The Precarious Precipice: A Critique of Economic Foresight, Policy Shortcomings, and Leadership in India's Current Crisis.....

In a recent address to Parliament, Prime Minister Narendra Modi drew a stark parallel between the unfolding challenges posed by the escalating conflict in West Asia and the profound disruptions experienced during the COVID-19 pandemic. He urged the nation to prepare for prolonged economic strain, supply disruptions in fuel and essentials, currency pressures, and broader instability, invoking the spirit of unity that helped India weather the health crisis. This comparison, while intended to rally collective resolve, inadvertently spotlights a deeper malaise: how did India arrive at yet another precarious juncture, seemingly caught off-guard by foreseeable global shocks? The current fuel crisis—marked by risks to energy imports through critical chokepoints like the Strait of Hormuz, soaring oil prices, inflationary threats, and potential ripple effects on growth—stems not merely from distant geopolitical fires but from domestic policy and advisory failures that left the economy overly exposed. Economists entrusted with forecasting risks, alongside a government responsible for strategic policymaking, appear to have faltered in anticipating this vulnerability. This essay contends that such lapses reveal systemic shortcomings in foresight, reactive governance, and an undercurrent of complacency bordering on ignorance. In an era where global interconnectedness amplifies external shocks, these deficiencies not only erode credibility in crisis management but also imperil India's long-term aspirations as an economic powerhouse. By examining these elements, one can discern a troubling pattern that questions the sustainability of the nation's trajectory under its current leadership framework.

The Economists' and Government's Role in Fostering Vulnerability

Economists advising the government bear significant responsibility for India's exposed position. For years, mainstream economic modeling has prioritized metrics like GDP growth, fiscal deficits, and short-term investment inflows, often at the expense of stress-testing against geopolitical contingencies. India's persistent dependence on imported crude oil—accounting for roughly 85 percent of its consumption, with a heavy tilt toward West Asian suppliers—has been a known structural weakness. Yet, rather than advocating aggressive diversification or building buffers against supply volatility, many policy-oriented economists framed energy security through optimistic lenses of renewable transitions and diplomatic hedging. This narrow focus overlooked how escalating tensions in the Middle East, evident in proxy conflicts and rising hostilities, could swiftly translate into domestic pain via higher import bills, rupee depreciation, and cost-push inflation.

The government, in turn, compounded this by embedding these advisory shortcomings into its broader economic architecture. Initiatives touted as pathways to self-reliance, such as expanded domestic exploration or green energy missions, progressed at a pace insufficient to insulate the economy from external jolts. Strategic petroleum reserves were maintained, but their adequacy for a prolonged disruption—potentially mirroring COVID-era supply chain breakdowns—remains questionable amid warnings of extended global fallout. By emphasizing narrative-driven growth stories over rigorous scenario planning, the administration effectively placed India in a reactive posture. This is not mere misfortune; it reflects a collective failure to integrate geopolitical risk into core economic planning. When external events like the current West Asia turmoil materialize, the result is not surprise but a self-inflicted precariousness, where policymakers must scramble to reassure markets while citizens brace for higher fuel and fertilizer costs that could cascade into food inflation and rural distress.

Failure to Gauge the Impending Crisis

The inability to anticipate this crisis extends beyond general uncertainty to a discernible blind spot in risk assessment. Signs of brewing instability in West Asia—diplomatic flare-ups, naval tensions, and energy route vulnerabilities—had been accumulating for months, if not years. Global intelligence and market analysts flagged potential disruptions to oil flows, yet India's economic apparatus seemed tuned to domestic cycles rather than transnational threats. Economists, embedded in think tanks and ministries, often defaulted to baseline projections assuming stable geopolitics, underplaying tail risks in their models. This mirrors a broader pattern observed in prior episodes, where early warnings on global events were downplayed in favor of upbeat domestic forecasts.

Government policy exacerbated this oversight. Foreign policy engagements sought to balance relations with energy suppliers, but without corresponding domestic measures to reduce leverage held by volatile regions. Energy diplomacy, while active, lacked the depth to secure diversified long-term contracts or accelerate non-fossil alternatives at scale. The result? A nation that prides itself on strategic autonomy now confronts a "COVID-like" scenario not from a novel virus but from imported energy fragility. This failure to gauge the coming storm underscores a methodological flaw: treating crises as exogenous surprises rather than preventable exposures born of policy inertia. When the Prime Minister invokes pandemic-era resilience, it inadvertently highlights how little structural learning occurred post-COVID to fortify against the next foreseeable shock.

Shortcomings in Policy-Making and Crisis-Handling Credibility

Governmental policy-making emerges as particularly vulnerable to critique for its episodic, rather than systemic, approach to crises. Policies are frequently calibrated for immediate political dividends—subsidies, relief packages, or rhetorical assurances—without embedding long-horizon resilience. In the energy domain, for instance, announcements of renewable capacity additions coexist with continued heavy reliance on fossil imports, creating a policy patchwork that fails under stress. Crisis handling, while operationally competent in execution (evacuations, reserve drawdowns), lacks the proactive credibility that builds public and investor trust. During COVID, coordinated responses masked underlying economic scarring; similarly here, calls for unity ring hollow without demonstrable preemptive buffers.

This pattern erodes the government's ability to credibly manage crises. Markets react with volatility—evidenced by sharp declines in indices—precisely because repeated invocations of past successes substitute for tangible preparedness. Policy credibility hinges on perception: if leadership consistently positions itself as responder rather than preventer, it fosters skepticism. The level of ignorance implied here is not personal but institutional—a willful underestimation of how interconnected vulnerabilities (energy, currency, diaspora safety) amplify one another. Such myopia risks normalizing crisis management as governance, where each shock tests limits rather than revealing strengths forged in foresight.

The Level of Ignorance and Implications for India's Future

At its core, this episode betrays a strain of overconfidence in leadership narratives that prioritize self-image over sober realism. Framing every challenge through the prism of past triumphs, without acknowledging accumulated dependencies, veers toward ignorance of evolving global realities. Leadership that extols "Team India" unity while the economy teeters on import lifelines projects an image of control that reality undermines. This is not to dismiss genuine efforts but to highlight how such framing delays the uncomfortable reforms needed for genuine resilience—deeper energy diversification, fiscal prudence in subsidies, and integrated economic-geopolitical planning.

