Despite historic uncertainty, global growth proved resilient in 2025. The critical question is whether this momentum can continue amid shifts in technology, trade, and policy.US GDP growth masks slowing job creation. China showed strength through record current account surpluses as global trade patterns shifted rapidly. Yet its domestic economy struggles with real estate distress and weak consumer spending. As inflation eased worldwide, nine of the 10 central banks managing the most traded currencies reduced rates, making 2025 the year of the most aggressive monetary easing since 2009. Still, high debt levels and fiscal pressures remain significant concerns.AdvertisementMarkets have raced ahead of fundamentals, fueled by AI enthusiasm and a weaker dollar, raising overvaluation concerns. While AI’s employment impact may be limited for now, its transformative potential is undeniable. The Nobel Prize in Economics reminded us that innovation alone cannot explain growth. Three prerequisites matter: Useful knowledge combining prescriptive instructions and scientific understanding, skilled professionals and societal openness to change.Global growth and trade reconfiguration should continue through 2026 and beyond, characterised more by reallocation than recession, yet remaining underwhelming compared to pre-pandemic standards. India presents a more encouraging picture, in a “Goldilocks” phase, as the RBI Governor described. By December 2025, the RBI had reduced the repo rate by a cumulative 125 basis points to 5.25 per cent and complemented this with liquidity support and regulatory easing. Bank balance sheets strengthened further, with gross non-performing assets expected to bottom out at 2.3-2.5 per cent by March 2026. The Centre continued fiscal consolidation, while implementing the first National Monetisation Pipeline. S&P’s rating upgrade validated this progress, acknowledging policymakers’ commitment to macroeconomic and financial stability, signalling that markets were taking note.Despite global uncertainty, India’s external situation remains comfortable. The services sector has served as a shock absorber, while the rupee has become more market-determined. Even as certain sectors face challenges, the overall current account deficit remains manageable. Yet risks persist. Overall output level remains more than 3 per cent below pre-pandemic trends, as declining underlying inflation indicates.AdvertisementSovereign debt ratios remain elevated, driven partly by the growing practice of competitive pre-election transfers. FDI inflows fall short of potential, and portfolio flows remain volatile. Capacity utilisation remains only modestly above long-term averages, suggesting that firms remain cautious. Despite remarkable progress in domestic production and exports of electronics, and encouraging signs like Google’s AI centre investment, a broad private capital expenditure cycle is yet to materialise.Achieving high-income status would require sustaining 8 per cent real growth for two decades in a sustainable, employment-generating manner. The central question is: Who will finance the next phase of growth, and what form that will take? Household financial savings have softened as higher borrowing for housing and consumption has offset weaker precautionary savings. Meanwhile, corporations have continued to deleverage rather than embark on aggressive capacity expansion.Important reforms are underway. Labour codes have been streamlined. Infrastructure investment continues at an impressive pace, with strides in reducing cargo release times and improving logistics. A quiet data revolution is occurring, with increased speed and frequency of data releases, combined with a fundamental change in governance philosophy.Policy credibility, regulatory predictability, and confidence in future demand matter as much as interest rates or incentives. Without addressing these softer constraints, even well-designed incentives risk falling short of delivering sustained private investment and jobs. Structural challenges persist in health, education, and urban development. India ranks as the world’s third most polluted country. The economic costs are well documented, yet clean air hasn’t become a major political priority. The parallel with electricity access is instructive: Initially affordable only to the wealthy, it eventually became a voters’ demand. What would it take for clean air to follow a similar trajectory?The tragic Ahmedabad air crash and the recent IndiGo meltdown raise deeper structural questions about India’s economic strategy. The aviation sector exemplifies three fundamental challenges: The balance between public and private ownership, optimal market concentration versus competition, and specialisation versus diversification.Regional disparities present another challenge. Bihar exemplifies this starkly. Home to 9 per cent of India’s population, the state contributes less than 2 per cent to the national GDP. Yet Bihar has made progress, with economic output more than tripling over two decades, driven by services and high-value agriculture. With over 60 per cent of its population under the age of 25, Bihar possesses structural advantages that are waiting to be optimally exploited: Low-cost labour, fertile soil, and rich heritage.The deeper challenge lies in the technology-demography interactions. As a labour-abundant country with an expanding working-age population, basic economics suggests emphasising labour-intensive production. Yet paradoxically, India increasingly adopts capital-intensive technologies, both for domestic production and exports. We must adapt technologies to our context.India’s greatest gains may lie not in competing at the frontier but in deploying AI across agriculture, logistics, health, and public services. India’s research spending is modest at around 0.65 per cent of GDP. Patent applications reveal another gap: 70,000 in India versus 1.6 million in China. Most successful growth episodes, however, did not feature frontier technology. They relied on scaling up existing technologies through skills, firm capabilities, and institutions.We must also find greater market access for Indian goods and services. A slew of FTAs is creating an enabling framework that must be supplemented by other enabling measures for MSMEs and other sectors.most readSustained prosperity requires more than innovations. It demands institutional frameworks to harness creative destruction while protecting those it displaces. This means adapting technology to local conditions, prioritising labour-absorbing sectors, financing expansion through long-term capital, and building institutions that protect workers without freezing economic change.In the two centuries since the Industrial Revolution, growth transformed living standards by embracing creative destruction. Sustaining this transformation would require managing its social consequences with equal seriousness. For India, the challenge is balancing ambitions of rapid growth while managing its disruptions. Growth, technology, and labour market institutions must move together if resilience is to translate into durable, broad-based prosperity.Mishra is professor of economics, Ashoka University and Director and Head of Ashoka Isaac Center for Public Policy. She thanks Vijay Singh Chauhan and Shohan Mukherjee for their contributions