I'm referring here to India's big thrust on infrastructure spending and structural reforms over the last decade or so. Kautilya also emphasized that a state must build its treasury, that is the kosha, without passing on catastrophic debts to its future generations. India's policy emphasis on fiscal consolidation and sustainable debt may be seen in this context.
There are indeed many more learnings from Kautilya's thoughts, thoughts which are very relevant for the current global economy characterized as it is by wars, fragmentations, unilateralism, technological blockades, energy price volatility and rising inflation. The interplay of these forces is creating uncertainty across the world and would perhaps stifle global growth. What is likely to follow is restrictive monetary policies from central banks. Even more critical is the exceptionally high public debt levels in many advanced economies, averaging close to 110% of their GDP, and resulting in rising bond yields, lower fiscal space, and the ability of the countries to counter current and future shocks.
Despite such a global environment, India's real GDP grew by an impressive 7.8% in the first quarter of the current financial year, with strong domestic demand and investment conditions. This quarterly growth has come on top of 7.9% average annual GDP growth recorded during the post-COVID period of five years, that is from 2021-22 to 2025-26.
In fact, as pointed out by my former colleague in the Reserve Bank of India, Dr. Michael Patra, who I am happy to note is present here, if the period from July-September 2025-26 to April-June 2026-27 is taken into account, real GDP growth in India just exceeds 8%.
This resonates with my statement to Financial Times, London, a few months ago that India is within striking distance of 8% growth. Now, what are the factors behind the resilience of the Indian economy? Kautilya had emphasized that a ruler's foremost responsibility was to anticipate risks, safeguard the state against internal and external threats, and establish institutions capable of preventing and mitigating calamities. A distinguishing feature of India's development journey in the last 12 years has been the gradual creation of governance foundations before the crisis actually emerged. Many of the reforms undertaken over the past decade were not designed as one-off measures but as specific buffers to enable the economy to absorb disruptions and recover rapidly. I would put the flexible inflation targeting, introduction of the goods and services tax, the big push for digital payments, and the banking reforms, among others, in this category. Thus, India's resilience is not accidental. It is the outcome of broad and mutually reinforcing reforms. I would like to highlight three major components of this broad-based approach. First, strengthening governance and state capacity.
Governments derive credibility from the outcomes of their actions. In the Arthashastra, Kautilya argues that a ruler's interests are inseparable from those of the citizens. Over the past decade, improvements in public infrastructure, sanitation, financial inclusion, housing, household electrification, digital services, and welfare delivery have contributed to stronger citizen-state engagement. When citizens experience tangible improvements in their lives, confidence in institutions increases. This confidence becomes a critical resource for governments seeking to undertake difficult reforms. One of the clearest examples of proactive institution building has been India's digital public infrastructure, or what is otherwise known as the India Stack.
The JAM trinity, consisting of Jan Dhan bank accounts, Aadhaar, and mobile connectivity, was established well before the COVID-19 pandemic, and when the need arose, it enabled rapid transfer of financial benefits to millions of citizens affected by COVID. Digital governance has reduced information asymmetries, streamlined administrative processes, and enhanced accountability. Illustratively, direct benefit transfers have significantly reduced leakages in welfare programs, with estimated savings of around ₹5.1 lakh crore.
A significant dimension of India's recent development journey has been its success in extending the reach of governance, economic opportunity, and public services to certain regions that had long remained on the margins of growth due to left-wing extremism and terrorism. Success in overcoming these problems, which had become sticky, resonates with Kautilya's emphasis on danda, that is, the authority of the state to maintain law, order, and discipline.
The second major initiative for strengthening India's resilience has been building macroeconomic stability. If you recall, I pointed out that I would like to highlight three major themes as factors behind the resilience of the Indian economy. The first one I have highlighted is strengthening governance and state capacity. I move on to the second major initiative, which is building macroeconomic stability. Now, this is built upon five distinct pillars. First, inflation targeting and monetary policy credibility. The adoption of the flexible inflation targeting framework since 2016 enabled India to navigate through the successive shocks of COVID, the war in Ukraine, and the current conflicts in West Asia. Flexible inflation targeting has provided, has in fact created or provided the bedrock for India's high and sustained growth.
The second component is fiscal prudence and quality of expenditure. In fiscal policy, the government has shown sustained commitment to fiscal consolidation and reduction of fiscal deficit without compromising on gross capital expenditure. A roadmap for reduction in government debt-GDP ratio to 50% by March 2031 has also been announced.
The third component of the macroeconomic stability, which is the main theme I mentioned, is tax reforms and market integration. The introduction of the goods and services tax in 2017 created an integrated national market, removed cascading burden of taxes, expanded the tax base and compliance, and led to greater formalization of the economy. Reforms in income tax have improved competitiveness of firms and reduced tax burdens on middle classes. The results have been telling.
The fourth component is restoration of the health and stability of the financial sector. In fact, restoration of the health of the financial sector, I would like to say, has been the defining feature of India's resilience in the recent years. India's financial sector has emerged as a strong pillar of economic growth, supported by reforms such as the Insolvency and Bankruptcy Code, bank recapitalization, and constructive regulatory oversight. Gross non-performing assets have fallen sharply to 1.68% in June 2026, while bank profitability has improved significantly.
