By Manohar Manoj
There was a time when the Indian economy, buoyed by its favourable domestic economic conditions, could withstand every adverse development in the global economic environment and generally remain unaffected by it. But today, despite performing well on most indicators of economic performance, the country’s economic situation appears helpless in the face of an unfavourable international economy.
Our widening trade deficit, the more or less stagnant size of our foreign-exchange reserves, the continuous decline in the value of the rupee, the ongoing contraction in foreign direct and portfolio investment, and the resulting decline/recession in the capital markets—all persist. Meanwhile, the country’s domestic situation is arguably in its best phase ever.
Despite substantial reductions in GST slabs and slab rates over the past year, India recorded record GST collections. The ₹2.31 lakh crore collected in October 2026 has broken every previous record. This indicates that domestic trade and consumer demand in the country are in good shape.
As for the country’s growth rate, India achieved 7.35 per cent growth in the second quarter of 2026–27, while the United States recorded only 2.2 per cent, G-20 countries 3 per cent, and China a mere 4.3 per cent annual growth during the same period. If we consider India’s industrial growth, it stood at 7.3 per cent in the second quarter of the current financial year, compared with 6.2 per cent in the same period last year. There was also a notable 7.9 per cent increase in infrastructure and production of goods during this period.
Sector-wise, India’s two major automobile companies, Maruti and Tata, recorded their highest-ever sales in October. In such circumstances, the question arises: why is our domestic performance not establishing an appropriate balance with our external economy? Why are we unable to move from our import-driven growth model towards an export-led growth model, as China did? Or why are we unable, in the name of self-reliance, to find substitutes for imported goods and establish new alternatives?
Another question also emerges: are the country’s domestic achievements ultimately inadequate, and are many areas of development still awaiting adequate absorption within India? This was the case with China, whose economy grew continuously at double-digit rates from 2010 to 2020, and whose growth prospects are now not as strong as they once were. All these questions are worth considering for India as well.
It is noteworthy that the ongoing war, civil conflict, and unrest in West Asia have played a major role in complicating the current dynamics of the Indian economy. On the one hand, they have severely disrupted India’s supply chains for petroleum, crude oil, gas, fertilisers, gold, and other commodities; on the other, they have affected our exports and remittances from abroad. The remaining gap has been filled by America’s tariff threats and anti-India decisions.
Looking back, India has faced many such moments—whether it was the global recession, war, or financial and trade crises—but the Indian economy remained largely insulated from them. Whether it was the global financial crisis of 2008 or the severe inflation and price-rise episode in Europe and America during 2022–24, India’s economy has consistently been among the world’s fastest-growing since 2021 and has performed well on almost every measure of broad macroeconomic management.
Yet, despite this, why does the Indian economy feel helpless before external economic conditions after 2025? Whether it is foreign direct investment or portfolio investment, there is an outflow underway. The biggest cause of concern for India’s middle class and domestic investors has been that the stock market, which had been scaling new heights continuously for the past decade, has failed to stabilise over the last two years. Its performance is being influenced less by domestic conditions and more by developments in the global economy.
Notably, in 2025, Foreign Portfolio Investors (FPIs) withdrew ₹1.66 lakh crore from the Indian stock market, and by October 2026, they had withdrawn a total of ₹3.08 lakh crore. The reasons cited are the falling value of the rupee against the dollar and the fluctuations in American tariffs on India.
In other words, the central question is that India must firmly strengthen its external economy. Our exports rose 22 per cent in September to $44 billion, but our imports, despite rising only 8 per cent, were still $30 billion higher than exports, totalling $74 billion.
As for foreign-exchange reserves, they have hovered around $700 billion for several years. By contrast, China’s foreign-exchange reserves are nearly $3.5 trillion—just 10 per cent less than the size of India’s entire economy, which is around $4 trillion.
One must say that the Indian economy is currently facing a major challenge of globalisation. In recent times, however, the decisions taken regarding India’s external economic front have yielded some positive results as well.
For instance, the Reserve Bank of India (RBI) has, on the one hand, raised the repo rate to control the money supply, and on the other, has been selling dollars in the market through banks at the rate of $1 billion per day. Secondly, the RBI has permitted petroleum companies—the biggest source of pressure on foreign-exchange reserves—to raise dollars directly from abroad. In the same vein, the Finance Ministry has temporarily reduced the export duty on refined petroleum products to zero. As a result, the rupee, which had touched ₹96 to the dollar, has come down to around ₹94.
The main reason for the rupee’s weakness against the dollar in India is the large import bill for crude oil. But the good news now is that while India imported $90 billion worth of crude oil between April and September, it also exported nearly $28 billion worth of refined petroleum products. This is due to our refining capacity. US Secretary of State Marco Rubio’s description of India as a “superpower” in petroleum refining reflects precisely this strength.
The main questions now are: India must urgently work towards finding alternatives to its import dependence on China, and secondly, it must quickly work towards balancing bilateral trade, on which there is a $100 billion deficit. It is in this context that the Prime Minister speaks of self-reliance.
Beyond this, the free-trade agreements India is negotiating with many countries and blocs will certainly provide long-term strength to the globalisation of the Indian economy. Ultimately, India will have to achieve its economic prestige through the statement once made by former BJP leader Pramod Mahajan: only when demand for the rupee rises across all the world’s currencies will the Indian economy attain its true stature.