India’s High Growth Paradox

Recently, there was much celebratory noise in godi media and government circles over the claim that India has surpassed Japan to become the world’s fourth-largest economy.

In reality, this was a half-truth: while India is indeed poised to overtake a crisis-ridden Japan, it had not yet done so. This was a relatively modest instance in a broader landscape of nationalist clamour, rife with deliberate distortions and blatant falsehoods.

There is no denying that India has been among the fastest-growing economies in recent years – a trend that extends back to the United Progressive Alliance era – but this fact conceals several troubling paradoxes: high growth with low job creation, high output with low productivity, rising aggregate wealth alongside deepening inequality, and booming urban sectors amid persistent rural distress. These contradictions should prompt concern for the future rather than foolish triumphalism. 

This article, in the context of current euphoria, points out what India’s gross domestic product (GDP) is made of and how it suffers from several structural infirmities. Unless we confront them with sustained political commitment – through investments in human development, labour formalisation, industrial diversification, and democratic accountability – we are unlikely to break out of this paradoxical trap of rising GDP and falling standards of peoples’ lives.  

Base effect and statistical illusions

India’s recent high growth figures are, in part, a product of base effects – statistical artefacts that exaggerate percentage increases when measured against a low base.

Following the sharp contraction of the economy in 2020 due to the COVID-19 pandemic, subsequent growth appeared more dramatic than it was in real terms. Compounding this, the revision of GDP calculation methodology in 2015 – including a shift to market prices and a new base year (from 2004–2005 to 2011–2012) – contributed to a measurement-driven inflation of growth figures. This revision gave the Modi government a statistical tailwind: it bolstered the narrative of “achhe din or good days” and economic turnaround while simultaneously delegitimising the UPA-era performance. The new series reported higher growth for the Modi years and revised downward the growth figures for the Congress years.

This statistical advantage also proved useful in deflecting criticism after disruptive policy moves like demonetisation (2016) and the hasty rollout of the Goods and Services Tax (2017).

Despite widespread concerns about economic slowdown in the aftermath, official GDP growth remained robust – registering 6.8% in 2016-2017 – allowing the government to claim these were mere short-term disruptions in an otherwise flourishing economy.

However, critics argued that the new methodology underrepresented the informal sector, which bore the brunt of these shocks. As a result, a misleading picture emerged: an illusion of high-growth, jobless prosperity. Even as GDP appeared to surge, unemployment reached a 45-year high in 2017-2018.

In 2019, Modi’s former Chief Economic Advisor, Arvind Subramanian, remarked that “India’s new GDP series shows a puzzling divergence from other macro-indicators,” underscoring the growing mistrust in headline statistics.

Factors behind India’s GDP growth

Demographic momentum and consumption demand: With a median age of 28.8 years as of 2025, India remains one of the youngest major economies globally. Around 64.4% of the population is of working age (15–64), projected to rise further by 2031. This demographic momentum ensures sustained growth in the labour force and consumption, even with declining birth rates. While per capita income remains modest at ₹205,579 (~$2,937)—roughly 47% of the global average—the sheer size of the working population sustains strong domestic demand, particularly in urban areas. Urban consumers, comprising 37% of the population (~543 million), have shown rising spending on food, health, services, and FMCGs, making consumption a key buffer against weak investment and exports.

Services-led growth and premature de-industrialisation: India’s growth has skipped the traditional industrial path and is dominated by the services sector, especially IT, finance, and communications, which now account for 55–60% of GDP. Manufacturing has stagnated at 15–17%, and agriculture still employs nearly half the workforce while contributing only 15–16% to GDP. This pattern, termed premature deindustrialization (Rodrik 2016), limits the potential for mass formal employment and drives many into low-productivity informal work.

High informality and jobless growth: Despite impressive GDP figures, over 90% of India’s workforce remains in the informal sector, lacking security and protections. Growth has not translated into adequate formal job creation. This “jobless growth” reflects what Dasgupta and Basole (2023) call an “elite-led accumulation with limited trickle-down,” reinforcing economic exclusion.