The future of India under such leadership appears fraught with uncertainty. Sustained growth ambitions, already tempered by global headwinds, face repeated interruptions from unmitigated risks. Inflationary pressures could erode purchasing power, particularly for vulnerable segments, while rupee volatility deters foreign capital essential for infrastructure and technology leaps. Youth unemployment, a simmering concern, may worsen if sectors tied to energy and trade falter. Without a course correction toward humility in assessment and boldness in diversification, India risks a cycle of precarious recoveries rather than assured ascendance. The demographic dividend and digital edge could dissipate amid recurrent shocks, ceding ground to more agile competitors. Ultimately, this leadership style—strong on rhetoric, variable on structural fortification—portends a nation resilient in spirit but repeatedly tested in substance, where potential remains unfulfilled.

The Prime Minister's comparison of the West Asia-induced crisis to COVID-19 serves as both a rallying cry and an unintended indictment. It exposes how economists and the government, through lapses in foresight, overreliance on imports, and reactive policymaking, have steered India into repeated vulnerability. The credibility of crisis handling suffers when ignorance of systemic weaknesses masquerades as steadfast resolve, casting a long shadow over the nation's future. For India to transcend this precarious phase, a fundamental shift is essential: from episodic responses to embedded resilience, from narrative optimism to rigorous realism. Only then can leadership transform potential pitfalls into lasting strengths, securing not just survival but a truly prosperous horizon for the world's largest democracy. The choice, as ever, lies in learning from the present to reshape tomorrow—lest history's echoes become a perpetual refrain.

Mudra Loans: Engines of Self-Employment or Seeds of Economic Vulnerability in India?

India’s Pradhan Mantri Mudra Yojana (PMMY), launched in April 2015, stands as one of the world’s largest collateral-free micro-credit programmes. By extending loans up to ₹10 lakh (recently raised to ₹20 lakh in some categories) to non-corporate, non-farm micro and small enterprises, Mudra Loans aim to “fund the unfunded.” The scheme targets street vendors, artisans, small shopkeepers, and rural entrepreneurs who lack formal collateral or credit history. Its three categories—Shishu (up to ₹50,000), Kishore (₹50,001–₹5 lakh), and Tarun (₹5–10 lakh)—cater to different stages of business growth. Over a decade, Mudra has become a cornerstone of India’s financial inclusion drive, promising to convert job-seekers into job-creators and fuel grassroots self-employment.

The programme’s role in fostering self-employment is both visible and transformative at the micro level. By removing the collateral barrier and routing loans through banks, regional rural banks, microfinance institutions, and NBFCs, Mudra has brought millions into the formal banking fold. Women constitute roughly 65-70 per cent of beneficiaries, while a significant share goes to new entrepreneurs, SC/ST/OBC communities, and rural areas. Official claims highlight that the scheme has enabled small-scale manufacturing, trading, and service activities that generate incremental income and local employment. A typical Mudra borrower might expand a tailoring unit, start a kirana store, or invest in livestock, thereby creating one or two additional family or neighbourhood jobs. In semi-urban and village economies, these enterprises reduce distress migration to cities and strengthen local supply chains. Supporters argue that the sheer volume—over 52 crore loan accounts in ten years—has democratised entrepreneurship, shifting mindsets from salaried dependence to self-reliance. Studies and field reports consistently note improved household incomes, asset creation, and women’s economic agency, with many beneficiaries reporting higher savings and better living standards. In essence, Mudra acts as a bridge between formal credit and India’s vast informal economy, where over 90 per cent of employment historically resides outside organised sectors.

The magnitude of Mudra Loans is staggering by any global standard. Cumulative sanctions have crossed ₹39 lakh crore, with disbursements nearing ₹32 lakh crore. In recent fiscal years alone, annual disbursals have hovered between ₹5-6 lakh crore, touching record highs in certain quarters. To contextualise, India’s nominal GDP stands at approximately ₹330-350 lakh crore. Thus, the cumulative Mudra portfolio already equals roughly 10 per cent of current GDP, spread over a decade of lending. This scale dwarfs most international microfinance initiatives and reflects an unprecedented policy push to channel credit to the bottom of the pyramid. The average ticket size has also grown—from around ₹40,000 in early years to over ₹1 lakh recently—indicating that borrowers are graduating to larger enterprises. Such volumes have undoubtedly boosted consumption and investment at the grassroots, contributing to inclusive growth metrics and helping sustain demand even during economic slowdowns.

Yet this very magnitude carries substantial risks for broader economic growth. Collateral-free lending at this scale introduces moral hazard: borrowers may over-leverage without skin in the game, while banks, reassured by government refinance and guarantees, might relax due diligence. When loans turn sour, the burden ultimately falls on public-sector banks (which disburse the majority) and, by extension, the taxpayer through recapitalisation. High volumes can also crowd out productive credit to larger firms or infrastructure, distorting capital allocation. If entrepreneurial skills, market linkages, or infrastructure lag behind credit availability, many loans finance consumption or low-productivity activities rather than sustainable businesses. This can lead to over-indebtedness cycles, where borrowers juggle multiple loans, eroding repayment discipline and weakening household balance sheets. At a macro level, unchecked expansion risks inflating asset prices in rural and semi-urban markets or creating localised credit bubbles that burst during monsoons, pandemics, or commodity shocks, thereby dragging down overall growth.

Consider the hypothetical scenario where Mudra-style lending reaches 10 per cent of GDP on an annual or outstanding basis. Such a threshold would represent an extraordinary credit impulse—equivalent to injecting trillions of rupees yearly into micro-enterprises. While it could supercharge self-employment and consumption in the short run, the risks multiply. Banking system stability would be tested: even modest default rates would generate non-performing assets (NPAs) in the range of tens of thousands of crores, necessitating massive government bailouts and diverting fiscal resources from health, education, or infrastructure. Credit growth of this order might fuel inflation in wage goods or rural land prices, erode monetary policy transmission, and expose the economy to systemic shocks. Internationally, no major economy has sustained micro-credit at such relative scale without facing repayment crises or fiscal strain. In India’s context, it could exacerbate inequality if benefits accrue unevenly to politically connected borrowers while genuine entrepreneurs struggle with high interest costs and recovery pressures. Ultimately, growth might stall as banks become risk-averse post-crisis, credit flows dry up, and investor confidence erodes.

The scale of non-performing loans under Mudra underscores these vulnerabilities. Official figures place NPAs at around 2 per cent of total disbursed amounts, a seemingly manageable level praised as among the lowest globally for this segment. However, when measured against outstanding loans, the ratio has climbed sharply—to nearly 9.8 per cent by March 2025, up from 5.5 per cent in 2018. In absolute terms, even conservative estimates imply thousands of crores in stressed assets, concentrated in public-sector banks. Rising trends reflect challenges such as inadequate borrower training, external shocks like demonetisation and COVID-19, and occasional political loan-waiver signals that undermine repayment culture. While not yet catastrophic, the upward drift signals that rapid expansion without commensurate hand-holding can erode asset quality, forcing banks to provision more capital and slow fresh lending elsewhere.

