INDIA MUST STRENGTHEN ITS FUNDAMENTAL ECONOMICS STRUCTURE TO MAKE ITS ECONOMIC SITUATION SUSTAINABLE AND RELIABLE: DEVANAND SINGH

INDIA MUST STRENGTHEN ITS FUNDAMENTAL ECONOMICS STRUCTURE TO MAKE ITS ECONOMIC SITUATION SUSTAINABLE AND RELIABLE: DEVANAND SINGH

7-DEC-ENG 15

RAJIV NAYAN AGRAWAL

ARA------------------------------The latest economic figures released by the Indian government for the second quarter of the 2025-26 financial year appear extremely bright at first glance. A real GDP growth of 8.2 percent, at a time when the global economy is grappling with slow growth, uncertainty, and geopolitical tensions, is considered a remarkable achievement for any developing economy. Given that the growth rate was 5.6 percent during the same period last year, this surge clearly indicates improved domestic demand, increased production, and better-than-expected performance in several key sectors.

But the other side of the story is not so bright. On December 1, 2025, the Indian rupee closed at 89.63 against the dollar, very close to its all-time low. Last year it fell to 84.22, and if we look at the trend over the last four years, this decline appears continuous and structural. The rupee, which was around 72 in 2021, is now on the verge of breaking the psychological level of 90.

This paradox of rapid GDP growth and a continuously depreciating rupee raises several profound questions about India's economic health. Is it sufficient to conclude that the economy is strong based solely on a high growth rate? And if so, why are foreign investors withdrawing money from India? Why did the IMF give India's economic data a 'C' grade? And most importantly, why has the rupee become the weakest currency in Asia?

The answers to these questions lie in the economic factors hidden beneath the surface, which together create the complex picture of India's current economic situation. In the 2025-26 financial year, the Indian rupee has depreciated by 6.19 percent against the dollar. In the last month alone, it has fallen by 1.35 percent. Currency market experts do not consider this merely a temporary fluctuation, but rather an indication of structural weakness.

Experts say that the roots of this decline are linked to a decline in India's international economic credibility. According to experts, India's trade deficit is continuously widening. Outflows of FDI and FII have accelerated. Uncertainty persists regarding the India-US trade agreement. Protectionism has increased in US economic policy.

This year, equity outflows exceeding $16 billion have been recorded, indicating that foreign investors consider the Indian market less secure under current circumstances. This outward pressure on capital directly weakens the rupee. Furthermore, US President Donald Trump's new trade policy has further complicated the situation. The imposition of heavy tariffs on several Indian products has hurt India's exports. This has increased India's current account deficit, and a weak current account always puts pressure on the local currency. Energy imports have become more expensive, the bill for electronics and capital goods has increased, and the demand for the rupee against the dollar has naturally decreased.

According to experts, the rupee's weakness is a direct manifestation of India's economic imbalances, whether in exports, imports, capital flows, or US trade policy. In November 2025, the IMF gave India's data system a C grade, which is a very serious warning for any major economy. This grade simply means that the data is incomplete, inconsistent, and unsuitable for economic monitoring.

The base year for GDP is 2011-12, and it has been almost 14 years since it was updated. Data for the unorganized sector, which accounts for approximately 45 percent of India's economy, is obtained through extremely limited and indirect methods. There is also a lack of updated data for the Consumer Price Index and labor market statistics. Financial data for state and local bodies has not been available since 2019.

There is a serious inconsistency between production-based and expenditure-based GDP. The IMF's concern is that if the data is not reliable, an accurate assessment of India's economic situation is not possible. This situation undermines the confidence of foreign investors, rating agencies, and international financial institutions. This is why India's claim of a rapid growth rate of 8.2 percent also appears questionable. When the reliability of data is questioned, the luster of any statistic fades.

This question is important because domestic indicators, particularly consumption and production, appear strong. Economists say that lower inflation, increased discretionary spending, and improved rural and urban demand have all contributed to strengthening India's growth rate. This is why CRISIL has raised its growth forecast for India for 2025-26 from 6.5% to 7%, but foreign investors are withdrawing money from India instead of staying put, which may seem contradictory. The answer lies not in India's internal situation, but in the external environment. Interest rates are high in the US, and as US bonds begin to offer higher returns, global capital flows out of emerging markets and back to the US. This is a classic pattern of flight to safety.

The protectionist policies of the Trump administration have increased risks for several Asian countries, including India. The India-US trade agreement is stalled.

Uncertainty makes foreign investors uneasy.

Global risk perception has weakened. Wars, supply chain disruptions, and fluctuations in energy prices have all affected investor sentiment. As a result, volatility in India's capital markets increased, the rupee came under pressure, the attractiveness of Indian bonds decreased, and foreign investment declined. Investors are indeed turning to US, Japanese, and European bonds in search of safety.

This is a crucial question. In theory, a weaker rupee makes exports more competitive, but India's structure is not such that it can benefit very broadly from this. India imports crude oil, electronic equipment, machinery,

edible oils, and many types of consumer products. A weaker rupee makes all of these more expensive, increasing the risk of imported inflation.

Although inflation remained low in the current quarter, one negative aspect is that nominal GDP was only 8.7 percent, the lowest difference between real and nominal growth since 2020. This could directly impact the government's tax revenue, corporate profits,

and investment capacity. Experts associated with IIF say that India is moving towards risks like deflation due to excessively low inflation. This is not a good situation for the economy, as it can indicate weakening demand.

Experts point out that December is the month for global balance sheet closing. Investors often book profits and withdraw capital to make their domestic reporting look better. Therefore, the outflow in December is somewhat seasonal, but this argument is incomplete, as the rupee's decline has been continuous for the past five years. This is not just a problem of one month or one quarter, but a broader, long-term economic challenge.

After such rapid GDP growth, the stock market usually rallies. But this time it didn't. The reasons are clear: foreign investors are continuously selling, the global environment is uncertain,

The IMF questioning the data has weakened confidence, and a weaker rupee can increase the costs of import-dependent companies. The Indian market has long been dependent on foreign capital. When FIIs sell, the market naturally falls.

Donald Trump's potential return to the presidency has brought protectionism to the forefront of US economic policy. This is directly impacting India. High tariffs on Indian products, the possibility of stricter visa regulations, and the political polarization of global supply chains have further weakened India's balance of payments. Many economists believe that the rupee may remain under pressure in the January-March quarter as well.

So, does the 8.2% growth reflect the true situation? This is the question at the heart of the entire discussion. According to experts, it is considered a sign of India's strength. Some experts say that until the base year is updated, the informal sector is properly assessed,

state financial data is available, and consistency is achieved in GDP methodologies, any interpretation of rapid growth will remain incomplete.

Overall, India's 8.2% growth rate is undoubtedly impressive. It indicates that Indian consumption is back on track, investment is improving, and domestic demand is driving the economy, but several deep concerns also exist simultaneously. The rupee has become one of Asia's weakest currencies, foreign investors are rapidly withdrawing, the IMF has raised serious questions about the reliability of the data, and the Trump administration's policies are creating risks for India. Low nominal growth could limit government revenue,

a weak currency could increase imported inflation. This paradoxical situation suggests that India's growth is real, but not sustainable; there is rapid growth, but the imbalances are equally profound.

If India wants to enhance its economic credibility on the global stage, it must immediately modernize its economic data, restore investor confidence, ensure stability and long-term vision in its export policy, strengthen its balance of payments, and improve clarity and transparency in global trade agreements. India's growth story is significant, attractive, and full of potential, but strengthening its fundamental structure is essential to make it sustainable and credible.