(Prof. M.V. Rajeev Gowda, Ex. MP and Chairman AICC Research Department released on January 27, 2026, its flagship annual report, “Real State of Economy”, together with Amitabh Dubey, In-charge of Research and Monitoring, AICC Communication Department)

On paper, the Indian economy is growing at a rapid pace. In the second quarter of FY26, the government reported that real GDP grew at 8.2%, exceeding market and government expectations, while nominal GDP grew at 8.7%, indicating an inflation rate of just 0.5%. For FY26 overall, GDP growth is estimated to be 7.4%. Yet, other macroeconomic indicators and people’s lived realities do not align with these statistics. The economic mismanagement of the last decade and promotion of crony capitalism have entrenched K-shaped growth, where a small sub-section of Indians corners the bulk of economic gains while the masses struggle to survive.

GDP growth above 7% should normally yield lakhs of new jobs but that has not been the case. Unemployment continues to be a major concern. Most of the job creation has been in the gig economy that is poorly regulated with workers complaining of exploitation. Post the COVID-19 pandemic, a significant number of workers returned to farms in the face of job destruction in urban India. They have chosen to remain there underemployed and underproductive, in the absence of manufacturing jobs.

When the masses face poor economic prospects, empathetic governments strengthen welfare safety nets. The Modi government has instead chosen to dismantle the carefully constructed and impactful rights-based welfare framework established by the UPA government. The repeal of the MGNREGA will have far-reaching consequences on the rural economy as well as on centre-state relations. This is consistent with its gradual cutting of budgets for essential services like education and healthcare. The Modi government’s push towards privatisation is starting to show in declining enrolment and increasing disease burden. The terrible tragedy in Indore, where people died due to contaminated water, should be a warning that governments need to invest more in basic services.

The process towards fixing the economy must start at ignoring the hype and hubris and taking stock of the ground realities. For this, the government must embrace transparency, welcome objective critiques, and acknowledge inconvenient facts. It is in that constructive spirit that the Indian National Congress Party’s Research Department presents this comprehensive overview of what ails the economy – the Real State of the Economy 2026 report. It shines a torchlight on the darker dimensions of India’s economy to remind the government of the many unfulfilled tasks and ignored sections that must be addressed on priority in the year ahead.

Growth Rates vs Economic Reality

The BJP government’s tenure has been marked by diminished confidence in India’s economic numbers due to concerns that the government manipulates official data to suit its political agendas. An evaluation of national account statistics by the International Monetary Fund (IMF) led to India being accorded a C grade, raising concerns regarding the veracity of official data.

• In the first half of the financial year 2025-26, growth is reported to be led by manufacturing, which grew at 8.4%. Yet, during this period, the Index of Eight Core Industries registered only 2.9% growth. Such wide divergences are inexplicable and add to the doubts about the data. • While the economy is officially hitting a sweet spot, other macro-economic indicators also raise a red flag. • In 2025, the rupee was amongst the worst performing currencies in Asia with the INR-USD exchange rate crossing the 90 mark. • Ideally, growth propels investments but this has not been the case. Gross fixed capital formation has been hovering around the 30% of GDP mark. In four of the ten months of 2025, net Foreign Direct Investment was negative, implying that investors withdrew more money and more Indian money was invested abroad. • The household-level situation remains precarious. Net financial savings have improved only slightly after their historic fall in FY23. Household debt as a percentage of GDP increased to 41% in FY24. • By March 2025, there were more than 28 crore borrowers with loans pending with the average loan amount standing at Rs. 4.8 lakhs. The average debt amount has increased 40% since March 2021. • There are serious concerns regarding the economy falling in a debt trap. General government debt remains in the 80% range despite no productive investments in welfare.

Historic High Inequality

The limited growth of the last few years has been cornered by the government’s cronies. Over the last decade, there has been an unsustainable level of market concentration dominated by a select few industrial houses. The government’s policies have aided this process. Corporations have received tax cuts while common masses have been burdened with consumption taxes.