Lessons from microfinance experiments worldwide offer sobering guidance. The global microcredit movement, once hailed as a poverty panacea after Muhammad Yunus’s Nobel Prize, has repeatedly encountered boom-and-bust cycles. In Bangladesh and India’s Andhra Pradesh, explosive growth led to multiple borrowing, coercive recovery practices, and borrower suicides, culminating in state-level moratoriums and collapsed repayment rates. Similar crises erupted in Morocco, Bosnia, Nicaragua, and Pakistan, where over-indebtedness triggered mass defaults and regulatory crackdowns. Common pitfalls included weak credit bureaus allowing clients to borrow from dozens of lenders, aggressive scaling by profit-driven institutions, and neglect of financial literacy or market viability. Even successful models, such as early Grameen Bank, later required reforms to curb over-lending. In the United States and other developed contexts, micro-loans have survived only with ongoing subsidies and robust consumer protections, revealing that technology and competition alone cannot eliminate risks of exploitation or low impact. The overarching lesson is clear: micro-credit excels at inclusion but rarely delivers transformative poverty reduction without complementary investments in skills, infrastructure, regulation, and repayment discipline. Unbridled expansion often substitutes one form of vulnerability (lack of credit) with another (debt traps), ultimately harming the very poor it seeks to empower.

In conclusion, Mudra Loans have undeniably expanded self-employment opportunities, formalised millions of tiny enterprises, and injected dynamism into India’s informal economy. Their unprecedented magnitude has accelerated financial inclusion and grassroots entrepreneurship on a scale few nations have attempted. However, the attendant risks—rising NPAs, potential banking stress, misallocated capital, and the spectre of systemic fragility if lending scales further relative to GDP—cannot be ignored. The world’s microfinance history warns that credit alone is no substitute for holistic development. For Mudra to sustain its contribution to economic growth, India must pair aggressive lending with stronger credit assessment, mandatory skill-building, real-time credit bureaus, and counter-cyclical safeguards. Only then can the scheme evolve from a bold inclusion tool into a resilient engine of inclusive, sustainable prosperity. The challenge lies not in scaling credit, but in ensuring it creates genuine, viable livelihoods rather than fragile debt dependencies.

The Self-Employment Landscape in India's NDA Regime: Tall Claims, GDP Realities, and Labour Market Tightness.....

India's economic discourse often pits the National Democratic Alliance (NDA) regime since 2014 against the preceding United Progressive Alliance (UPA) years from 2004 to 2014. The NDA government has repeatedly highlighted ambitious self-employment initiatives as a cornerstone of job creation, projecting a vibrant entrepreneurial surge that has supposedly transformed the labour market. Schemes like Pradhan Mantri Mudra Yojana (PMMY) are cited as having disbursed over 52 crore loans amounting to more than ₹33 lakh crore, enabling millions to become job creators rather than seekers. Official narratives point to a 36 per cent rise in total employment from roughly 47 crore in 2014-15 to over 64 crore by 2023-24, alongside a sharp drop in unemployment rates. Yet these claims appear tall when scrutinised against the actual scale and quality of self-employment. Meanwhile, GDP growth during the UPA era averaged higher in several peak years, coinciding with a relatively tighter labour market featuring more regular wage opportunities and declining self-employment shares. Does the NDA's GDP trajectory truly mirror or surpass this, or does it reveal a similar disconnect between headline growth and quality employment? This discussion examines the self-employment landscape under NDA, weighing government assertions against empirical trends and comparative GDP dynamics.

The NDA's emphasis on self-employment stems from a deliberate policy shift towards micro-entrepreneurship and financial inclusion. Initiatives such as Mudra loans, Stand-Up India, and Skill India were designed to democratise credit and skills, particularly targeting women, youth, and rural populations. Proponents argue this has fostered grassroots entrepreneurship, with self-employment emerging as the dominant employment category. Data from periodic labour force surveys indicate that the share of self-employed workers in the total workforce climbed steadily from around 52 per cent in 2017-18 to 58.4 per cent by 2023-24. This includes own-account workers (running small enterprises) and helpers in household enterprises (often unpaid family labour). Rural areas show even starker figures, with self-employment reaching nearly 65 per cent overall, driven heavily by female participation that has surged due to rising labour force involvement. Women, in particular, have accounted for much of this growth, often entering as unpaid helpers or micro-vendors in agriculture and allied activities.

The scale appears impressive on aggregate: total employment expanded significantly, unemployment fell from 6 per cent in 2017-18 to 3.2 per cent in 2023-24, and the worker population ratio improved alongside a higher labour force participation rate, especially among rural women. Government schemes are credited with this, as Mudra loans alone have financed tiny businesses across villages and towns, ostensibly creating a multiplier effect in local economies. Proponents further note that this self-employment boom has coincided with GDP growth averaging around 6 per cent annually (with recoveries post-pandemic), positioning India as one of the fastest-growing major economies. The narrative suggests a structural transformation: from job-seeking to job-creating, reducing dependence on formal salaried roles and building resilience in the informal sector.

However, a closer examination of the self-employment landscape reveals nuances that challenge these tall claims. Much of the increase comprises not robust entrepreneurship but subsistence-level activities and distress-driven participation. Within the self-employed category, the proportion of unpaid family helpers has risen notably—from about 13-14 per cent earlier to over 18 per cent in recent years—predominantly involving rural women assisting in household farms or small trades without independent income or decision-making power. Own-account workers, while more entrepreneurial in theory, often operate in low-productivity segments like street vending, petty retail, or seasonal agriculture, yielding meagre earnings. Average monthly earnings for self-employed individuals, particularly women, hover around ₹5,000-6,000 in many cases, barely above subsistence levels and far below regular wage benchmarks.

Regular wage or salaried employment, the hallmark of a tighter and more secure labour market, has seen its share stagnate or slightly decline to around 21-22 per cent, even as total workforce numbers grew. Casual labour has also contracted modestly, but the overall shift leans towards informal self-reliance rather than formal job creation. Agriculture remains the largest employer within self-employment, absorbing much of the rural influx despite its declining GDP contribution. This pattern intensified post-2017-18 and especially after the pandemic disruptions, when millions turned to self-employment as a fallback amid limited formal opportunities in manufacturing or services. Critics argue this reflects "distress self-employment"—people engaging in any available work to survive rather than thriving enterprises born of opportunity. The Mudra loans, while voluminous, include a high share of small "Shishu" category advances (under ₹50,000) that fund survival ventures with limited scalability or repayment sustainability in some cases. Thus, while the absolute numbers paint a picture of dynamism, the quality and sustainability raise questions about whether this constitutes genuine empowerment or a statistical absorption of underemployed labour.

