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India’s transformation – a recap

India’s economic ascent over the past three decades marks a journey of successive reforms, technological advancements, benefits of dynamic demographics and political stability. Difficult yet important changes were undertaken, including deregulation of industries, reduction in import tariffs, infrastructure developments, boosting efficiency and competition amongst state-owned companies, sweeping tax as well as financial sector reforms. From a largely agrarian base, the economy is more diversified now with a rise in the share of manufacturing and service sectors. Services now make nearly 55% of the economy, with a target to raise the share of manufacturing to about a quarter of overall growth.

Since sweeping liberalisation reforms in early 90s, the country’s nominal GDP has expanded by 13-fold to $3.9trn in 2024. Per capita incomes have also risen from $300 in 1991 to $2600 in 2024. India has successfully climbed the global ladder, on course to emerge as the fourth largest in the world by 2025. Being the most populous country in the world at 1.4bn represents a demographic dividend with immense productive potential, yet it simultaneously also poses challenges in terms of employment generation, and resource allocation.

In the past decade - The pandemic and consequent lockdown in 2020 was followed by gradual normalisation in activity. Several supply-side reforms were undertaken domestically to improve the ease of doing business, including introduction of GST, bankruptcy laws, fast-track digitalisation and financial inclusion, amongst others.

Increasing integration with the global economy and supply chains have expanded trade and investment horizons. The country has been an active participant in bilateral free trade agreements with key trading partners, concluding an agreement, most recently, with the UK. Besides a forward-looking central government, Indian states have also emerged as pivotal drivers of investment, leveraging competitive policies, improved infrastructure, and introducing investor-friendly ecosystems to attract both domestic and foreign capital. For instance, Tamil Nadu has been a key centre for fresh manufacturing investments including electronics and its ecosystem. Gujarat has attracted fresh interests in the first foray into semiconductor manufacturing, besides also being home to the country’s only International Financial Services Centre (IFSC) officially known as the GIFT City (Gujarat International Finance Tec-City). 

Monetary policy architecture

Adoption of the flexible inflation targeting framework in 2016 mandated the RBI to maintain inflation in the +/-2% band around the mid-point at 4%. This marked a change from a multiple-indicator approach to an explicit inflation-targeting regime, bringing greater transparency, accountability, and predictability to monetary policy. CPI inflation moderated from an average of 9% in 2012-14 to 4.5% in the 2016-2020 period. Post pandemic supply shocks temporarily drove inflation higher between 2000-2023, before returning to the policy range.

Macro stability

Macro stability has remained a key tenet for the authorities, supported by prudent fiscal management, a credible monetary policy framework, and resilient external sector dynamics. Despite difficult global dynamics, external balances have remained manageable, with a moderate current account deficit, robust foreign exchange reserves, and stable investments as well as portfolio inflows. Global fixed income benchmarks including JP Morgan, Bloomberg and FTSE bond indices included India’s sovereign papers into their funds in 2024-25. In August 2025, S&P Global Ratings upgraded India’s sovereign rating higher within the investment grade universe, to BBB from BBB-, with a stable outlook, after 18 years.

The Four-Ds framework – pivotal juncture 

India stands at a pivotal juncture where policy choices will shape the contours of the economy for decades to come. Geopolitical crosswinds have intensified, and strategic alliances have shifted. Supply chain reconfiguration has reordered the lineup of old guards, with the pandemic also leaving longer-term scars in its wake. This backdrop provides a strategic opportunity for India to lay the groundwork for an economic renaissance that would redefine its role in the global order in the coming years.

India’s long-term economic promise remains intact, though realising its full potential will require the country to navigate institutional reforms, investment gaps and geopolitical shifts.

In this context, we outline our four D framework, which will complement and supplement the economy’s growth towards 2040.

Development

Given the domestic focus of the economy, the ‘Development’ agenda will be a primary focus. In the next section, we highlight long-term growth forecasts and likely drivers. The essence of the demographic dividend hinges on how effectively the country invests in human capital.

Diversification

Through the lens of ‘Diversification’, we expect a) India to complement its focus on the domestic economy with an emphasis on expanding its growth footprint in exports and manufacturing capabilities; b) diversify trading partners; c) besides focus on growth, expand inherent strengths in service trade.

Decarbonisation

We expect the ‘Decarbonisation’ agenda to be one of the key pillars of the economic strategy in the coming decade, as government confronts the dual challenge of chasing strong growth and climate change.

Digitalisation

With a young, connected population and rising data penetration, digital transformation is becoming central to productivity, governance, and financial inclusion.

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