Government-led capital expenditure and stimulus: A key driver of recent growth has been increased public capital outlay – Rs 11.1 lakh crore in FY25, an 11.1% rise – focused on infrastructure like roads, railways, and digital projects. Between FY20 and FY25, infrastructure capex surged by nearly 39%, much of it financed through off-budget borrowings and Central Public Sector Enterprises (CPSEs). While this has stimulated demand and employment, it masks the true fiscal burden by keeping liabilities off the Union Budget, undermining transparency and making it harder to assess the government’s actual debt and deficit levels.

Production-linked incentive (PLI) schemes: By late 2024, the PLI schemes had attracted Rs 1.61 lakh crore in investment and yielded Rs 14 lakh crore in output, generating over 11.5 lakh jobs. While sectors like mobile phones and pharma benefited, others like solar panels and steel lagged, indicating the need for targeted recalibration. Despite sectorial successes, overall impact remains uneven.

Sectorial export strength amid global uncertainty: India has retained export competitiveness in pharmaceuticals, refined petroleum, engineering goods, and especially IT services—which contribute significantly to the current account surplus. However, India’s share in global merchandise trade remains below 2%, with limited integration into global value chains compared to East Asia.

Uneven growth and rising inequality: Growth is increasingly concentrated among upper-income groups. High-end consumption – real estate, luxury goods, and services – drives much of the visible GDP, while rural distress, wage stagnation, and poor health and nutrition indicators persist. This dualism underscores the paradox of a high-growth economy with deep social and regional inequalities.

The fault lines beneath India’s growth story

India’s economic growth story, often celebrated for its resilience and headline GDP figures, rests on shaky foundations. The structural weaknesses that underpin the economy threaten to turn this apparent success into a narrowly concentrated and ultimately unsustainable phenomenon. What appears, at first glance, to be a promising trajectory is in fact marred by institutional fragility, human development deficits, and exclusionary growth patterns.

An underskilled and underserved population

One of the most glaring paradoxes in India’s development journey is the persistence of poor human capital outcomes despite decades of economic expansion. Public investment in health and education remains below 4% of GDP—far short of what is required to lift a young population into meaningful, high-productivity employment. Learning levels in government schools are alarmingly low; access to quality healthcare is grossly unequal; and nutrition indicators—particularly among children—remain distressingly stagnant. In effect, the country risks squandering its demographic dividend, with large swathes of the population either unemployable or trapped in low-wage, informal work.

Agriculture: A sector left behind

Close to half of India’s workforce is still tied to agriculture, a sector that contributes less than a fifth of national income. This structural imbalance is both economically inefficient and socially dangerous. Farm incomes remain volatile and meagre, repeatedly battered by climate shocks, market failures, and policy neglect. Agrarian crises – whether in the form of farmer suicides or protests –has become endemic to hog headlines the deeper malaise lies in the state’s inability to engineer a transition out of subsistence agriculture. Instead of facilitating structural transformation, the current model reproduces rural distress while drawing on it for cheap labour and political spectacle.

The erosion of economic transparency

Equally troubling is the declining credibility of official data. Over the past few years, key surveys – on employment, consumption, or poverty – have either been delayed, suppressed, or revised under opaque circumstances. Political interference in statistical institutions has compromised one of the foundational pillars of good economic governance: the ability to know the truth. When data is massaged to serve political ends, policymaking becomes reactive, biased, and disconnected from the ground.

The illusion of industrialisation

India’s growth model has largely leapfrogged industrialisation, jumping from a primarily agrarian economy to one led by services. While sectors like IT and finance have thrived, manufacturing has stagnated at around 15–17% of GDP, employing a disproportionately small share of the workforce. Most new jobs are created in the informal sector – low-wage, low-productivity, and devoid of security. This premature deindustrialization, as economists have warned, is not merely a missed opportunity; it is a structural trap that inhibits sustainable job creation.

A growth model that excludes

The result of these overlapping weaknesses is a pattern of elite-led, exclusionary growth. High-end consumption—luxury housing, premium vehicles, and fintech services—drives GDP, while rural demand, wage growth, and public provisioning stagnate. Inequality, both of income and opportunity, has widened. As the upper echelons of the economy surge ahead, large sections of the population are consigned to precarity, their aspirations deferred indefinitely.

