In a crisis, you are entering a chakra view. Now, if you don't know the exit route, then the economy gets stuck and you will create bigger problems than the problems you began to tackle.
If you just imagine the crisis which we have gone through, crisis after crisis, the kind of resilience which we have shown as we have shown together as a country. In the face of global volatility, India has displayed a remarkable resilience.
We are in the midst of another crisis with the impact of the war in the Gulf. In this background, I have chosen to speak on the theme turning turbulence into triumph, India's journey through crisis.
I propose to reflect on some of the crucial learnings from our experience, especially in the last few years, how we have navigated the multiple crises starting with the COVID-19. And I would like to therefore highlight some of the crucial learnings from our experience in the recent years and how it offers valuable insights for enhancing resilience in an increasingly volatile and fragmented world.
Today, the global economy is navigating a highly unsettled and charged environment marked by geopolitical fragmentation, shifting supply chains, and uneven regional growth.
Multilateral institutions such as the International Monetary Fund, that's the IMF, have repeatedly warned that the balance of risks to global growth outlook remain decisively skewed to the downside.
These vulnerabilities are further intensified by the prospect of tightening financial conditions as elevated public debt and widening fiscal deficits constrain policy space in several major economies. In fact, they carry the potential for future financial shocks.
In the face of global volatility, India has displayed a remarkable resilience with its real GDP growing by 7.6% in the financial year we just concluded, that is financial year 25-26.
I would like to stress that India's resilience does not alone explain the full story.
In the last 5 years since COVID-19, India did not just endure the period of turbulence, it transformed through it. The country witnessed deep digitalization across sectors, efficiency gains in government systems, and unprecedented expansion in infrastructure.
From 2021-22 to 25-26, India has recorded an average annual real GDP growth of 7.8%, reflecting economic resilience and resurgence.
The question that merits an answer at this stage is what are the key factors behind this growth story of the Indian economy. Let me elaborate.
First, macroeconomic stability. India has maintained strong growth, unwavering management of inflation, and large foreign exchange reserves making it well equipped to absorb global shocks.
Second, and I'm going to highlight 10 points, so I need your patience. First was the macroeconomic stability. Second, policy stability. Stable governance and broad policy focus on growth and reforms have given confidence to investors and businesses.
Third, infrastructure-led development. Sustained public investment in roads, ports, railways, energy, and digital systems has strengthened supply chains and reduced structural bottlenecks.
Fourth, strong domestic demand. With a median age of 29 years and a rapidly urbanizing population, India's consumption base provides a natural buffer unavailable to many export-dependent peers.
India's consumer spending accounts for over 55% of its GDP.
Fifth, monetary policy credibility, an issue which is very close to my heart. The Reserve Bank's inflation targeting framework allows policy rate to respond flexibly.
Cutting repo rates, that is interest rates, what you call in the popular parlance, but cutting repo rates when growth is threatened and tightening the repo rates when inflation surges. And all this is done with big emphasis on not sacrificing long-term market confidence and growth.
The GDP growth of 7.1% in 24-25 bears testimony to this and in fact completely demolishes the narrative in certain quarters at that time that the Reserve Bank's monetary policy has resulted in growth slowdown.
Continuity in this flexible monetary policy framework for the next 5 years, that is till 2031, reaffirms the commitment to price stability while keeping in mind the objective of growth.
Now, many people often have asked me, 'Why is inflation management so important?' You see, inflation, if it remains at a stable level, it gives big confidence to investors as well as markets. And inflation, many economists have described inflation as a tax on the poor because the biggest sufferers if inflation is high are the poor people.
And one more thing which is very important is that a low inflation would mean increasing the spending power, the real money in the hands of the consumer. And therefore, inflation control is in the overall interest of the economy, in the interest of industry, in the interest of investors, and above all in the interest of the people.
Sixth, digital public infrastructure. UPI, about which already mention has been made by the honorable minister, UPI, Aadhaar, ONDC, and progressive formalization of the economy through multiple measures like the introduction of the GST have expanded financial inclusion and improved fiscal revenue and monetary policy transmission.
Thus, each crisis in recent years has become a catalyst for structural deepening.
