As seven recent events show, Indians are in deep economic distress, thanks largely to poor policies that have birthed shortsighted solutions
Forget Trump’s reciprocal tariffs, an exogenous factor. The Indian economy is headed for rough waters due to several issues of its own making. These are reflected in a series of distressing news over the past few days. These indicate that the post-pandemic high growth (recovery) is more likely to be short-lived.
Despite the fact that the Indian economy grew on average at 8.1 per cent in the past four fiscals of FY22-FY25, the trend is downward – 6.5 per cent for both FY25 (Advance Estimates 2) and FY26 (RBI downgraded it from 6.7 per cent). During the four pre-pandemic fiscals of FY17-FY20, the growth averaged 6.3 per cent (despite crashing to 3.9 per cent in FY20).
First, the disturbing news of the past few days which need urgent attention.
Deep distress signals
One, India Inc seems headed for job and wage cuts. The key reason is not just the market uncertainties caused by the US tariff war but also the falling margins (earnings winter). Brokerage firms are warning a further slowdown in revenue and earnings growth in Q4 of FY25 – after low-single digit growth in the preceding three quarters.
Even when India Inc was “swimming in excess profits” until now, it painted a rather sorry picture when it came to jobs or high wages/salaries (jobs slowed down from 5.7 per cent in FY23 to 1.5 per cent in FY2424; “creeping informalisation” and “self-destructive” low wage growth).
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Two, 8.5 million more families took to the menial, below-statutory-minimum-wage MGNREGS offers in FY25, than in pre-pandemic FY20. In FY25, such households numbered 57.9 million – 32 per cent of total rural households of 179.7 million (Socio Economic and Caste Census of 2011).
At its peak, MGNREGS sustained 42 per cent rural households, during the pandemic fiscal of FY21. Higher the MGNREGS demand, higher the job crisis in rural India.
Big Bang job scheme
Three, the delay in launching the PM-Internship Scheme (PMIS), a Big Bang job scheme launched in the July 2024 Union Budget and the later revision of its allocated budget exposed the poor and inadequate planning behind the scheme. It was launched without homework with a budget of ₹2,000 crore for FY25 (Budget Estimates, or BE). The budget was first cut to ₹380 crore in the revised estimates but raised to ₹10,831 crore for FY26 (BE). By the time it finally takes off in September 2025, half of FY26 fiscal would be over (more of it later).
Four, several states are resorting to dole politics in the name of direct cash transfer schemes or subsidies. The latest is the newly formed Delhi government’s announcement of 100 Atal Canteens to provide “nutritious meals” at ₹5 each to the urban poor. Delhi has been seeing such canteens for decades, beginning with the Sheila Dixit government.
Even when India Inc was “swimming in excess profits”, it painted a rather sorry picture when it came to jobs or high wages/salaries
This announcement came after the Delhi government approved ₹2,500 for poor women last month. Many other states have been giving such doles to women (Maharashtra, Madhya Pradesh, Chhattisgarh and Haryana) in the past few years.
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These are over and the Centre’s (i) 5 kg of “free” ration per month to 813.5 million Indians or over 60 per cent of population (ii) cash handout of ₹6,000 per year of PM-Kisan to 113.4 million farmers (December-March 2024-2025 data) (iii) cash handout of ₹200 per LPG cylinder up to 12 refills a year to 103.3 million women (March 1, 2025).
Doles perpetuate poverty, not make India the “developed nation” that ‘Viksit Bharat@2047’ promises.
New PLI scheme
Five, the Centre notified a new PLI scheme of ₹22,919 crore for component manufacturing (electronics components, lithium-ion cells, PCBs, etc.) days after the news hit that the scheme for all 14 sectors would be allowed to lapse because of poor outcomes (and promoting assembling, rather than actual manufacturing ). Subsidies haven’t increased manufacturing outputs, jobs or exports in decades – nor have they made our goods globally competitive.
Recent events show that policies are being framed and imposed without evidence or economic logic for their efficacy. They also smack of a lack of proper consultations, debate or scrutiny, and of reviews and course corrections.
Six, the RBI released draft rules to tighten gold-backed loans to cut down the surge in distress mortgaging of gold (gold loans) and their rising non-performing assets (NPAs). This was after it withdrew a higher risk weights for bank loans (personal loans) to non-banking finance companies (NBFCs) and microfinance companies (MFIs) in February 2025 – having imposed such higher weightage in November 2023 to cut down the surge in “unsecured” loans, a shorthand for personal loans, including gold-mortgaged loans.
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For years, the RBI has cheered personal loan-led credit growth (double-digit growth in FY23, FY24, after single digit growth in FY19-FY22) as a good indicator of robust GDP. The Finance Minister even dismissed rising household debts due to personal loans – after RBI data showed net financial assets (flow, not stock) of households fell to 47-year low 5.1 per cent of GDP in FY23 (revised to 5.3 per cent later) – saying that “household sector is not in distress”.