Comparing this to the UPA period provides critical context. During 2004-2014, self-employment's share in the workforce declined from over 56 per cent in mid-2000s surveys to around 50-51 per cent by 2011-12. This coincided with a rise in regular wage/salaried jobs, particularly in urban areas and services, reflecting a tightening labour market where formal opportunities expanded modestly. Employment growth was slower overall—adding roughly 2.9 crore jobs over the decade—but the composition suggested less distress, with salaried proportions climbing from 18-19 per cent to over 22 per cent in some assessments. GDP growth during UPA averaged higher in several stretches, touching 8-9 per cent in peak years before global and domestic slowdowns, supported by consumption-led expansion and infrastructure push. The labour market felt tighter because open unemployment remained low (around 2-4 per cent in earlier metrics), and workers had relatively better access to wage work amid economic buoyancy. High GDP translated into some absorption in organised sectors, reducing reliance on pure self-survival modes.

Under NDA, GDP growth has been robust in phases—averaging broadly comparable or slightly moderated post-2014 (around 6 per cent overall, accounting for COVID contraction and recovery)—yet the self-employment surge has reversed the UPA trend. This raises the query: does GDP growth suggest the same labour market tightness? The answer is nuanced but leans negative. High GDP under UPA coexisted with slower total job addition but better quality shifts away from self-employment. In the NDA era, impressive GDP rebounds and formalisation efforts (via digital payments, EPFO enrollments) have not prevented a disproportionate rise in self-employment as the primary buffer. Total employment numbers have indeed jumped, but much of the gain stems from increased participation (especially women) in low-earning, informal self-work rather than a proportional tightening through regular jobs. Unemployment metrics have improved on paper, yet this partly reflects definitional inclusion of even minimal self-activity as "employment." If GDP growth were driving a genuinely tighter market akin to UPA's salaried expansion, one would expect stable or rising regular wage shares and higher real earnings across categories—trends that remain subdued amid persistent informal dominance.

Several factors explain the divergence. NDA policies prioritised ease of doing business, credit access, and skilling for self-reliance, which boosted participation but exposed vulnerabilities in a low-productivity economy. Demographic pressures, automation in formal sectors, and uneven manufacturing growth limited salaried absorption. In contrast, UPA's growth phase benefited from global tailwinds and domestic demand that marginally favoured wage employment. Neither regime achieved ideal formalisation, but the NDA's self-employment landscape, while numerically expansive, appears more a coping mechanism than the entrepreneurial revolution claimed. Earnings data underscore this: self-employed incomes lag salaried ones significantly, and gender gaps persist sharply.

In conclusion, the NDA regime's self-employment scale and landscape reflect a mixed legacy. Government claims of transformative job creation through Mudra and allied schemes are impressive in volume—fueling higher participation, lower headline unemployment, and total employment growth far exceeding UPA's pace. Yet the ground reality tempers these assertions: the bulk comprises informal, low-productivity, and often distress-driven self-work, with unpaid helpers and subsistence enterprises dominating rather than scalable businesses. GDP growth, while solid and sometimes outpacing global peers, does not fully corroborate a tighter labour market parallel to UPA's era, where high growth aligned with declining self-employment shares and more regular opportunities. Instead, it highlights a persistent Indian challenge—growth without proportional quality jobs. For sustainable progress, future policies must bridge this gap by enhancing productivity in self-employment, expanding formal avenues, and ensuring earnings growth keeps pace with participation. Only then can tall claims translate into broad-based prosperity, moving beyond survival self-reliance to genuine economic empowerment. The landscape underscores that numbers alone do not define success; the nature of work does.

Labour Market Contrasts: UPA's Tighter Conditions Amid Promises Versus NDA's Job Creation Amid Wage Stagnation.....

India's labour market has evolved dramatically under the two major political regimes of the last two decades—the United Progressive Alliance (UPA, 2004-2014) and the National Democratic Alliance (NDA, 2014 onwards). The UPA era featured high economic growth averaging around 6.8-7 per cent annually, driven by services and rural schemes, alongside a promise to generate employment opportunities for all new entrants into the labour force through inclusive policies like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Despite this commitment, the period witnessed a relatively tighter labour market characterised by rising real wages and constrained labour supply relative to demand. In contrast, the NDA period, marked by policy disruptions such as demonetisation, GST implementation, and the COVID-19 pandemic, recorded lower average GDP growth of about 5.9 per cent yet claimed substantial absolute job additions. However, real wages stagnated, suggesting a looser market. This analysis examines the reasons for UPA's tighter conditions, evaluates NDA performance against available evidence including population growth of roughly 15 million annually, explores reasons for lower real wages under NDA, and assesses whether a tighter labour market equates to lower unemployment across formal and informal segments. Data reveal a complex picture: numerical job gains under NDA outpace UPA, but quality and wage dynamics tell a different story.

Key metrics highlight stark differences. During UPA's decade, employment expanded by approximately 29 million jobs overall, reflecting modest growth of about 6-7 per cent in total employed persons. Unemployment rates hovered around 5.5 per cent on average in certain measures, with usual status rates often below 2-3 per cent in earlier National Sample Survey rounds and current daily status capturing underemployment more acutely. Labour force participation rates (LFPR) were relatively stable or declining slightly in some segments, but real wages surged: rural non-agricultural emoluments grew at 6.6 per cent annually between 2010-11 and 2015-16, while overall rural wages (agricultural labourers, construction) advanced at nearly 7 per cent yearly in the years leading to 2014-15. Real per capita net national income rose by 50.3 per cent over the decade.

