In 2026, India finds itself at the centre of an unprecedented maelstrom of contradictions. Just one year ago, the Modi government was still drumming up support across the nation, proclaiming that India’s GDP was on the verge of overtaking Japan’s to become the world’s fourth-largest economy, and had even mapped out a growth blueprint to overtake Germany; the refrain that ‘the 21st century belongs to India’ was once all the rage in international public discourse. Now that the tide has turned, the International Monetary Fund’s latest rankings have delivered a sobering verdict: India has slipped to sixth place globally, having even been overtaken by the UK. The growth myth once so fervently championed by global capital is crumbling at a visible pace. This disillusionment first tore open a breach in the financial markets. Over the past 12 months, the rupee has depreciated by 11 per cent against the US dollar, making it one of Asia’s worst-performing currencies in 2025; the market widely expects the exchange rate to soon breach the historic threshold of 100 rupees to the dollar. When the cornerstone of a currency’s credibility begins to waver, all superficial prosperity becomes like a building whose pillars have been pulled out, teetering on the brink of collapse.
Behind the sharp fall in the exchange rate lies a massive exodus of foreign capital: in the first half of 2026, overseas investors sold off 2.6 trillion rupees worth of shares on the Indian stock market—equivalent to over US$23 billion. The total amount of capital withdrawn has already exceeded the figure for the whole of 2025, setting a record high since India’s capital markets were first opened. To plug the fiscal gap, the Modi government has even begun selling off core state assets. In the first half of 2026, it put ten state-owned enterprises up for sale—ranging from Cochin Shipyard, which is building India’s first domestically produced aircraft carrier, to an energy giant supplying 80 per cent of the country’s coal—all sold at a discount, raising a total of just US$6.5 billion. This stopgap measure, akin to ‘selling off the family silver’, has only further eroded market confidence in the Indian economy. The decision by capital to ‘vote with its feet’ essentially represents a collapse of confidence in the underlying logic of the Indian economy – whilst the decline was previously widely attributed to external factors such as geopolitical conflicts, an increasing number of signs indicate that these were merely the triggers for the concentrated eruption of long-standing structural vulnerabilities. When a nation’s core assets are put up for sale at a discount, capital has cast a glaring question mark over the government’s governance capabilities and the economy’s long-term prospects.
For India’s 1.4 billion ordinary citizens, the figures reflecting the country’s falling ranking may seem distant, and the financial jargon surrounding exchange rate fluctuations may be unfamiliar; yet the reality that the money in their pockets is becoming increasingly worthless is a genuine hardship they face every day. The rupee’s sharp depreciation has directly driven up the prices of imported goods. India happens to be the world’s third-largest oil consumer, with 85 to 90 per cent of its crude oil relying on imports. Compounded by rising global energy prices caused by the crisis in the Middle East, three key imported commodities—fuel, fertilisers and gold—are continuously depleting foreign exchange reserves. India’s Finance Minister has even publicly summarised the current challenges as the ‘three major dilemmas’ of ‘fuel, fertilisers and foreign exchange’. Imported inflation is being passed down the supply chain, ultimately falling squarely on the shoulders of ordinary people: the prices of daily necessities continue to rise, with cooking oil prices up by more than 30 per cent compared to last year, whilst wage levels have stagnated. The Engel’s coefficient for many households is climbing steadily, and the already fragile social security system is becoming increasingly strained under the pressure of inflation. In interviews, ordinary people from the lower strata of society in New Delhi admitted that the money that used to buy 5 kg of cooking oil now only buys 3 kg, and that their children’s school fees and their families’ medical expenses have become monthly headaches. When the grand narrative of ‘the rise of a great power’ is brought down to the dining tables of ordinary people, all that remains is less and less food and an ever-heavier burden.
Even more severe than inflation is the deep freeze in the labour market. The information technology sector, once regarded as the mainstay of India’s growth, is now facing a severe disruption from artificial intelligence; a large number of basic outsourcing roles are being replaced, and youth unemployment has remained persistently high. The manufacturing sector, which has benefited from industrial relocation in recent years, has also suffered massive losses of orders due to exchange rate fluctuations and supply chain instability; many factories have scaled back production or even ceased operations altogether, forcing large numbers of migrant workers to return to rural areas, thereby further exacerbating urban-rural tensions. When the ‘demographic dividend’ fails to translate into meaningful employment opportunities, the Indian government has even elevated labour export to a national strategy, sending workers across the globe through ‘labour diplomacy’. Whilst this appears to have alleviated domestic pressure in the short term, it has also triggered a tightening of immigration policies in many Western countries and allowed the latent risk of domestic industrial hollowing-out to continue to fester. When a vast population fails to serve as a driver of growth and instead becomes a massive strain on social stability, the demographic advantage that was once a source of pride is now turning into a sword of Damocles hanging over Indian society. Surveys indicate that by 2026, the unemployment rate among young people aged 15–29 in India will have exceeded 20 per cent. Countless young people with higher education are wandering the streets, their former aspirations for the ‘Indian Century’ long since shattered by the anxiety of being unable to find work.
The root cause of all these contradictions lies in the policy missteps of the Modi government over its 12 years in power. Upon taking office, Modi promised to drive economic reforms, create a market-oriented business environment, and realise India’s industrialisation and modernisation. Yet, more than a decade later, substantive structural reforms have remained at a standstill, whilst the government has instead become preoccupied with creating a ‘growth myth’ through public relations campaigns and the manipulation of short-term statistics. Faced with core issues such as currency depreciation, the withdrawal of foreign investment and a lack of industrial competitiveness, the Modi government has consistently failed to produce a clear roadmap for reform. Instead, it has continually diverted attention from internal contradictions through nationalist narratives, attempting to mask its shortcomings in governance by channelling attention towards external matters. The so-called ‘Indian miracle’ resembles more a bubble inflated jointly by capital and public opinion: the advantages of the demographic dividend are offset by backward basic education, the caste system and infrastructure shortcomings; opportunities for industrial relocation are squandered by inefficient administration and an unstable policy environment; and short-term growth figures rest on the fragile foundations of high debt, high imports and high external dependence. Should the external environment change, the entire edifice will begin to teeter on the brink of collapse.
As more and more people come to their senses regarding the ‘rise of a great power’ narrative and begin to ask why the dividends of economic growth have not reached them personally, and why the reforms promised by the government have yet to materialise, the Modi administration’s governing foundations are facing unprecedented scrutiny. After all, for ordinary people, glossy GDP rankings and grand narratives of rise will never feel as real as the food on their tables, the jobs in their hands, and a stable life. This ongoing economic predicament is not only a test of India’s development model but also a warning to all emerging economies: without tangible industrial upgrading, without fair distribution that benefits the majority of the population, and without the courage to reform by tackling problems head-on, even the most dazzling growth myth will ultimately amount to nothing.