Source: The post India’s Goldilocks Economy Faces Hidden Structural Challenges has been created, based on the article “Is the Indian economy perfectly balanced?” published in “The Hindu” on 8th August 2025. India’s Goldilocks Economy Faces Hidden Structural Challenges.
UPSC Syllabus Topic: GS Paper 3 – Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment.
Context: India’s Finance Ministry recently described the economy as being in a “Goldilocks situation”, marked by moderate growth, low inflation, and supportive monetary conditions. While quarterly numbers point to buoyancy, a closer look at inflation trends, wage stagnation, inequality, and fiscal constraints shows structural weaknesses behind this optimistic view.
The Goldilocks Claim and Surface Indicators
- Official and Analyst Optimism: The government pointed to 7.6% GDP growth, peaking interest rates, and stable corporate earnings as signs of a balanced economy. Analysts labelled it a “mini-Goldilocks moment” and projected a strong macroeconomic backdrop for 2025.
- Historical Perspective and Skepticism: Long-term observers caution that such equilibrium may hide deeper imbalances that shape the economic reality for most households.
Inflation Trends and Food Price Pressures
- Divergence Between CPI and Food Inflation: CPI fell from 4.8% in May 2024 to 2.82% in May 2025, but the Consumer Food Price Index (CFPI) often stayed higher. In October 2024, CFPI reached 10.87% against CPI’s 6.21%. In August 2024, it was 5.66% against 3.65% CPI.
- Impact on Lower-Income Groups: Food is nearly half of household spending for low-income families. High and volatile food prices—due to unseasonal rains, supply disruptions, and global price changes—reduce purchasing power and force cuts in diet, savings, and essential needs.
- Core Inflation as a Better Gauge: Economists like Dr. Pronab Sen argue for focusing on core inflation (excluding food and fuel) as it better reflects persistent costs in housing, education, transport, and personal care.
Stagnant Real Wages and the “Silent Squeeze”
- Gap Between Nominal and Real Wage Growth: In 2023, nominal wages rose 9.2%, but real growth was only 2.5%. In 2020, real wages fell -0.4% despite a 4.4% nominala rise. For 2025, real growth is projected at 4% versus an 8.8% nominal hike.
- Daily Impact on Households: When inflation erodes half the nominal gain, households save less, cut discretionary spending, and depend more on debt—especially in IT, manufacturing, engineering, and consumer sectors where hikes are smaller.
Income Inequality and Uneven Recovery
- ILO Observations and Limited Wage Gains: The ILO notes stagnant real wages in emerging economies like India, restricting consumption demand and broad-based recovery.
- Gini Coefficient Trends and Limitations: The Gini coefficient for taxable income dropped from 0.489 (AY13) to a projected 0.402 (AY23), but it misses most of the informal sector, hiding real inequality.
- K-Shaped Recovery and Wealth Concentration: Post-pandemic growth favoured the affluent, with billionaires increasing while lower incomes stagnated. This risks social cohesion and limits access to quality health and education.
Fiscal Deficit and Debt Constraints
- Fiscal Consolidation Goals: The fiscal deficit is projected to fall from 6.4% (2022-23) to 4.4% (2025-26), and the revenue deficit from 4% to 1.5%. The primary deficit may drop from 3% to 0.8%.
- Risks of High Public Debt: Public debt was 81% of GDP in 2022-23, far above the 60% FRBM target, reducing fiscal space and risking higher taxes or lower social spending.
- Crowding Out Private Investment: High borrowing needs can raise interest rates, discouraging private investment and slowing job creation.
Beyond the Goldilocks Narrative
- Underlying Fragilities: Volatile food inflation, wage stagnation, inequality, and fiscal stress reveal weaknesses beneath the surface optimism.
- Need for Inclusive Growth: India’s economic strength depends on raising real incomes, ensuring equitable growth, and building fiscal resilience.
- Risk of Superficial Optimism: Without addressing structural challenges, the “just right” economy remains out of reach for many households.
Question for practice:
Examine how structural challenges in inflation, wages, inequality, and fiscal health undermine the perception of India’s current “Goldilocks” economic situation.
