Rethinking Growth and Equity in 2026
Dr. Santosh Kumar Mohapatra
A new year is more than a ritual of celebration; it is an opportunity for introspection and recalibration. As the world steps into 2026, the close of 2025 invites a careful assessment that goes beyond headline indicators to examine the deeper forces shaping the global and Indian economies.
The year 2025 was often portrayed as one of “resilience.” Yet that resilience was uneven and fragile. Across the world—and in India—economic outcomes unfolded amid rising trade tensions, persistent geopolitical instability, and unresolved structural weaknesses. While GDP growth and inflation figures suggested relative stability, they obscured underlying vulnerabilities.
Economic expansion remained weakly linked to job creation; inequality widened; and policy responses to climate risks proved inadequate. The core lesson of 2025 is unmistakable: growth without inclusion, employment, and resilience does not strengthen prosperity—it intensifies fragility.
True prosperity extends beyond aggregate output. It demands growth that is inclusive, employment-intensive, and environmentally sustainable. The transition from 2025 to 2026, therefore, is not merely a change of calendar but a critical moment to reassess the structural trajectories shaping global and national development.
Globally, growth in 2025 hovered around 3.2 per cent, driven largely by a handful of emerging economies—most notably India—while advanced economies grappled with weak consumer demand, ageing populations, and rising public debt. The much-anticipated synchronised global recovery failed to materialise. Instead, the world economy settled into an uneven equilibrium marked by divergent growth paths and heightened uncertainty.
Trade fragmentation further undermined recovery. Protectionism, policy unpredictability, and geopolitical rivalries dampened consumption and investment. Renewed tariff conflicts—fuelled by aggressive trade posturing and fresh tariff threats from the United States—disrupted supply chains and increased production costs, while the spread of non-tariff barriers weakened the foundations of global trade integration.
For developing economies, conditions deteriorated sharply. For a third consecutive year, debt-servicing obligations exceeded new external financing, reversing traditional development finance flows. Tight global financial conditions and shrinking fiscal space constrained the capacity of many low- and middle-income countries to invest in growth, social protection, and climate adaptation.
Geopolitical instability compounded these economic strains. Ongoing conflicts in the Middle East, the prolonged Ukraine war and its repercussions for energy and food markets, and regional flashpoints—including tensions in South Asia—added layers of uncertainty. Financial markets remained volatile, with capital gravitating toward perceived safe havens rather than productive investment in emerging economies.
Inequality emerged as one of the defining features of 2025. Wealth concentration intensified as asset prices outpaced wage growth, disproportionately benefiting those with access to financial markets. Large sections of society, by contrast, faced stagnant incomes, precarious employment, and eroding social protection. Inequality thus evolved from a social concern into a macroeconomic constraint—suppressing aggregate demand, heightening financial instability, and undermining long-term productivity and social cohesion.
Climate vulnerability added another dimension of stress. Heatwaves, floods, and erratic weather disrupted agriculture, damaged infrastructure, strained public health systems, and destabilised supply chains. Despite mounting economic losses from climate shocks, fiscal priorities continued to underweight adaptation and resilience. The costs of climate inaction remained largely invisible in conventional metrics, even as their real-world consequences intensified.
Against this global backdrop, India stood out as one of the fastest-growing major economies and a significant contributor to global growth. Yet official growth estimates were questioned by several international agencies, including the IMF. More importantly, strong headline numbers masked persistent structural challenges. Employment generation lagged output growth, particularly for youth and women. Informality continued to dominate the labour market, often without income security or social protection, while consumption recovery remained uneven—especially among lower-income households.
India’s external sector revealed a striking paradox. Although gross foreign direct investment inflows remained strong, net FDI turned negative. Rising profit repatriation by multinational corporations and increased outward investment by Indian firms resulted in net capital outflows, reflecting both deepening corporate globalisation and lingering policy uncertainty.
Financial markets were marked by pronounced volatility. Equity indices surged intermittently even as real-economy indicators—employment, household incomes, and consumption—remained uneven. Foreign portfolio investors were net sellers for much of the year, amplifying fluctuations and exposing the risks of excessive financialisation. Meanwhile, net household financial savings fell to a four-decade low as household debt expanded rapidly.
Inequality in India manifested across income, wealth, gender, region, and digital access. Women’s labour force participation remained persistently low, representing a significant loss of productive potential. Skill mismatches widened as automation, artificial intelligence, and platform-based work transformed labour markets faster than institutions could adapt. Recent labour law reforms also generated anxiety among sections of the workforce, reflecting concerns over job security and bargaining power.
Looking ahead to 2026, India’s growth is projected to remain relatively strong—around 6.2 to 6.5 per cent—despite external headwinds. Policy priorities include reducing import dependence, narrowing the trade deficit, strengthening technological innovation, and enhancing climate resilience. Yet the experience of 2025 underscores the limits of orthodox economic thinking. Stability without equity, growth without employment, and finance detached from the real economy yield inherently fragile outcomes.
The central challenge of 2026, therefore, is not merely the pace of growth but its quality. The defining lesson of 2025 is clear: growth alone does not guarantee jobs or shared prosperity. The United Nations’ focus in 2026 on women farmers, pastoralists, and volunteers signals renewed global attention to inclusive development, even as gaps between intent and implementation persist.
As 2026 unfolds, economics must be reimagined as a tool for human well-being rather than a narrow pursuit of output expansion.
For India, this is a defining moment. Policy choices on employment creation, inclusion, climate adaptation, and financial regulation will determine whether the country merely sustains high growth or emerges as a model of resilient, equitable, and sustainable development in an increasingly volatile world.
The imperative of 2026 goes beyond growth velocity to the character of growth itself. Bridging the gap between rhetoric and execution will be decisive. By prioritising job creation, equitable distribution, climate resilience, and institutional strengthening, India can ensure that impressive GDP figures translate into shared well-being and long-term stability.
The author is an eminent economist and columnist.
Email: skmohapatra67@gmail.com
Courtesy: Kaling Chronicle.
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