As Finance Minister Nirmala Sitharaman prepares to unveil India’s annual budget this Sunday, the nation presents a complex economic portrait of surface-level prosperity overshadowing persistent structural vulnerabilities. Official metrics indicate remarkable progress: GDP growth racing toward 7.3%, inflation reined below 2%, and agricultural output strengthening rural livelihoods. The economy is poised to surpass $4 trillion, eclipsing Japan as Asia’s second-largest economy.
This apparent golden era—described by the Reserve Bank of India as a ‘Goldilocks phase’ of ideal expansion—has been fueled by strategic fiscal measures. Last year’s income tax reductions and rationalized Goods and Services Tax structure stimulated consumer spending, particularly during festive seasons, injecting vitality into domestic markets.
Beneath these impressive headlines, however, lurk substantial challenges. India’s celebrated growth narrative conceals alarming labor market weaknesses. The technology sector—long the engine of middle-class creation—has witnessed catastrophic hiring stagnation, with the five largest IT firms adding merely 17 net employees through three quarters of 2025. This paralysis reflects AI’s disruptive impact on India’s back-office economy and signals broader white-collar employment concerns.
Trade dynamics present additional complications. While the government has pursued aggressive trade diversification through recently signed agreements with the European Union and other partners, the persistent shadow of Trump’s 50% tariffs continues to constrain exports. HSBC Research notes weakening US-bound shipments with only marginal recovery in other markets, raising questions about India’s competitiveness against manufacturing hubs like Vietnam and Bangladesh.
Most critically, private investment has remained stagnant at approximately 12% of GDP since 2012—a thirteen-year plateau that economists identify as fundamentally alarming. JP Morgan’s Jehangir Aziz attributes this investment freeze to persistent factory overcapacity and insufficient demand, creating a self-reinforcing cycle that inhibits new capital formation.
Foreign direct investment tells another troubling story. Despite rapid growth, India has never achieved the 4%+ FDI-to-GDP ratios that propelled China and Vietnam’s economic miracles, currently languishing at just 0.1%. Rockefeller International’s Ruchir Sharma cites the lingering ‘Licence Raj’ bureaucracy and restrictive labor regulations as primary deterrents to international capital.
In response, the budget is expected to emphasize fiscal restraint alongside targeted reforms. Analysts anticipate expanded production-linked incentives, support for small exporters, defense capital allocations, and customs duty reductions. While infrastructure investment—exceeding $100 billion annually—will likely continue at 3% of GDP, the government faces constrained fiscal space following last year’s tax cuts. The overarching priority remains deficit reduction, with Nuvama Securities forecasting continued deleveraging rather than stimulus measures.