Under NDA (up to 2023-24), employment ballooned by over 171 million jobs according to RBI KLEMS-based estimates, pushing total employed from around 471 million in 2014-15 to 643 million—a 36 per cent jump. Annual additions averaged far above 15 million, with single-year peaks like 46 million in 2023-24. Unemployment fell from 6 per cent in 2017-18 (a 45-year high per PLFS) to 3.2 per cent by 2023-24, while LFPR climbed from 49.8 per cent to 60.1 per cent. Workforce participation rate (WPR) rose from 46.8 per cent to 58.2 per cent. However, real wage growth ground to a halt: rural agricultural labourers saw near-zero annual real increases (0.8 per cent for males, 1.1 per cent for females) from 2014-15 to 2023-24; non-agricultural and construction wages stagnated similarly. Non-farm unincorporated sector emoluments grew at just 0.5 per cent overall (0.1 per cent rural) between 2015-16 and 2022-23, with self-employed earnings (57 per cent of the workforce) rising nominally by 8.5 per cent over five years but declining in real terms amid 6 per cent average inflation. Real per capita income growth slowed to 43.6 per cent. Informal employment dominated at 80-90 per cent throughout, with self-employment shares rising to 63 per cent rural and 40 per cent urban by 2022-23. EPFO formalisation added millions of subscribers, yet open unemployment remained elevated compared to pre-2012 historical lows in some assessments averaging 8.55 per cent under NDA versus 7.99 per cent under UPA.

The UPA's tighter labour market—evidenced by accelerating real wages despite its employment-for-all pledge—stemmed from robust demand-side pressures amid high GDP expansion and targeted rural interventions. MGNREGA, guaranteeing 100 days of wage employment, absorbed surplus rural labour, bidding up wages in agriculture and construction while pulling workers from distress migration. Services sector boom (25 per cent employment growth) and manufacturing gains further tightened supply, as demographic dividend entrants were partly absorbed into education or formal-ish roles, reducing effective slack. High growth (peaking above 8 per cent early) outstripped labour force additions, creating scarcity that manifested in wage premiums rather than pure unemployment spikes. The promise to employ all new labour force joiners aligned with this tightness, as schemes mitigated open joblessness even if underemployment persisted in the informal economy.

By contrast, NDA's performance on employment creation appears strong numerically but mixed on quality and wages. Absolute additions vastly exceeded UPA's—averaging over 17 million jobs yearly versus under 3 million—surpassing the 15 million annual population growth and implying coverage of new labour entrants plus backlog absorption. Even with lower GDP growth, job numbers benefited from post-pandemic rebound, women’s LFPR surge (driven by self-help groups and schemes), and formalisation drives yielding millions of EPFO-linked roles. This suggests NDA not only matched but exceeded demographic pressures, with 2023-24 alone generating enough to cover multiple years' population increment. However, evidence indicates shortfalls in quality: many additions were self-employment or informal, lacking security or productivity gains. Real wages failed to rise, pointing to persistent labour surplus despite falling unemployment rates. Reasons include successive shocks—demonetisation and GST disrupting informal cash-based enterprises (absorbing 80 per cent+ workforce), followed by COVID-induced reversals—destroying livelihoods and flooding markets with displaced workers. Rising LFPR (more women and youth entering) amplified supply, while informal rigidities prevented wage flexibility downward but also limited upward pressure. Market concentration in formal sectors and skill mismatches (low placement rates in training programs) further suppressed earnings growth for the self-employed majority. Thus, NDA delivered volume but not the wage-led tightness or aspirational quality promised implicitly through growth narratives, resulting in a looser effective market where jobs grew but purchasing power stagnated.

A tighter labour market fundamentally signals lower unemployment, as reduced slack (low joblessness) pressures wages upward—applicable to both formal and informal economies, albeit with nuances. In the formal segment (regular salaried, EPFO-covered), tighter conditions directly correlate with lower open unemployment and contract stability, as seen in UPA's wage gains without major spikes. In India's dominant informal economy (casual, self-employed, micro-enterprises), measurement is trickier due to underemployment and seasonal rationing rather than textbook joblessness. Yet evidence aligns: UPA's tightness reduced visible and invisible unemployment spells via MGNREGA buffers and demand pull, lowering current daily status rates. Under NDA, despite PLFS-reported unemployment decline, informal shocks initially raised rationing (lean-season involuntary idleness) and prolonged recovery; recent tightness (low UR) has eased this somewhat but without wage transmission due to supply overhang. Overall, tighter markets do imply lower unemployment across segments by drawing marginal workers into activity and curbing distress idleness, though informal flexibility masks persistent underutilisation absent productivity or structural shifts.

In summary, UPA's tighter labour market arose from high-growth dynamics and rural guarantees that elevated wages despite employment promises, creating scarcity amid demographic inflows. NDA outperformed on sheer job volume, comfortably matching or exceeding 15 million annual population growth even at subdued GDP rates, with unemployment trending down and formalisation advancing. Yet lower real wages reveal underlying looseness from policy shocks and labour supply surges, underscoring gaps in quality and earnings—challenging claims of transformative creation. A tighter market indeed signals reduced unemployment formally and informally by minimising slack, but India's dual structure demands wage and productivity metrics for true assessment. Sustained inclusive growth requires bridging these gaps, prioritising informal resilience to convert numerical gains into widespread prosperity. 

India's Real Wage Resilience: Why UPA Delivered Stronger Growth Than NDA Despite Higher Inflation.....

Real wages represent the purchasing power of earnings after adjusting for inflation, calculated essentially as nominal wages divided by the price level. In India's economic discourse, a striking contrast emerges when comparing the United Progressive Alliance (UPA) period from 2004 to 2014 with the subsequent National Democratic Alliance (NDA) era starting in 2014. During the UPA years, average inflation hovered at elevated levels, often driven by food prices and global commodity pressures, yet real wages—particularly in rural and agricultural segments—experienced robust expansion. Workers saw their earnings grow faster than the rise in living costs, leading to tangible improvements in real income for large sections of the labour force, especially in the informal and rural economy. In contrast, the NDA period witnessed significantly lower average inflation, reflecting tighter monetary policy and better supply-side management. However, real wage growth decelerated markedly, with periods of stagnation or even decline in rural areas, despite the reduced erosion from prices.

This paradox challenges conventional expectations: one might anticipate that lower inflation under NDA would automatically preserve or boost real wages. Yet the data on wage trends reveal the opposite pattern. The UPA's higher inflation did not undermine real wages because nominal wage increases outpaced price rises by a wider margin, fuelled by specific policy and economic dynamics. Several interconnected factors explain this outcome, including targeted rural employment interventions, sectoral labour demand surges, expansive fiscal measures, and public sector wage revisions. These elements created a tight labour market that empowered workers to negotiate higher pay. Understanding these reasons offers insights into how policy choices can shape wage outcomes beyond mere inflation control, highlighting the role of demand-side pressures and institutional safeguards in an emerging economy like India. This discussion explores those drivers in detail, underscoring why real wages fared better under UPA even amid inflationary headwinds.