• The World Inequality Report 2026 estimates that the top 10% of earners capture nearly 58% of the national income while the bottom half receives only 15%. In case of wealth, the top 10% own 65% of the wealth while the bottom half own just 6.4%. Income inequality in India currently is worse than it was during the British Raj. • Wealth inequality is so high that the top 1% own 40% of the nation’s wealth. The income gap between the different categories has not improved at all over the last decade. • Billionaire wealth has ballooned over the years at a time when one-third of population survives on less than Rs. 100/day. • The middle classes have been feeling the pinch of income squeeze. They have to rely on debt to meet expenditures as salaries have not grown at a significant pace. • The taxation system has favoured corporates over people. Personal income tax collections have overtaken corporate tax revenue. The share of personal income tax in total direct taxes has increased from 38.1% in FY14 to 53.4% in FY24, while corporate taxes declined from 61.9% to 46.6% over the same period. • The government removed wealth tax, slashed corporate tax rates while increasing excise on fuel and burdening people with high GST rates. It was only after intense opposition that GST rates were reduced in 2025. • Market concentration across industries has been on the rise. Former Reserve Bank of India Deputy Governor Viral Acharya has claimed that industrial concentration by five major corporate houses is contributing to persistent core inflation.

Why Is India Failing to Provide Work to its People?

Unemployment in India remains high despite years of economic growth. Jobs are not being created where they are needed. Manufacturing and services have stopped absorbing workers, pushing more people back into agriculture and self-employment while hiding large-scale disguised unemployment. Secure, salaried jobs are steadily disappearing.

• Between 2017-18 and 2023-24, manufacturing’s share of employment fell from 12.1% to 11.4%, while services declined from 31.1% to 29.7%. Over the same period, agriculture absorbed more workers, with its employment share rising from 44.1% to 46.1%, reversing the standard trajectory of structural transformation. • Even among salaried workers, job security is weak. Nearly 40% have no written contract and more than half receive no paid leave or social security. Work is increasingly informal, insecure, and poorly paid. • Young people face the worst outcomes. In 2023-24, about 2.8 crore educated youth were unemployed, while nearly 10 crore stopped looking for work altogether. • Women’s rising labour force participation hides worsening job quality. Most new jobs for women are in agriculture and unpaid household work. Nearly 77% of rural women workers are employed in agriculture. • Corporate profits have surged without creating jobs. In FY24, profits grew by over 22%, while employment increased by only 1.5%. Growth has benefited companies, not workers. • Government employability schemes have failed to deliver. The PM Kaushal Vikas Yojana placed less than half of the youth with necessary certifications, and the Prime Minister’s Internship Scheme has led to almost no permanent jobs despite large budget allocations. • The human cost of the employment crisis is severe. Between 2018 and 2023, nearly 19,000 people died by suicide due to unemployment.

Dismantling the ‘Right to Work’

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was a lifeline for the rural poor. It was designed to make the ‘Right to Work’ a legal entitlement, guaranteeing 100 days of local wage employment to any individual demanding work. The BJP government first undermined MGNREGA through budget cuts, delayed payments, technological barriers, and deletion of workers. It has now dealt a body blow to the rural economy by repealing the Act. MGNREGA has been replaced with a centrally controlled, budget-capped mission, the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (VB-G RAM G), an Act that strips rural workers of an enforceable right and reduces livelihood security to a rationed, discretionary promise.

• Even before it repealed the Act, the current regime deliberately weakened MGNREGA. • Despite evidence of demand, the budgets for the programme have declined from 2.15% of the overall budget to 1.69% in FY 2025-26. As a share of GDP, this has decreased from 0.32% to 0.24%. • Less than 2% of households received the full 100 days of guaranteed work. The average employment was just 37.25 days up to January in FY 2025-26. • The introduction of two technology driven processes, the Aadhaar-Based Payment System and the National Mobile Monitoring System have led to massive exclusion of genuine workers and prevented workers from accessing their rights. • 4.57 crore MGNREGA job cards were deleted between 2019-20 and 2024-25. • The new VB-G RAM G Act moves from ‘demand-driven’ to ‘normative allocations’. The Union will now pre-fix state-wise ceilings; once exhausted, states must fund additional employment themselves- making the right conditional on state finances. • VB-G RAM G undermines fiscal federalism. The new cost sharing formula of 60:40 between centre and states is estimated to impose an additional annual burden of over Rs. 50,000 crore on states. • Decentralised planning is being dismantled. Gram Sabha planning will now be replaced by centrally templated Viksit Gram Panchayat Plans. • The new Act will impact rural wages, strip workers of bargaining power, and potentially trigger a new wave of distress migration.

Education and Healthcare

Since coming to power in 2014, the Modi government has systematically neglected healthcare, while pushing for greater privatisation in the sector. The education sector is facing similar challenges, along with growing commercialisation. Government expenditure on healthcare and education remains abysmally low, reflecting in the declining accessibility, quality, and affordability of healthcare services and education institutions.

