By: Simar Kaur, Research Analyst, GSDN

With ten years of inconsistent growth, characterised by the coronavirus outbreak, global disruption in supply chains, and inherent structural inefficiencies within the country, India finds itself at a crucial stage of economic transition in June 2026. Despite being one of the world’s largest economies with a GDP of $4.2 trillion in nominal terms, India has been growing at a meagre pace of about 5.8 per cent on average over the last three fiscal years. This has been far lower than the rate required for the country to become a developed nation, which is 8 per cent per year, by the year 2047, which will mark the hundredth year of the country’s independence. Problems faced by India include a low level of investment in the private sector, stagnation in agriculture, high unemployment among the youth, fragility of its banking system, and uncertain foreign flows into the market. Revitalising the Indian economy calls for concerted actions across multiple spheres, such as fiscal, monetary, structural, infrastructure, manpower, and exports.

Fiscal Consolidation with Targeted Expansion

The Indian fiscal deficit had shrunk from its peak of 9.3 per cent of the GDP, recorded during the pandemic period in fiscal year 2020-2021, to 5.4 percent in fiscal year 2025-2026; however, interest costs continue to account for 38 percent of central government expenditures. The first step towards reviving growth is a feasible approach towards fiscal consolidation without compromising on capital expenditure. The central government must cut its deficit by 0.4 percentage point each year to ensure a deficit of 3.5 per cent is attained by fiscal year 2028-2029, while increasing capital expenditure from the existing 2.8 per cent of GDP to 4 per cent. As far as revenue generation is concerned, there have been some shortcomings with the Goods and Services Tax (GST). Even though the GST came into existence on July 1, 2017, it comes with a total of five tax slabs (0%, 5%, 12%, 18% and 28%) along with cesses. For a better performance of the GST system, it needs to bring back the two tax slabs of 12% and 18% to one of 16%.

Monetary Policy and Financial Sector Reforms

The RBI has kept its benchmark repurchase rate constant at 6.25 per cent since February 2025 after hiking it from 4 per cent between May 2022 and April 2023. The core rate of inflation, excluding the prices of food and fuel items, has been consistently high at over 5 per cent for eighteen consecutive months ending May 2026, owing mainly to increasing services costs. The correct step here is not increasing interest rates further but improving monetary transmission. As per the recent report, banks only transmit 65 per cent of changes in the policy rate to their clients. All floating-rate retail loans should be benchmarked to external benchmarks (repo or treasury bill rates) till December 31, 2026, in order to bring down the cost of loans to small enterprises, whose weighted average lending rate is at 12.4 per cent compared to that of big firms at 8.1 per cent. It is recommended that the CRR should be reduced from its current level of 4.5 per cent to 3.5 percent, thus making about $30 billion of liquidity available to the banking sector, although exclusively for MSMEs in the next 30 days.

Structural Reforms for Manufacturing and Labour

The share of India’s manufacturing in its GDP is stagnant at 14.5 per cent since 2015, which is well below the 25 per cent envisaged by the National Manufacturing Policy of 2011. For the rejuvenation of this sector, three crucial structural changes need to be addressed. The rationalisation of land acquisition. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act of 2013 mandates that consent should be taken from 70 per cent of landowners in private ventures. Enforce the four labour laws that were enacted through Parliament from September 2020 to August 2021 (Wage Law, Industrial Relations Law, Social Security Law, Occupational Safety and Health Law). The total enforcement of the above laws by March 31, 2027, will result in firms employing not more than 300 people being able to employ or terminate workers without government consent (the current number is 100) and the introduction of fixed-term contracts across industries. Alongside this, it is crucial to effect reforms in agriculture. The repealed trio of agricultural acts that were introduced in September 2020 was poorly publicised but had tackled real issues in the sector. An entirely new strategy, which came into force in January 2026, sees the introduction of electronic trading for perishables (fruits, vegetables, dairy products) in a bid to remove the monopoly previously held by the Agricultural Produce Market Committee (APMC). It would be prudent for this policy to be broadened to cover cereals and pulses by March 2027 and to introduce a minimum support price (MSP) for twenty crops (as opposed to twenty-three presently) at a subsidised cost. The government could allocate US$5 billion in three years towards developing cold chain facilities.