A primary driver of elevated real wages during the UPA rule was the introduction and vigorous implementation of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), enacted in 2005. This flagship programme guaranteed 100 days of unskilled manual work annually to rural households at a statutorily notified wage rate. By providing an alternative source of income that was often higher or more reliable than prevailing agricultural or casual labour rates, it fundamentally altered rural labour dynamics. Workers gained bargaining power; farmers and employers in the private rural economy faced shortages as labourers opted for guaranteed public works instead of traditional farm jobs. This labour diversion tightened supply in agriculture and non-farm casual work, compelling employers to raise nominal wages to attract and retain workers. Even where MGNREGA wages were not always superior in absolute terms, the programme's demand-driven nature and timely payments created a wage floor that rippled across the countryside. Nominal wages in rural occupations surged as a result, outstripping the high inflation of the period—much of which stemmed from food prices. The scheme's focus on inclusive growth ensured that even during inflationary spikes, the bottom of the pyramid benefited, as increased earnings translated into higher real purchasing power for essentials.

Complementing this was the broader economic momentum of the UPA years, characterised by accelerated GDP growth in the initial phase and a pronounced boom in infrastructure and construction. Average economic expansion exceeded 7 per cent annually for much of the decade, with capital investments in roads, power, urban development, and real estate generating massive demand for unskilled and semi-skilled labour. The construction sector, in particular, expanded rapidly, pulling workers away from villages into towns and cities. This migration and commuting reduced the effective labour supply in rural agriculture and local industries, further intensifying competition among employers. Non-farm opportunities in manufacturing and services also proliferated, creating spillover effects where rural wages rose to match the pull from urbanising areas. Despite elevated inflation—partly a byproduct of this rapid growth and global factors such as oil and food shocks—nominal wage adjustments kept pace and exceeded it. Workers in high-demand sectors negotiated hikes that reflected tight market conditions, leading to real gains. In essence, the labour market tightness induced by growth outstripped the inflationary drag, a dynamic less pronounced later when growth faced more disruptions.

Fiscal policies and higher public spending under UPA played a pivotal supporting role. Government expenditure expanded through welfare schemes, subsidies, and post-2008 global financial crisis stimulus packages. Increased allocations for rural development, irrigation, and social programmes injected liquidity directly into households, boosting consumption demand. This demand-pull effect encouraged private employers to raise wages to sustain workforce participation. Rural households, armed with more disposable income from public transfers and employment, exerted upward pressure on local wage levels. Moreover, the expansionary fiscal stance coincided with periods of higher money supply growth, which, while contributing to inflation, also facilitated credit access and investment that sustained economic activity. In rural India, where informal employment dominates, these fiscal impulses translated into faster nominal wage growth than the price increases. High inflation, often food-led, was partially offset because the very policies driving spending also supported agricultural productivity and incomes, creating a virtuous cycle for wage earners. Without such proactive demand stimulation, nominal wages might not have accelerated sufficiently to deliver real gains.

Another significant contributor was the overhaul in public sector compensation through the Sixth Central Pay Commission, implemented around 2008-09. This revision delivered substantial hikes in salaries and allowances for government employees, which spilled over into the broader economy. Public sector pay sets benchmarks that influence private wages, especially in organised segments and through demonstration effects in informal markets. Contractors, suppliers, and ancillary services linked to government projects adjusted their labour costs upward to retain talent. The ripple extended to rural areas via increased purchasing power among salaried classes and their families. Even as inflation climbed due to global commodity volatility and domestic supply constraints, these one-time nominal boosts—coupled with periodic revisions—ensured that real wages in affected sectors advanced. Organised labour, though a minority, acted as a wage leader, pulling informal wages higher through competitive dynamics. This institutional intervention was more aggressive in timing and scale during UPA, providing a buffer against inflationary pressures that later periods lacked to the same degree.

Agricultural policies, including sharper increases in minimum support prices (MSP) for key crops and expanded credit to farmers, indirectly bolstered rural real wages. Higher MSPs improved farmer incomes, enabling them to pay better for hired labour during peak seasons. Coupled with better monsoon patterns in several years and expanded irrigation, productivity gains reduced distress in farming, but the labour market effects dominated. Farmers competed with MGNREGA and non-farm options, pushing agricultural wages upward in nominal terms. Rural credit programmes reduced dependency on moneylenders, freeing resources for wage payments. These measures created a supportive ecosystem where even high food inflation—while raising costs—coincided with income growth for both cultivators and labourers, preserving or enhancing real earnings. The net result was a labour market where supply constraints met rising demand, allowing wages to outrun prices.

In comparison, the NDA period's lower inflation, achieved through inflation-targeting frameworks and improved supply chains, did not translate into equivalent real wage momentum. Economic disruptions—including currency reforms, tax overhaul transitions, and the global pandemic—dampened labour demand, particularly in the informal sector that employs the vast majority. Nominal wage growth slowed as businesses faced uncertainty, leading to subdued real outcomes despite price stability. Continued welfare schemes existed but operated amid different labour market conditions, with less pronounced tightness. The focus shifted toward formalisation and capital-intensive growth, which, while beneficial long-term, initially limited the rapid nominal wage surges seen earlier. Thus, the UPA's combination of employment guarantees, growth-driven demand, fiscal push, and targeted revisions created uniquely favourable conditions for real wage expansion.

In summary, India's experience under UPA demonstrates that real wages can advance robustly even in high-inflation environments when nominal earnings are propelled by deliberate labour market interventions, sectoral booms, fiscal activism, and supportive agricultural policies. MGNREGA's empowerment of rural workers, the infrastructure-led demand surge, expansive spending, pay revisions, and MSP-driven rural incomes collectively ensured that wage growth eclipsed price rises, delivering higher real gains than in the subsequent NDA phase of moderated inflation but tempered demand. This outcome underscores a key economic lesson: inflation control alone is insufficient without parallel measures to strengthen worker bargaining and stimulate labour demand. For policymakers, the contrast highlights the value of inclusive, demand-oriented strategies in translating growth into widespread prosperity. As India pursues ambitious development goals, balancing price stability with proactive wage-enhancing mechanisms will remain essential to sustain real income improvements across diverse segments of the workforce. Ultimately, the UPA era illustrates how targeted policies can safeguard and elevate living standards amid challenges, offering enduring insights for equitable economic management.

The Erosion of the Rupee, GDP Realities, and the Long Road to Surpassing China: Lessons from Policy Foundations and Current Trajectories.....

