India's Economy Shows Momentum Amid Post-COVID Recovery and Job Market Challenges

A range of high-frequency indicators show India’s economy is gaining momentum, World Bank Executive Director Neelkanth Mishra said on Friday, pushing back against skepticism over whether strong headline growth reflects conditions on the ground.

India remains the world’s fastest-growing major economy, having surpassed estimates to expand 7.8% in the April-June quarter from a year earlier, figures this week showed. That was still slower than the upwardly revised 8.6% pace in the preceding three months.

The data have intensified scrutiny of the country’s revamped national accounts series and revisions to earlier growth estimates. The opposition Congress party has questioned the numbers, with senior leader Jairam Ramesh describing the changes as “statistical gymnastics.”

“The fact that people don’t feel that the economy is robust is because there is still slack in the economy,” Mishra told Bloomberg TV’s Haslinda Amin and Menaka Doshi in an interview. “The post-COVID recovery is not complete yet. But that does not mean that the growth numbers are not high.”

Mishra pointed to indicators outside official government data, including vehicle sales, cement volumes and credit demand, which he said were “actually doing very well.”

Corporate earnings are also improving and there is “adequate evidence” that capital expenditure is picking up, he said.

Data this week showed India’s gross fixed capital formation, a proxy for government and industry spending, surged to an all-time high in the June quarter. Separately, India’s gross foreign direct investment climbed to a 15-year-high during the period.

The government has defended the GDP figures. The Ministry of Statistics and Programme Implementation said revisions to estimates for the April June quarter of 2025 reflected successive methodological and data updates and weren’t intended to lower the comparison base and make the latest growth rate appear stronger.

Mishra said that India remains below the growth path it was on before the pandemic, leaving considerable spare capacity even after the subsequent rebound. That matters more for India than for economies such as China, Japan and parts of Europe because its workforce is still expanding, he said.

“You need several years of above-trend growth for that slack to close,” Mishra said, which helps explain why real wages remain weak despite strong headline growth. But that doesn’t mean jobs aren’t being created, he added.

A weak labour market has become a major challenge for Prime Minister Narendra Modi’s government. The country needs to generate enough productive, well-paying jobs for millions of people entering the workforce each year if its young population is to deliver the demographic dividend policymakers are counting on.

Frustration over jobs and recruitment exams has spilled into youth-led protests in the recent months.

Asked if the current rate of growth is sustainable over the next few years, Mishra expressed optimism, while adding that the country will require “continuous” reforms.

Such strength could also complicate the outlook for monetary policy. If stronger activity fuels more persistent price pressures, the Reserve Bank may need to respond. The RBI, which next meets in October, has signalled it is prepared to raise interest rates for the first time in nearly four years if inflation becomes broad-based.

Mishra, however, doesn’t believe the RBI will need to act yet. He also doesn’t think Indian policymakers would follow the US Federal Reserve if it pushed borrowing costs higher later this month.