By Dhurjati Mukherjee
In the backdrop of the ruling dispensation’s claims of spectacular economic growth in the first quarter of the current fiscal, a crucial question arises: can the momentum be sustained? With crude oil prices hovering around $100 per barrel, the outlook remains challenging. Despite global headwinds, the World Bank has projected India’s economy to grow by 7.1% in the current fiscal year, up from its earlier estimate of 6.6%, citing strong domestic demand and exports.
The revision follows growth of 7.8% in the first quarter, prompting upgrades from the Asian Development Bank, S&P, Moody’s and other global agencies. Growth is expected to reach around 7.2% in 2027-28, supported by resilient industry and services, labour-code consolidation, GST reforms, tariff rationalisation, amendments to the Insolvency and Bankruptcy Code (IBC), and investments in physical and digital infrastructure.
However, sustaining this performance will not be easy. The Reserve Bank of India’s decision to raise the repo rate by 25 basis points signals concerns over mounting price pressures. Core inflation, which excludes volatile food and fuel prices, remains a concern, while the rupee’s depreciation by around 7% against the dollar strengthens the case for timely intervention. Oil prices have climbed from around $85 a barrel in June and July, exposing India to external shocks.
Freight charges now account for 27% of the delivered price of oil, compared with 3% before the war, whose duration remains uncertain. Chief Economic Adviser V. Anantha Nageswaran has warned that shocks to prices, capital and trade can amplify one another. India needs resilience, not merely self-reliance, and should pursue “diversified abundance”.
Strategic autonomy carries costs, while entrenched geopolitical blocs could trigger supply disruptions and keep energy prices elevated. Rising food prices and a stagnant stock market underline the uncertainties. Changes in global interest rates could affect capital flows into emerging markets, increase domestic borrowing costs and influence cross-border investment.
India must improve its investment climate, as policy reforms alone cannot guarantee higher foreign direct investment (FDI). India received $19.81 billion in FDI during April-June, up 6% from $18.62 billion in the corresponding period last year. However, investment from the US fell by over 76% to $1.34 billion from $5.61 billion.
This highlights the need to diversify investment sources and strengthen investor confidence. There are encouraging signs of industrial resurgence. Investment in plant, machinery and physical capital rose to 34.3% of GDP in the first quarter. Bank credit to industry grew 20% year-on-year in July 2026, against 6.5% a year earlier.
Manufacturing expanded by 9.2%, supported by capital goods, high-tech and heavy manufacturing, electrical equipment and transport equipment. Core-sector output accelerated by 5.4%, aided by iron ore, cement and electricity production.
Initiatives such as Semicon 2.0, mobile manufacturing schemes, offshore resource exploration under Samudra Manthan and expanding defence production could attract further investment. Their success will depend on implementation and viable industrial ecosystems.
India needs greater investment in manufacturing, mineral production and electronics. Projects promoting agricultural technology and value addition also deserve attention. The eastern, central and northeastern regions need more technologically efficient, economically viable and globally competitive food-processing, horticulture and small-scale industries.
Rural business hubs should also be developed to encourage enterprises beyond major cities. India’s growth story remains promising, but sustaining it requires more than favourable projections. Stable prices, diversified capital flows, stronger manufacturing and geographically balanced industrialisation must reinforce one another.
A coordinated approach involving the Centre, states and private industry is essential to turn headline growth into durable economic strength.
