GDP growth rebounds, but average Indian’s living standard dips — How Indian economy fared in 2025

There is a pattern to it. The Maharashtra election of 2023 saw the BJP coalition capturing power with high women voter turnout following cash handouts of Rs 1,500 for all girls and women, showed a State Bank of India (SBI) Research. It has been happening frequently since Assam’s BJP government began the practice in 2020.

In all, at least 15.1 million Bihar women, one from each family, received Rs 10,000 cash “gift” – as Union Home Minister Amit Shah and CM Nitish Kumar had assured the voters during the electioneering.

According to reports, the number of states and union territories handing out cash benefits to women has risen to 16, after the Bihar polls. Earlier this month, the BBC reported that 118 million women spread over 12 states (not all 16 states and union territories) were getting unconditional cash transfers of Rs 1,000-2,500 per month. A PRS Legislative Research stated that half of these 12 states are revenue deficit and spent about 0.47 per cent GDP on such handouts. If the rest four are added, the numbers would go up substantially.

These are part of the story.

The Centre and states have many more such cash handout schemes, like the PM-KISAN and Rythu Bandhu. Add “free” ration to 813.5 million (58 per cent of India’s population) since April 2020, Rs 6,000 cash to all farmer families (PM-KISAN), subsidised LPG cylinders to over 100 million women etc. and you are looking at most Indians surviving on cash handouts and other doles.

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Why would people in a growing economy – fourth largest in size and fastest growing major economy, heading for Viksit Bharat@2047 (a “developed nation”) – vote for freebies? Because behind the charade, people are desperately poor and getting poorer by the day and the actual poverty level may well be headed for what it was in 1947.

In the interim, here is what 2025 meant and what 2026 may hold for average Indians.

First, the positives.

The year brought two major reliefs. The February budget took annual income up to Rs 12 lakh out of the tax net; in September, the Goods and Services Tax (GST) was substantially lowered.

Both were emergency responses to sharp declines in consumption (demand in the economy) and industrial production – after a brief recovery from the pre-pandemic meltdown of FY20, when GDP growth plunged to 3.9 per cent and the pandemic meltdown, when GDP growth plunged to -5.8 per cent. FY25 saw growth plunging back to 6.5 per cent, from 9.2 per cent in FY24. In H1 of FY26, it was 8 per cent, which is projected at much lower 7.3 per cent for the full FY26.

In 2025, income and consumption declined because of declining wages (see graph below) and structural flaws inherent to the growth model.

There is plenty of evidence.

On December 18, Central Board of Direct Taxes (CBDT) data showed, growth in gross direct tax had fallen to 4.2 per cent during April 1-December 17, 2025 (year-on-year) – from 15.6 per cent. You didn’t find this in the headlines of national dailies (an enduring trend). This is a good indicator that the GDP growth is unreal. In a growing economy, growth in taxes should be more than that of GDP.

A day later, on December 19, the Reserve Bank of India released the minutes of its monetary policy committee (MPC) deliberation, which said the repo rate cut was because of “all-time low” inflation of 0.25 per cent in October; low-inflation spreading to all sectors except gold (“more generalised”) and fear of slowing down growth.

Headline inflation averaged 1.8 per cent during April-November 2025 – well below the tolerance lower limit of 2 per cent – reflecting a slump in consumption and declining incomes.

The real reason for this deflationary trend would have remained unknown but for the SBI Research’s November 16 report. It showed (reproduced below), wage growth collapsed in 2025 across India. Nominal wage growth went down to 2 per cent and real wage to 0.5 per cent. This can happen only owing to massive job-loss or wage cut.

Around the same time, the RBI’s November 24 bulletin showed the household’s debts (total or “stock”, not annual change or “flow”) went up to 41.3 per cent of GDP in FY25 – from 40.2 per cent in FY24 – among the highest ever.

At the same time, their “gross” financial assets went up from 106.3 per cent of GDP to 106.6 per cent. But don’t let the FinMin mislead you (it did so in the past) by telling you that this is a sign of improvement because it entailed liquidation of physical assets (including gold and silver ornaments). Check the National Accounts Statistics (NAS) data to know this.

The NAS data (revealed up to FY24), show household's physical assets are going down over the years. It fell from 13.7 per cent of GDP in FY23 to 13 per cent in FY24, sharply falling from 16.3 per cent in FY12. Consequently, “net” household savings (physical plus financial assets) went down from 18.6 per cent of GDP in FY23 to 18.1 per cent in FY24, sharply falling from 23.6 per cent in FY12.

The following graph maps these trends.

At the root of all these developments are falling quality jobs and stagnant wages.

In September 2025, the organised manufacturing (Annual Survey of Industries) of 2023-24 was released, showing a persisting rise of contractual work – going up to a 27-year high of 42 per cent. Contractual work means temporary jobs, low wages and no social security.