• The government’s expenditure on health and education remains abysmally low at 0.29% and 0.4% of the GDP, respectively. Key areas such as primary and higher education, and prevention and primary healthcare services remain underfunded. • Air and water pollution have risen significantly creating a public health emergency. Almost 20 lakh deaths in 2023 were attributed to air pollution, yet the government denies any linkage between air pollution and lung diseases. • The government’s flagship PM-Jan Aarogya Yojana has failed to deliver. 66% of deaths in the country are due to non-communicable diseases (NCDs) like cancer, diabetes, respiratory illness and heart diseases. While the burden of these diseases has declined globally, in India the trend has been the opposite. • The past year saw almost 66 lakh children dropout of school, with Gujarat recording a 341% increase between 2024-25. Presently, only 21% of the 14.7 lakh schools in the country offer education beyond class 8 in rural areas, forcing students, girls in particular, to dropout. • Institutions of Higher Education like IITs, IIMs and Central Universities are being forced to operate as commercial entities and rely on loans from the Higher Education Financing Agency, stripping them of fiscal autonomy and increasing the financial burden of students due to unaffordable fee increments. • Between 2014-24 there have been 89 paper leaks across central and state-level examinations, resulting in 48 retests. Inaccessible education, paper leaks, institutional discrimination and lack of opportunities have led to a 65% surge in student suicides.

Food Security and Pensions

India’s rapid economic growth has not translated into improved food and income security for large sections of the population. 40% Indians cannot afford a healthy diet and millions are forced to trade off basic nutrition against essential expenses such as housing and healthcare.

• Public investment in food security has steadily declined. The share of the Union Budget allocated to food subsidies has fallen sharply over the past decade. Allocations under the National Food Security Act (NFSA), including ICDS, PM POSHAN, and maternity entitlements, have been reduced by nearly 50%, weakening India’s nutrition safety net. • Hunger and malnutrition remain widespread. Nearly 12% of the population is undernourished and around 30% of children under five are stunted. Anaemia affects more than half of pregnant women and adolescent girls, and India continues to rank poorly on the Global Hunger Index. • Outdated population data has led to large-scale exclusion from food entitlements. Continued reliance on the 2011 Census has resulted in the exclusion of nearly 12 crore eligible beneficiaries from the Public Distribution System (PDS). • Social security for the elderly remains grossly inadequate. Nearly 78% of elderly Indians receive no pension support, while budgetary allocations for the National Social Assistance Programme (NSAP) have declined from 0.6% of the Union Budget in 2014 to just 0.2% in 2025. • Pension amounts have stagnated despite rising living costs. Under NSAP, old-age pensions remain as low as Rs. 200 per month for beneficiaries aged 60-79 and Rs. 500 for those above 80, far below minimum subsistence requirements. In parallel, the minimum EPFO pension has been frozen at Rs. 1,000 since 2014, sharply eroding pensioners’ purchasing power. • Informal workers remain largely excluded from income security. Pension schemes for informal workers and farmers have recorded extremely low enrolment and high drop-out rates, reflecting weak scheme design and poor implementation. • Increasing digitisation has intensified exclusion rather than improving access. Mandatory Aadhaar linkage, biometric authentication failures, and repeated Know Your Customer (KYC) changes have resulted in widespread payment disruptions and benefit suspensions, disproportionately affecting the rural poor, elderly persons, and persons with disabilities.

Weakening Labour Protections

Since coming to power in 2014, the Modi government has pursued a wider restructuring of the labour regime that has shifted away from enforceable rights and protections towards a framework of pro-market reforms in the name of ease of doing business. There has been a clear political shift in the approach of the government from protecting workers through law and institutions, to managing labour through compliance-light rules, scheme-based welfare, and executive discretion. In practice, this has meant weaker bargaining power, weaker enforcement, and greater insecurity for workers, especially in the informal economy where close to 90% of Indians work.

• Even as GDP growth has been projected as a success story, worker incomes have stagnated or fallen in real terms. Between 2014-15 to 2022-23, real wage growth remained nearly flat across major worker groups. • Under UPA II, real wages grew by 8.6% a year in agriculture and 6.9% in non-agriculture. Under the NDA I, they fell by 0.6% in agricultural wages and 1.4% in non-agricultural wages. • The newly notified Labour Codes weaken enforceable rights and tighten the space for workers to organise and bargain collectively. • A national floor wage is set by the Union government, which can pull down state minimum wage baselines in the name of uniformity. • The Labour Codes do not adequately recognise protections for the largest segments of the Indian workforce. • The Social Security Code’s loose definition keeps gig workers outside ‘employee’ status and enforceable labour rights, preserving platforms’ exploitative, cheap, on-demand model. • The biggest failure is the unorganised sector. The Codes fail to guarantee minimum wages, written contracts, safety, or social security as enforceable rights for the informal workforce; instead they push workers into databases and scheme-based welfare.