Finally, prudent management of the external sector has also supported India's efforts towards macroeconomic stability. India's external sector indicators have remained broadly resilient due to a mix of factors like the ongoing diversification of exports, conclusion of free trade agreements, sustained surplus in services trade, and steady inward remittances. Current account deficit for 2025-26 remained well within manageable levels at 0.6% of GDP. Other key external sector vulnerability indicators have also remained well contained.
The third major initiative — I said I'll mention three major initiatives — the third major initiative in building India's resilience is investment in long-term productive capacity. This is built upon again three major building blocks. First, infrastructure and logistics transformation through large-scale investment and coordinated transport planning. The Gati Shakti, that is the Gati Shakti India, has expanded physical and digital connectivity, logistics efficiency, and access to national services. Initiatives such as the National Logistics Policy, the Sagarmala, the Jal Jeevan Mission, and Udan exemplify a governance model that is citizen-centric and integrates planning, execution, and monitoring across sectors. The result has been lower economic frictions, greater competitiveness, enhanced market integration, and a stronger foundation for investment growth. No wonder India's rank in the World Bank Logistics Performance Index improved from 54 in 2014 to 38 in 2023. India aims to enter the top 25 by 2030.
India has also developed a diverse range of energy sources from fossil fuels. And this is the second component I wanted to mention in the context of what I said, the third major initiative which contributed to enhancement of India's long-term productive capacity. India has developed a diverse range of energy sources from fossil fuels, renewables, biofuels, and nuclear energy. City gas distribution has expanded to 700 cities. Piped cooking gas has reached 1.75 crore households, and solar energy capacity has surged to 165 gigawatt. India has emerged as the third largest country in renewable energy capacity. Reliability of energy supply has also improved significantly.
Under the Prime Minister Surya Ghar Muft Bijli Yojana, more than 50 lakh households now have rooftop solar installation. Household power bills have been reduced to zero, or many households have been able to generate additional income through sale of surplus power. India is now better positioned to withstand external energy shocks.
Finally, the third component is manufacturing and industrial development. Flagship schemes such as the Production Linked Incentive scheme, the PM MITRA, and Skill India are accelerating capacity building and strengthening India's manufacturing ecosystem. We are now witnessing a manufacturing resurgence in India. Illustratively, India has become the second largest mobile phone manufacturer globally. Semiconductors have also made a big entry into India's manufacturing space. Investments in automation, robotics, and Industry 4.0 technologies are also adding to the robustness of this system.
India now stands at a pivotal moment in its development journey. I repeat, India now stands at a pivotal moment in its development journey. A leap to Viksit Bharat 2047 is very much in the realm of realization. The journey ahead is focused on capitalizing on emerging opportunities. I propose to highlight five major areas where the pace of activity will get significantly enhanced in the coming years.
First, harnessing the AI revolution. Artificial intelligence represents perhaps the single most transformative technological development of this century so far. As a general-purpose technology, AI has immense potential to enhance productivity, improve public service delivery, accelerate scientific discovery, strengthen healthcare outcomes, and transform education. India's AI strategy rests on two complementary pillars. First, building sovereign AI capabilities through investments in indigenous foundation models, high-performance computing infrastructure, semiconductor development, and a robust innovation ecosystem. The AI Mission, the AI Kosha, and the India Semiconductor Mission are laying the foundations for long-term technological competitiveness.
Second, India is pursuing the vision of AI for all. Initiatives such as Bhashini seek to bridge linguistic barriers, while India AI FutureSkills aim to democratize access to AI capabilities. Attention is also focused on critical issues relating to concentration of technological power, data governance, cyber security, algorithmic bias, and AI safety.
The second major component of the way forward is deepening India's financial sector. As India's economic weight expands, the financial architecture must deepen commensurately. While India's financial ecosystem has evolved significantly, the next phase of growth will require strengthening of long-term finance and patient capital. This underscores the need to further deepen corporate bond markets, pension and insurance funds, municipal finance, innovative infrastructure financing, and a market for green and transition finance.
The third component is promoting strategic atmanirbharta, or self-reliance. Now, atmanirbharta does not imply isolation; rather, it stands for building stronger domestic capabilities while remaining integrated with global markets and concluding more free trade agreements. Efforts are now focused on enhancing our presence in the global supply chains, strategic manufacturing, defense production, and domestic development of critical technologies.
The fourth component is sustainable development and climate leadership. India's rise must also be environmentally sustainable. We have made notable progress in renewable energy development and climate commitments. The next phase of growth will be driven by initiatives such as the National Green Hydrogen Mission, electric mobility, energy-efficient infrastructure, sustainable agriculture, and circular economy practices.
The fifth component is investing in human capital. India has made substantial progress in expanding access to health and education. Over the last 12 years, the number of universities increased from fewer than 350, that is from less than 350, to nearly 1,000, and medical colleges from less than 400 to another 850. The next stage of development will enhance emphasis on learning outcomes, healthcare delivery, preventive care, research, and workforce skills.
Let me now conclude. If we pause for a moment and reflect upon India's story of resilience and its forward-looking strategy, what comes out clearly is a resonance with Kautilya's thoughts and advocacy. As we advance towards the vision of Viksit Bharat, sustaining the reform momentum will be very critical. Kautilya had explained long ago, and I quote: 'Which is preferable, an immediate small gain or a large gain in the future? A large gain in the future is preferable if it is like a seed yielding fruit in the future.' India's strategy is no longer to simply grow rapidly. It is to grow sustainably and resiliently over the long term. Thank you very much. Namaskar.