Remedying structural infirmities

India’s economic future does not rest on the sheer size of its GDP, but on how equitably this wealth is distributed among its people. The current regime’s relentless celebration of GDP growth misses this crucial point. As the world’s most populous country experiencing a demographic dividend, India is naturally bound to post large aggregate GDP figures. But the more pertinent question is: why, despite these advantages, is India not the world’s largest economy? Or, why it is not among the top economies in terms of per capita GDP? According to IMF estimates for 2024, while India may have surpassed Japan in total GDP, it ranks 140th out of 193 countries in per capita GDP – compared to Japan’s 37th.

And even this ranking may be misleadingly optimistic given India’s staggering internal inequality. The World Inequality Lab’s 2024 report reveals a stark reality: the top 1% of earners capture over 22% of national income, while the share of the bottom 50% has fallen to just 13%, down from nearly 20% in the 1980s. Adjusting for this inequality, India’s per capita GDP drops significantly – excluding the top 1%, it falls to around $2,245, and for the bottom 50%, it plummets to a mere $741. This places India only marginally above Afghanistan ($700) and Niger ($600). These disparities are echoed in other indices: on the Human Development Index (HDI), India slipped to 134th place in 2023–24, three ranks below its 2021-2022 position, trailing even Bangladesh (129) and far behind Japan (19).

It is not that the Modi government is unaware of these realities. But it remains intent on turning every possible issue into a spectacle for partisan gain, regardless of the long-term cost to the country. What it perhaps fails to grasp – or deliberately sidesteps – is that unless the deep structural infirmities of the Indian economy are urgently addressed, growth will remain brittle and deeply unequal. These include chronic underinvestment in human capital, the neglect of meaningful agricultural reform, eroding institutional capacity, and an alarming lack of data transparency. The real challenge before India is not merely to grow faster, but to grow better –and to grow for all.

To correct its deep-rooted structural weaknesses, India must urgently pivot from headline economic growth to the fundamentals of human capacity building. Public investment in education and healthcare – persistently under 4% of GDP – must be dramatically increased to equip the population with the cognitive and physical capacities necessary for a productive, innovative, and resilient workforce. Education must move beyond enrolment numbers to focus on learning outcomes, vocational training, and digital skills, while healthcare must shift from episodic schemes to robust primary care systems. Without a healthy, educated population, no demographic dividend can be meaningfully realised – only a demographic liability.

Equally urgent is the need to formalise India’s vast informal labour force, which constitutes over 90% of the working population. Labour laws must be made more inclusive, social security widened, and wage protections enforced to ensure that economic growth translates into dignified, secure employment. At the structural level, India must diversify its industrial base, moving beyond services-led growth and low-value manufacturing. A serious push towards green technologies, value-added manufacturing, and decentralised production can generate employment at scale and reduce regional disparities.

All of this, however, hinges on restoring democratic accountability. Development cannot be sustained in the absence of institutional integrity, data transparency, and federal cooperation. The state must re-centre constitutional values, empower local governments, and engage citizens as participants – not just recipients – of policy. Only then can India lay the foundation for equitable and enduring growth.

Democratic backsliding: The biggest bane

A critical yet often overlooked obstacle in India’s development trajectory is the erosion of its democratic fabric. The Indian state, increasingly centralised and leader-centric, has shed much of its constitutional restraint and participatory ethos. Decision-making is no longer rooted in institutions or public accountability but flows from the top, driven by the imperatives of image management and electoral optics. This authoritarian drift has hollowed out democratic checks and balances, weakened federalism, and silenced dissenting voices – undermining the very foundation on which inclusive development must rest.

Instead of fostering public deliberation or addressing structural inequalities, the state now relies on nationalist symbolism and orchestrated spectacles to manufacture consent. Welfare announcements are often reduced to personal favours of the leader rather than rights guaranteed by the Constitution. As a result, development becomes performative – concerned more with perception than with real human outcomes. When governance is reduced to spectacle and control, the developmental state becomes disconnected from the everyday struggles of its people. This breach between state and society represents a deep structural malaise that no GDP figure can conceal.

Anand Teltumbde is former CEO of PIL, professor, IIT Kharagpur, and GIM, Goa. He is also a writer and civil rights activist.

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