Farmers and Rural Distress

The Modi government has relied more on rhetoric than on material policy support when it comes to agriculture. Grand promises of doubling farmer incomes, assured prices, and risk protection have not translated into structural improvements. Agriculture continues to employ nearly half of India’s workforce while contributing only 16% to GDP, locking millions into low productivity and under employment.

• Farm incomes remain critically low. The average agricultural household earns Rs. 13,661 per month, with cultivation contributing barely Rs. 4,476, making farming economically unviable on its own. • Agriculture employs 46.1% of the population but contributes only 16% to GDP, reflecting deep underemployment and stalled structural transformation. • PM Kisan coverage has steadily shrunk. Beneficiaries fell from 10.48 crore in April 2022 to 8.7 crore by August 2022, with another 70 lakh removed in the 21st instalment, while the Rs. 6,000 annual payout has remained unchanged despite rising costs and climate shocks. • MSP procurement reached only 1.84 crore farmers in 2024-25 out of nearly 14 crore farm households, remaining concentrated in wheat and paddy and excluding most women and tenant farmers. • Debt is widespread and worsening. 52% of agricultural households are indebted, 24.6% rely on non-institutional credit, and Kisan Credit Card bad loans rose from Rs. 68,547 crores in March 2021 to Rs. 97,543 crores in December 2024. • Agrarian distress has translated into a sustained loss of life. Between 2015 and 2023, 98,921 farmers and agricultural labourers died by suicide, with 10,786 deaths recorded in 2023 alone. • Climate shocks are intensifying as state support declines. Extreme weather damaged 17.4 million hectares of crops in 2025, while PM Fasal Bima Yojana allocations were cut by 23% in the 2025-26 budget.

Manufacturing and MSME

Key drivers of the Indian economy, the manufacturing sector and MSMEs, have been reeling under pressure and stagnated due to Modi government’s inconsistent policies and crushing compliance burden. The failure to create a robust industrial base has left lakhs of Indian youths unemployed, resulting in a reversal of structural transformation.

• Make in India, Production Linked Incentives, and other initiatives have failed. Manufacturing growth has averaged a mere 6% annually (at constant prices) since 2013-14, failing to reach the 12-14% annual growth target. • The share of the workforce employed in manufacturing has declined from 12.6% in 2011-12 to 11.4% in 2023-24, forcing workers back into low-productivity agriculture. • India’s structural transformation has reversed. The share of agriculture in total employment rose from 42% in 2018-19 to 46.1% in 2023-24. • Prioritising big corporations has led to MSMEs being ignored. The credit gap for MSMEs is estimated at nearly Rs. 30 lakh crore, severely limiting the expansion and growth of small enterprises. • Tax terrorism and License Raj have returned under the Modi government. The regulatory burden of over 1,450 obligations costs a small enterprise between Rs.13-17 lakh just to exist, with almost two out of every five compliance requirements carrying potential jail terms.

Investments, Trade, and Tariffs

India’s trade and investment position has weakened over the past decade. The Modi government has struggled to attract stable long-term capital, restrict the widening trade deficit, or strengthen India’s export competitiveness. The past year has been particularly worrying, with falling foreign investment, slowing exports, and growing dependence on Chinese imports. A notable failure has been the inability to stand up to the United States of America amid its tariff bullying, severely impacting India’s exports.

• Foreign portfolio investors pulled out nearly Rs. 1.58 lakh crore from Indian equity markets in 2025, the largest annual outflow on record, highlighting India’s declining attractiveness for sustained long-term investment. • Net Foreign Direct Investment (FDI) collapsed by 96%, falling from USD 44 billion in 2020-21 to just USD 353 million in 2024-25. FDI fell to just 0.7% of GDP in 2024. • India’s trade deficit crossed USD 283 billion in FY 2025-26 (up to January 2026), the highest level in eight years, driven by imports significantly surpassing exports. • India’s merchandise trade deficit with China widened to a record USD 99.2 billion in FY 2024-25, underscoring the growing reliance on imports despite repeated claims of self-reliance. • As of 2025, India does not have a comprehensive free trade agreement or bilateral trade agreement with any of its top five trading partners.

Courtesy: AICC Research Department & Communication Department