India’s economic journey since the early 2000s reflects a tale of resilience amid challenges, marked by contrasting approaches to inflation management, welfare interventions, and global positioning. The United Progressive Alliance (UPA) era from 2004 to 2014 and the subsequent National Democratic Alliance (NDA) period from 2014 onward have shaped the nation’s fiscal landscape in distinct ways. This discussion examines the depreciation in the purchasing power of one rupee due to inflation across both regimes, the nominal GDP at the close of the UPA tenure alongside the inflation-adjusted real value of today’s GDP, the widening gap with China despite earlier optimistic projections of rapid overtaking, and a counterfactual scenario of India’s position absent the landmark Employment Guarantee, Right to Education, and Food Security Acts introduced under UPA, coupled with the push toward an inflation-targeting monetary framework. These elements highlight how short-term welfare measures and price stability proposals laid critical groundwork, even as sustained high growth remains elusive in overtaking larger economies.

Inflation has been a persistent thief of value, steadily diminishing what one rupee can buy. During the UPA regime spanning roughly a decade, average annual consumer price inflation hovered around 8.2 percent. Compounded over ten years, this erosion meant that a rupee at the start of the period retained only about 45.5 paise in purchasing power by its end. Everyday essentials—food, fuel, and housing—saw sharp price spikes, particularly in the later years when inflation touched double digits for extended stretches, outpacing global averages and squeezing household budgets. The impact was especially acute for lower-income groups, where wage gains failed to keep pace, effectively transferring wealth from savers to borrowers and fueling public discontent.

In contrast, the NDA period, now extending over twelve years, has maintained a lower average inflation rate of approximately 5 percent through proactive monetary policies. Over this timeframe, the same rupee has depreciated to roughly 55.7 paise in real terms. While still representing a notable loss, the moderated pace has preserved more value for citizens, enabling steadier consumption and investment planning. Price stability has supported rural and urban households alike, with fewer episodes of volatile spikes. This comparison underscores that higher inflation under the earlier regime inflicted deeper cumulative damage per year, yet the later approach has not eliminated erosion entirely—merely slowed it. Both periods illustrate inflation’s insidious effect: it silently reduces the rupee’s command over goods and services, regardless of nominal wage increases, and underscores the need for vigilant policy calibration to protect ordinary Indians.

At the time the UPA government handed over office in fiscal 2013-14, India’s nominal GDP stood at approximately $1.87 trillion. This figure reflected a period of robust expansion driven by global tailwinds, domestic reforms, and rising services and manufacturing sectors, positioning India as an emerging powerhouse. Fast-forward to the present estimates for 2026, nominal GDP has climbed to around $4.51 trillion—a more than doubling in headline terms. However, adjusting for cumulative inflation over the intervening years reveals a more modest real advance. Deflating the current figure back to 2013-14 price levels yields a real GDP value of roughly $2.51 trillion. This indicates genuine expansion of about 34 percent in constant terms, attributable to productivity gains, infrastructure build-out, digitalization, and structural shifts. The gap between nominal and real values highlights how inflation has inflated the headline numbers without fully translating into proportional welfare gains for all segments. Still, the real-term growth demonstrates continuity in economic momentum, even if the pace has varied across regimes.

Projections for India surpassing China once fueled national optimism, with claims that accelerated growth would soon close the gap and establish regional dominance. Yet, with China’s economy currently valued at over $20 trillion in nominal terms—more than four times India’s $4.51 trillion—the reality paints a different picture. India’s growth rate hovers around 6.5 percent annually, outpacing China’s projected 4.5 percent, creating a relative advantage of roughly 2 percent per year. At this differential, bridging the current ratio (India at about 22 percent of China’s size) to parity would require approximately eighty years under sustained trends. Factors such as China’s scale advantages in manufacturing, export prowess, and state-led investments continue to widen the absolute gap in the near term, despite India’s demographic dividend and service-sector strengths. Earlier assertions of outpacing “soon” have not materialized, as global trade frictions, supply-chain realignments, and domestic implementation hurdles have tempered India’s trajectory. The lag underscores that headline growth alone cannot overcome entrenched size disparities without deeper productivity leaps, technological self-reliance, and export diversification—areas where progress has been incremental rather than transformative.

A deeper counterfactual reveals the pivotal role of foundational legislation enacted during the UPA years. The Mahatma Gandhi National Rural Employment Guarantee Act provided a legal right to 100 days of wage employment, injecting demand into rural economies and cushioning millions during lean seasons. The Right to Education Act mandated free and compulsory schooling for children aged 6-14, expanding access and laying human-capital foundations that continue to yield returns through a more skilled workforce. The National Food Security Act extended subsidized grains to two-thirds of the population, addressing malnutrition and stabilizing household consumption. Together with early proposals for an inflation-targeting framework—aimed at anchoring monetary policy around a clear price-stability mandate—these measures created a social safety net that bolstered inclusive growth. Without them, rural distress might have deepened, poverty reduction slowed, and social unrest potentially disrupted investment cycles. Consumption demand, a key driver of India’s GDP, could have been weaker, limiting multiplier effects on industry and services.

In this alternative scenario, fiscal resources diverted from welfare might have funded additional infrastructure or tax cuts, possibly accelerating capital formation and pushing real GDP growth higher in the short run—perhaps adding 0.5 to 1 percentage point annually in the absence of subsidy burdens. However, the absence of these pillars could have widened inequality, reduced labor participation among marginalized groups, and eroded long-term productivity as education and nutrition gaps persisted. The inflation-targeting proposal, later formalized, provided a credible anchor that tamed volatility; without its intellectual groundwork, price shocks might have persisted longer, deterring foreign capital and amplifying rupee erosion. India today might boast a slightly larger nominal GDP—potentially reaching $5 trillion sooner—but at the cost of greater fragility: higher poverty headcounts, uneven regional development, and a less resilient domestic market. The acts and framework thus acted as stabilizers, enabling the economy to absorb shocks while building the human and social capital essential for sustained expansion. Their legacy is evident in improved human development indicators that support current growth, even if they imposed short-term fiscal trade-offs.

Ultimately, the erosion of the rupee’s value, the evolution of GDP from $1.87 trillion nominally to a real $2.51 trillion today, and the distant horizon for overtaking China illustrate both achievements and unfinished tasks. The welfare architecture and stability proposals of earlier years provided essential pivots for inclusivity, preventing deeper divides that could have stalled progress altogether. Yet, the current pace reveals that translating these foundations into world-beating momentum demands renewed focus on efficiency, innovation, and global integration. India’s path forward lies not in revisiting past regimes in isolation but in synthesizing their strengths—social safeguards with disciplined macro-management—to compress timelines and realize its demographic and aspirational potential. With prudent reforms, the eighty-year shadow against China could shorten, and the rupee’s value could stabilize further, ensuring that growth translates into tangible prosperity for every citizen. Only through such balanced continuity can India truly claim its place among the foremost economies of the century. 