Debts on the rise
In its Financial Stability Report of December 2024, the RBI also dismissed rising household debts, stating that it was “driven by a growing number of borrowers rather than an increase in average indebtedness”.
The RBI data show household debts (flow) went up from 3.8 per cent of GDP in FY22 to 6.4 per cent in FY24. Meanwhile, credit card (personal loan) NPA has risen 500 per cent in four years. All these reflect a confused approach to monetary policy.
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Seven, the Centre raised the excise duty on petrol and diesel by ₹2 from April 8, without burdening retail consumers, even though the Brent price dropped to the lowest since April 2021. Apparently, this was to suck out a part of the windfall gains oil marketing companies have made due to the falling Brent price and cheap Russian oil imports since 2022 – while retail price remains unchanged.
On the same day, the Centre also burdened households by raising LPG price by ₹50, citing rising Saudi CP (international benchmark for LPG pricing). Quite apparently, the driving force here is mutually contradictory.
Poor policymaking at the root
The news/developments listed show that policies are being framed and imposed without evidence or economic logic for their efficacy. They also smack of a lack of proper consultations, debate or scrutiny, and of reviews and course corrections. So, what’s the solution? It’s obvious: abandon this flawed policy paradigm.
It is precisely this flawed paradigm that delivered the “twin shock” or “twin blow” of demonetisation and GST that began the derailment of the economy and impoverished people – even before a mismanaged pandemic lockdown delivered further shocks. Import substitution or protectionism that has landed India in trouble with not just the US, but the EU, Japan, Taiwan and other trading partners is another example of this.
The sorry state of affairs of the job market is likely pushing unemployed youth from the majority community increasingly towards taking part in religious processions and violence across the country.
For instance, the Big Bang internship scheme PMIS mentioned earlier. The scheme, aimed at addressing chronic job crisis, was hastily announced without homework or consultations with industry.
The very next day, the Finance Minister was at pains to assure industry that it was “not compulsory” but only “a nudge”. A month later, Skill Development Minister Jayant Chaudhary said the scheme was still on the drawing board.
Given that it is for the top 500 companies, the PMIS isn’t open to students with B Tech or MBA, CA or other higher professional degrees, but rather limited to Class X-XII passouts, ITI and polytechnic diploma holders or those with non-professional undergrad degrees like BA, BSc, BCom or BCA. The annual family income is also capped at ₹8 lakh.
Nearly a year before this was unveiled, the Skill Ministry annual report of 2022-23 had said the equally high-profile job scheme of 2016, the National Apprenticeship promotion Scheme (NAPS), had “very low coverage” – a shorthand for no takers in industry.
Squandering way demographic dividend
The fact that both the Centre and the states have sent youth to war-hit Israel and have signed government-to-government (G2G) agreements with another 20 countries for labour supply (PMO statement), shows that they have failed to create enough jobs to utilise India’s demographic bulge.
The sorry state of affairs of the job market is likely pushing unemployed youth from the majority community increasingly towards taking part in religious processions and violence across the country. It is eerily similar to the sense of empowerment tribal youth felt in taking to arms in the backward and deprived Central India’s tribal belt.
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There are other policy failures which have resulted in the following – which too need to be corrected.
One such issue was flagged by Ram Singh, a member of the RBI’s Monetary Policy Committee (MPC), in his study published last month. The study said that India’s wealthy were “underreporting their income” (“wealthier a household is, the smaller the income it reports relative to its wealth”), making the tax regime “regressive” and “underestimate” inequality.
Top consumers
Venture capital firm Blume Ventures reported in February that only the top 10 per cent, or 30 million Indians, were the “consuming class” driving India’s economic engine. It further revealed that about 1 billion Indians don’t “have the kind of incomes to be able to spend anything on discretionary goods” (other than the bare minimum).
The solution to these issues is not rocket science — it’s embedded in the very diagnosis.
Marcellus Investment Managers said in January that the real income of India’s “middle 50 per cent” taxpayers halved in the past decade.
Not rocket science
The solution to these issues is not rocket science — it’s embedded in the very diagnosis. India simply needs to cut down on doles for the poor and subsidies for the rich and make the average Indian prosperous.
This becomes evident in the fact that despite being the fifth largest economy (by GDP size) or the fastest growing major economy, Indians continue to be one of the poorest in the world. At $2,480.8, India’s per capita income (at current USD) is below the average of “low and middle income” countries ($5,658.5) and far too low for the world average ($13,169.6).
Unless the average India becomes rich and prosperous, Viksit Bharat will remain a distant dream.
(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the article are of the author and do not necessarily reflect the views of The Federal.)
