil—long India’s strategic vulnerability—has also become less destabilising. Strategic reserves, diversified sourcing, expanded refining capacity, and ethanol blending have reduced exposure. Even the controversial import of discounted Russian crude has quietly strengthened external balances.
None of this eliminates risk, but it has widened India’s margin for manoeuvre and bought valuable policy space.
—End of Part I—
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