Supply-Side Dynamics in an Age of Inflation Uncertainty: How Businesses Gain While the Common Man Loses.....

When inflation expectations rise, the supply side of the economy does not remain passive. Producers, anticipating higher future costs, immediately adjust prices upward to protect profit margins, creating a self-reinforcing cost-push spiral. This dynamic intensifies when external shocks, such as oil-price spikes from Middle East conflicts, disrupt global energy supplies. Private-sector firms retaliate by raising output prices, hoarding inventories, or renegotiating contracts faster than wages can catch up. Businesses, with their pricing power and financial buffers, capture gains from the resulting uncertainty. The common man, however, faces stagnant nominal incomes against soaring living costs, eroding real wages and purchasing power. The net effect is contractionary: falling real demand drags down aggregate growth even as nominal GDP may appear robust. This essay examines these mechanics through examples, historical precedents, India-specific realities, and concludes with broader implications for policy and equity.

Examples of Supply-Side Dynamics and Private-Sector Retaliation

Consider a sudden jump in crude-oil prices caused by Middle East tensions—say, disruptions in the Strait of Hormuz or sanctions on key producers. Refineries and transport firms immediately pass on higher input costs to manufacturers of plastics, chemicals, and packaged goods. Supermarkets then raise shelf prices on everything from bread (fuel-intensive logistics) to detergents. This is not mere cost recovery; it is retaliation through anticipatory pricing. Firms build in buffers for expected further inflation, widening margins temporarily. A steel producer, facing higher coking-coal and freight costs, hikes quoted rates by 15–20 percent within weeks, even before wage demands rise. Retail giants adjust algorithms daily, ensuring that price increases outpace inflation expectations. Uncertainty itself becomes profitable: volatility allows firms to test higher price points without immediate consumer backlash, especially when alternatives are scarce. Meanwhile, salaried employees and daily-wage workers see no corresponding income boost. Their real wages shrink, forcing cutbacks on non-essential purchases. Demand contracts precisely when supply-side costs are rising, creating the classic stagflationary trap.

Precedents from Economic History

The 1973 OPEC oil embargo offers the clearest precedent. Arab producers retaliated against Western support for Israel by cutting output and quadrupling prices. Global supply chains faced immediate energy shortages. Private firms across Europe and the United States responded by raising industrial and consumer prices aggressively—automakers added surcharges, airlines imposed fuel levies, and food processors passed on higher fertilizer and transport costs. Corporate profits, measured in nominal terms, surged even as real GDP stagnated. Workers’ real wages fell sharply because union contracts lagged inflation by quarters. The result was the decade-long stagflation of the 1970s: inflation above 10 percent in many OECD economies accompanied by recession and rising unemployment. The 1979 Iranian Revolution repeated the pattern; oil prices doubled again, prompting another round of private-sector price retaliation. Businesses that could hedge (through futures markets) or vertically integrate fared far better than households, whose real incomes lagged. These episodes illustrate how supply shocks under elevated inflation expectations turn uncertainty into a transfer mechanism—from the common man’s wallet to corporate balance sheets—while aggregate demand collapses under the weight of diminished purchasing power.

A more recent precedent is the 2022 global energy crisis following the Russia-Ukraine conflict. Although not Middle East-specific, the mechanics mirrored earlier shocks: oil and gas prices spiked, private energy firms and downstream manufacturers swiftly repriced contracts upward, and profit margins in oil majors expanded dramatically. Real wages in advanced economies declined for the first time in decades, consumer spending on durables fell, and central banks faced the dilemma of fighting inflation at the cost of growth. The pattern holds—businesses benefit from the lag between price and wage adjustments; households absorb the contractionary blow.

India-Specific Realities

India’s import dependence—roughly 85 percent of its crude oil—makes it acutely vulnerable to Middle East conflict-driven price surges. When tensions flare, as seen in repeated Red Sea disruptions or Gulf instability, Indian refiners face immediate cost spikes. Private players such as Reliance Industries and state-owned Indian Oil quickly recalibrate retail fuel prices upward, often within days, citing international benchmarks. This retaliation cascades: truckers raise freight rates, farmers pay more for diesel-powered irrigation and transport, and food inflation follows within weeks. Processed-food companies, textile exporters, and chemical manufacturers embed higher energy costs into their pricing, protecting—and often expanding—margins. Corporate India’s ability to hedge via commodity derivatives or pass costs downstream gives it a decisive edge. Quarterly results frequently show robust profit growth even as headline inflation bites.

The common Indian, however, experiences the opposite. A daily-wage labourer in construction or a middle-class salaried employee sees nominal income rise slowly, if at all. Real wages erode as food, fuel, and transport consume larger budget shares. Rural households, already squeezed by monsoon variability, cut discretionary spending; urban consumers postpone big-ticket purchases like two-wheelers or refrigerators. Demand contraction follows: FMCG volume growth slows, automobile sales dip, and small enterprises face working-capital stress. The Reserve Bank of India, tasked with inflation targeting, raises policy rates to anchor expectations, further dampening credit and investment. This India-specific loop—oil shock → private-sector price retaliation → real-wage compression → demand collapse—has played out repeatedly: during the 2014–16 oil volatility period, the 2020 post-pandemic recovery phase, and every Gulf flare-up since. Small businesses without pricing power suffer alongside households, while large conglomerates with market dominance thrive. The net result is slower real GDP growth despite seemingly healthy nominal figures, underscoring the contractionary nature of unchecked inflation expectations.

Higher inflation expectations transform supply-side behaviour into a strategic tool for the private sector. Oil-price shocks from Middle East conflicts provide the trigger; firms retaliate by accelerating price increases, widening margins, and exploiting wage lags. Businesses thus benefit disproportionately from uncertainty, converting volatility into higher profits. The common man, meanwhile, endures declining real wages and incomes, which in turn contracts aggregate demand and real growth. Historical precedents—from 1973 onward—confirm this transfer mechanism, while India’s oil-import dependence amplifies the asymmetry. Policymakers must therefore recognise that inflation control is not merely about monetary tightening but also about addressing structural supply vulnerabilities and ensuring faster wage transmission. Without deliberate measures to protect real purchasing power—through targeted subsidies, skill-enhancing reforms, or supply-chain resilience—the cycle of supply-side retaliation and demand contraction will continue to widen inequality and undermine sustainable growth. Ultimately, an economy that rewards uncertainty for the few while punishing the many cannot deliver broad-based prosperity.