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In October 2025, the NITI Aayog released a services sector report. It stated that though this was the second largest job provider, “most” of these jobs were “informal and low-paying” and risked “low-wage trap”. This also happened to be “the fastest growing part of the economy”. It also showed, 90 per cent jobs were informal (no social security), the same that the Periodic Labour Force Survey (PLFS) reports have shown for the entire economy.

In December, the World Inequality Report 2026 showed the gap between the top 10 per cent and the rest kept widening in 2024 and “remains deeply entrenched across income, wealth and gender dimensions, highlighting persistent structural divides within the economy”.

This was an update of its 2024 report (giving data of 2022-2023). The following graph maps the trends in income and wealth shares.

Meanwhile, the rupee tumbled in 2025, more than before, and crossed the psychological barrier of 90-per USD.

Ironically, while it fell 6 per cent against the USD this year – the maximum for an Asian currency – the USD itself fell more than 9 per cent against other major currencies.

The RBI stopped defending the rupee aggressively, as it did earlier, after the US imposed a 50 per cent tariff to provide relief to exports. The devaluation of the rupee has a bigger impact on importers, exchequer and consumers. India is not only a largely importing country, most of the components used in automobiles, electronic and other consumer durables are imported too. Crude remains its perennial source of forex drainage and with import dependency in crude rising to 90 per cent, the devaluation presents a bigger risk.

The rupee is devaluing against other major currencies like Pound Sterling and Euro. This is another indicator that the GDP growth is unreal.

The rupee-devaluation has made India a poor destination for foreign investments too. Foreign Portfolio Investors (FPIs) have already pulled out $10 billion since January 2025 (up to December 19).

Both these developments have the potential to rock the stock market. The returns from stock market returns – source of income for the middle class shifting their savings from near-zero real interest rates of banks – have been very poor in 2025 too.

Nifty50 price return is 8.4 per cent in a year ending on December 19, against average of 13.5 and 12.8 per cent in 5- and 10-year averages, respectively. The Bombay Stock Exchange’s (BSE’s) Sensex’s price return is 7.7 per cent, against 5- and 10-year averages of 15 and 12.9 per cent, respectively.

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Will 2026 be better?

An ominous beginning has been made.

The only job scheme that has worked in the past 11 years, MGNREGS for rural India (68.8 per cent, as per Census 2011, was defanged a few days earlier. The Federal has shown that all the current government’s job schemes – PM-RPY of 2018, ABRY of 2020, PLI and DLI of 2020, PMIS of 2024 and ELI of 2025 – have failed.

Now called “VB-G Ram G”, the MGNREGS is reduced from a right-based law driven by demand to a central scheme driven by the Centre’s discretion (supply-driven). It provided jobs and incomes to the annual average of 88 million individuals and 62.5 million households (37 per cent of total rural households, as per 2011 Census) during FY21-FY26 (up to December 20, 2025). It particularly provided a safety net to 55 per cent of agricultural workers who are landless (2011 Census).

A 2020 study by the University of California and University of Virginia found the impact of MGNREGS was huge on income and poverty. After studying 157 sub-districts, they concluded that the “earnings increased by 12.7%, leading to a 17.4% reduction in an income-based measure of poverty”.

Its dismantling was so alarming that globally renowned economists Joseph Stiglitz, Tomas Piketty, Mariana Mazzucato and others wrote an open letter to the Centre warning that “to dismantle it now would be a historic error.”

So, how do Indian economists and experts see 2025 and foresee 2026?

Economist R Ramakumar of the Tata Institute of Social Sciences (TISS) says, at the cusp of 2026, the Indian economy continues to be marked by “a persistent deficiency of demand”. Low and falling inflation and chronically low-capacity utilization in manufacturing signal an economy operating below potential.

He explains: “This demand weakness is rooted in the stagnation of real wages and the failure of the growth process to generate adequate, stable employment. Under these conditions, the headline GDP growth masks a fragile accumulation process that is increasingly detached from improvements in livelihoods, raising serious questions about the sustainability and social content of growth.”

Looking ahead, the economist thinks these internal weaknesses are “likely compounded by the continued commitment to fiscal conservatism” – that is, prioritising deficit targets over counter-cyclical spending. Externally, he says, the US tariffs threaten exports. His warning: “Without a decisive shift toward redistributive fiscal policy, employment-centred industrial strategy and a rebalancing of Centre–state financial relations, 2026 risks becoming another year in which macroeconomic stability is preserved at the cost of deepening structural stagnation and social inequality.”

According to former finance secretary SC Garg, income growth has been “very minuscule” in 2025 and “no new consumption support programme” was started during the year, thus the year didn’t make any difference to the financial well-being of the poor. But the year did improve the lot of the middle class because of reliefs in the income tax and GST. Going forward, he doesn’t see any material differences to either the poor or the middle class in 2026.

Finally, a word about “gangbuster” GDP growth.

In an interview on December 19, 2025, former chief economic advisor Arvind Subramanian, who has repeatedly said the GDP growth is overestimated, says growth has been grounded to a half over the past decade or so and it averages only around 3 per cent (as against official average of 6 per cent).