At the end of the year, it is normal to look back at the past year – the successes and missteps and even failures. And then to look forward to what the New Year might hold for us as individuals, companies and the country.
It would be fair to say that as we navigated turbulent times, India came through relatively stable. The continuing war in Ukraine, the Gaza war, the attacks by Israel and the US on Iran caused turbulence that few could have imagined a few years ago, before the Russian invasion of Ukraine.
Added to this was, of course, the election of Trump as President, and his unleashing of tariff wars on allies and foes alike. This, coupled with highly unorthodox measures unleashed on immigrants and academia, derailed the globally held view of the US as an island of economic and social stability. But we came through with the highest growth rate seen in several years, with strong financial markets, which allowed a boom in new and large IPOs.
There is no doubt that the massive spending by the government on infrastructure projects, spread across the country, was the main driver of growth. The private sector, on the whole, didn’t rise to the occasion with commensurate investment. On the contrary, both banks and industry preferred to continue to strengthen their balance sheets, increasing reserves and also paying down debt. This meant healthier individual companies – both big and small. But with their animal spirits kept firmly under check.
At one level, the government continues to take small steps towards liberalisation in different areas. The reduction in GST rates was long overdue. And the conservative RBI consolidated over 9,000 circulars, some dating from just after independence, into 244 Master Directions. But the reality is, each time the government seeks to liberalise, the bureaucracy almost negates the steps with a myriad of new rules and regulations. Parliament, which now usually rushes through all major and minor acts, never has the time to even consider the rules which are tabled by the bureaucracy. Compliance in every respect has become such a burden that a corollary is that the big get bigger and the small and midsize enterprises stoop and often collapse under regulation. One only has to see what SEBI has done to the financial services and brokerage community over the years.
But looking ahead, what can we expect in 2026? To some extent, it will partly depend on Russia’s Ukraine war, and if peace in the Middle East holds. But given that we are such an inward-looking economy, we will continue to grow willy-nilly at around 6.5-7 per cent. The private sector, which is now reaching full capacity, is likely to start making capital investments, irrespective of government incentives like PLI. If the free trade agreements with the EU and the US get signed, along with the smaller ones signed this year, there will be a boost to goods and services exports. But in spite of the new labour code, there is unlikely to be a huge surge in employment. The crucial MSME sector, in spite of lip service, is unlikely to see a boom. On the contrary, it will continue to get squeezed. The hospitality and tourism industry will grow. As will the gig economy. But this cannot be the basis for a great economy. If we look at cutting-edge technologies – AI, nuclear fusion, quantum computing, new drug discoveries or other scientific breakthroughs, regrettably, we are not likely to start closing the gap with the West or even China.
Business India has always been bullish on India. But we also believe that we should not be content with 7 per cent or 8 per cent growth. We also have to look at the growth of GDP per capita. And we believe that we are capable of explosive growth – starting now. That is the real challenge of 2026.