India’s Economic Equilibrium: Cracks in the Goldilocks Growth Story

India’s Goldilocks Economy Challenges Latest News

• India’s Finance Ministry recently hailed the economy’s “Goldilocks situation” — moderate growth, low inflation, and favourable monetary conditions — with analysts noting strong 7.6% GDP growth, peak interest rates, and steady corporate earnings. 
• The country ended FY2024 as a $3.6 trillion economy, signalling optimism for 2025. 
• However, seasoned economists caution that this rosy picture masks deeper structural imbalances, making the golden equilibrium more fragile than it appears.

Inflation and Stagnant Wage Growth: The Cracks in the “Goldilocks” Narrative

• While headline CPI inflation eased from 4.8% in May 2024 to 2.82% by May 2025, food inflation told a harsher story. 
• The Consumer Food Price Index (CFPI) often outpaced general inflation, peaking at 10.87% in October 2024 against CPI’s 6.21%. 
• Even in moderate months, the gap persisted, disproportionately hurting lower-income households, for whom food constitutes nearly half the consumption basket. 
• This volatility, driven by weather disruptions, supply chain issues, and global commodity swings, eroded real incomes and destabilised household budgets, undermining the perception of price stability.

Erosion of Real Wages

• The wage data further challenges the “Goldilocks” image. In 2023, an average nominal salary hike of 9.2% translated to only 2.5% real wage growth. 
• In 2020, real wages even turned negative (-0.4%) despite nominal growth of 4.4%. 
• For 2025, projected real wage growth of 4% against an 8.8% nominal rise means inflation still halves the gain. 
• This persistent erosion squeezes household savings, curtails discretionary spending, and increases debt dependence — particularly in sectors with modest pay hikes like IT services, manufacturing, engineering, and consumer industries.

The Silent Squeeze on Households

• A salary hike loses its promise when inflation eats away its value — a 9% raise feels like just 2% in purchasing power if prices rise 7%. 
• For many families, this silent squeeze means compromising on quality of life, reducing essential and discretionary consumption, and struggling with financial uncertainty, exposing the fragility beneath India’s supposed macroeconomic equilibrium.

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Income Inequality and Fiscal Pressures: Questioning the “Goldilocks” Claim

• India’s headline GDP growth masks deep-seated structural issues of inequality and fiscal strain. 
• While the Gini coefficient for taxable income has declined from 0.489 in AY13 to a projected 0.402 in AY23, this improvement is limited to the formal sector and excludes the vast informal workforce. 
• The post-pandemic recovery has been K-shaped, benefiting affluent segments and specific industries, while real wages for low-income groups have stagnated. 
• This persistent disparity risks weakening social cohesion, restricting access to quality education and healthcare, and constraining long-term inclusive growth.
• On the fiscal front, the government is committed to reducing the fiscal deficit from 6.4% in 2022-23 to 4.4% in 2025-26, with similar declines in revenue and primary deficits. 
• However, these deficits remain high, necessitating large-scale borrowing that could crowd out private investment, slow job creation, and curb economic expansion. 
  • With public debt-to-GDP at around 81%—well above the FRBM target of 60%—a significant share of future revenues will be consumed by debt servicing, limiting funds for social sector spending and potentially leading to higher taxes. 
• Together, entrenched inequality and fiscal vulnerabilities challenge the sustainability of India’s so-called “Goldilocks” economy.

Beyond the “Goldilocks” Illusion: India’s Underlying Economic Fragilities

• India’s so-called “Goldilocks” economy—marked by strong GDP growth, low inflation, and stable macro indicators—conceals deeper structural weaknesses. 
• Volatile food inflation, stagnant real wages, persistent income inequality, and constrained fiscal space undermine the perception of a universally shared macroeconomic sweet spot. 
• While headline numbers project stability, the benefits of growth remain concentrated among a select few, leaving large sections of the population struggling with eroded purchasing power and limited economic opportunity. 
• True equilibrium lies not in surface-level metrics but in inclusive growth that boosts real incomes, narrows inequality, and strengthens fiscal resilience. 
• Without addressing these systemic challenges, the notion of a “just right” economy risks remaining an illusion for millions of Indians.

Source: TH