Infrastructure and Digital Public Goods

Digital infrastructure has continued to be successful in India. Since its introduction on April 11, 2016, the Unified Payments Interface (UPI) system has processed 18 billion transactions totalling $300 billion in just one month, in May 2026. Open Network for Digital Commerce (ONDC), introduced in April 2022, currently operates in 1,200 cities. The next step in this regard is to combine this digital infrastructure with credit scoring. This was achieved through the implementation of the account aggregator system since September 2022, under which banks can access customer data with customers’ permission. When these systems work together, a small merchant will get loans based on his/her transaction records, GST returns, and bank accounts in less than ten minutes. The RBI should compel all scheduled commercial banks to provide algorithm-based MSME financing by the end of December 31, 2026, with an interest rate cap of 5% above the repo rate. Moreover, there is an urgent need for India to adopt Aadhaar-like solutions for its land records. Under the Digital India Land Records Modernisation Programme, which was launched in 2008, the percentage of urban and rural land records available digitally stood at 65% and 42%, respectively, in March 2026. There is a need for a mission mode approach by June 30, 2028, where a unique number needs to be assigned to all the 320 million land parcels.

Human Capital and Employment Generation

Time is running out for the demographic dividend in India. In 2031, the dependency ratio, or the proportion of people below 15 years and above 65 years old to the proportion of working-age individuals, starts climbing. The youth unemployment rate, or the percentage of young people aged 18 to 29, was recorded at 23.4 per cent in the January to March 2026 period. Underemployment, or the practice of working part-time but hoping to get into full-time employment, was measured at 12 per cent. Revitalisation would involve three strategies in education and skill development. First, implement completely the provisions of the National Education Policy (NEP), 2020, which requires all higher educational institutions to provide multidisciplinary courses and multiple opportunities for entering and exiting studies. Only 34 per cent of universities had introduced the NEP framework by June 2026. UGC ought to cease funding non-conformists after December 31, 2026. It would be appropriate to make any firm having more than 500 employees have apprentices who will be one-tenth of their workforce (2.5 per cent at present), and the government will pay 50 per cent of the apprentice fees. Finally, initiate a rural non-farming employment guarantee. The MGNREGA program initiated by the Government in 2005 gives 100 days of work to people, while the NULM 2.0 program can be made such that it will provide 50 days of training in a skill to the workers coming into urban areas. Another constraint that binds them is that of health expenditures. India allocates only 1.6% of its GDP for public health care, while Indonesia allocates 3.6%, and Brazil allocates 5.1%.

Export Promotion and Foreign Investment

India has been unable to increase its share in global goods exports since 2015, when it stagnated at 1.8 per cent, even as Vietnam, Bangladesh, and Mexico have managed to increase their market shares. In order to boost the export potential of the country, the government will need to look beyond FTAs with other countries. It concluded two such deals in 2022; the first was with the United Arab Emirates on February 18, and the second with Australia on April 2. However, India is yet to complete negotiations for an agreement with the European Union (since 2007) and the United Kingdom (since March 2024). The new strategy must focus on services because India enjoys a revealed comparative advantage there rather than push for equal concessions on goods exports. In other words, India should be willing to cut tariffs on European cars (60 to 100 per cent) for professional qualifications recognition for nurses, engineers, chartered accountants, and IT professionals visa with a fifteen-day maximum processing period. While the passing of the Taxation Laws (Amendment) Act on August 13, 2021, has effectively scrapped the highly controversial 2012 retroactive tax imposed on Vodafone and Cairn Energy, trust is yet to be restored in full measure. One way could be through a law that prevents retrospective taxation, both domestic and foreign, going forward, with a constitutional amendment if necessary. On the other hand, India needs to allow for 100 per cent FDI in legal services, insurance, and arms production, without requiring prior government permission. In exchange, these companies should commit to sourcing 30 per cent of the raw materials from within five years.

Governance and Ease of Doing Business

Though India managed to achieve a ranking of 63rd position in the Ease of Doing Business Index of the World Bank in the year 2019 (this is the last ranking achieved by India before it discontinued using the index), it still grapples with regulatory cholesterol. According to ICRIER research done in 2025, a medium-sized company engaged in manufacturing uses 1,200 hours of work to comply with government regulations. The most effective method that could be employed is the establishment of a “Red Tape Reduction Act” based on the US “Paperwork Reduction Act.” The government should establish the use of a single business identifier – the “Business Identification Number” (BIN), replacing the PAN, TAN, GST, and import-export codes by June 30, 2027.

Conclusion

Stimulating the Indian economy will require a multi-pronged approach consisting of measures in different sectors rather than one sweeping economic change. The measures to be taken include fiscal prudence and infrastructural investments; a monetary policy that focuses on transmission instead of rates; reforms in land, labour, and agricultural markets; digital public goods, human capital investment; export-oriented industrialisation; and governance reform. The costs of not doing anything are considerable, including jobless growth, growing inequality, and getting trapped in a middle-income economy. On the other hand, if all the above measures are implemented within a period of three to five years, then India can achieve growth of 7.5 per cent by 2028-2029, generate 20 million jobs, and increase per capita income from US 3,100 to US 4,500 by 2030. The window of opportunity may remain open, but not for long. It will be necessary to act soon, especially during the remainder of 2026.