Seventh, fiscal discipline. Despite extraordinary spending pressures, especially during the COVID-19 pandemic, India has adhered to a credible path of fiscal consolidation.
A credible fiscal framework is not just an accounting exercise. It is the bedrock of national resilience. A defining feature of this fiscal consolidation in India has been the marked improvement in the quality of our public expenditure with sharp rise in the share of capital expenditure within the total spending of the government.
Eighth, resilient financial system. The banking and the NBFC, that is non-banking financial companies sector, emerged stronger in the aftermath of the pandemic than when the pandemic began. Thanks to the efforts of the regulator and other stakeholders.
Ninth, young and enterprising demography. Young and skilled demographic profile of India is a powerful economic advantage driven by large working age population, rising educational attainment, and expanding digital capabilities. Coupled with enterprising energy, this workforce will continue to boost productivity, innovation, and inclusive growth in the years to come.
10th, and that is the last, there's a final point, geopolitical positioning. India's strategic autonomy and diversified partnerships reduce overdependence on any single country or group of countries. We take decisions in our best national interest.
Now, these features of the Indian economy enable us to face recurring global shocks as we have seen in the last few years. These features also enable the economy to emerge even stronger after each crisis.
You see, it is often not recognized, and it has to be recognized rather, let me put it positively. If you just imagine the crisis which we have gone through, crisis after crisis, and compare where we stand today, where our economy stands today with large number of other countries, I think that demonstrates the kind of resilience which we have shown as we have shown together as a country.
You know, the credit for this goes to the people of India, the Indian business, and of course to the government of India.
Now, the nimble yet prudent responses of our policy makers have helped us in managing all these crises one after the other so well. What was unique about India, and this is very important, what was unique about India throughout this period of multiple crises was that fiscal and monetary expansion were followed by timely rollback of such expansion. Thus, froth was not allowed to accumulate or overrun the system.
You know, in any crisis we have seen across the world, the fiscal authorities, that is the governments, the finance ministries across various economies, or the central banks, they immediately come out with large number of stimulus measures. If it's the central bank, it comes out with interest rate reductions, pumping liquidity in the system. Now, all that is very easy, but to withdraw that is the real challenge.
It's like the Chakra View. In a crisis, you are entering a Chakra View. Now, if you don't know the exit route, then the economy gets stuck and you will create bigger problems than the problems you began to tackle.
So, therefore, I think in India, what was unique was that the fiscal expansion, the stimulus measures which government provided were targeted and they were also gradually withdrawn. And similarly, with regard to the monetary policy, the liquidity that the RBI injected or the rate reductions that the RBI did, all these expansionary measures were announced with a certain sunset date, with a closing date that this facility is available for this particular time. And therefore, it automatically it was rolled back.
Now, the Reserve Bank took during the pandemic more than 100 measures to mitigate impact, but almost each of these measures were for a limited period and was rolled back in time. As I said, in parallel, there was several initiatives from the government relating to health, supply chain augmentation, fiscal support and other such measures which were timely and well targeted.
Again, after the sharp increase in inflation following the Russia-Ukraine conflict, the Reserve Bank raised interest rates by 250 basis points to tame inflation, the benefits of which we are reaping now in terms of low inflation, even though several large economies even now are facing stubborn inflation.
Now, added to all these features which I have just narrated, the nine points and the way I have elaborated, added to these features which I just highlighted, India's resilience and sustained growth is also a result of several painstaking structural reforms. These reforms have been proactive and forward-looking.
We have undertaken structural reforms such as the implementation of the inflation targeting framework, the goods and services tax, GST, the insolvency and bankruptcy code, the recapitalization of public sector banks, RERA, India's digital stack and several other such measures. The details of these reforms are well known and there is perhaps no need for me to elaborate on their content and outcome.
When we talk about India's resilience, we cannot leave out the underlying theme of our policy approach, namely self-reliance or Atmanirbharta.
Over the years and across the world, firms have sometimes optimized efficiency through single-source supply chains. Some countries have even optimized growth through hyper-globalization. But in today's world of geo-economic fragmentation and supply chain disruption, the world of corner solution, I repeat, the world of corner solution is perhaps becoming less efficient.
