Economic Advisory Council to the Prime Minister (EAC-PM) Chairman S Mahendra Dev emphasized that India must avoid the middle-income trap while building on its achievements to create a prosperous and inclusive economy. Speaking at the 104th SKOCH Summit on Saturday, January 10, Dev outlined the country's progress and key challenges ahead.

Reform Achievements and Economic Strengths

Dev highlighted India's comprehensive reform agenda, including GST reforms, RERA, IBC, 100% FDI in insurance, private participation in nuclear energy, quality control orders, and ease-of-doing-business initiatives. He identified political stability, macroeconomic stability, and a large domestic market as India's key strengths.

"India has progressed on many fronts. With the right allocation of resources across sectors, strong reforms, and efficiency-led growth, India can significantly increase its global economic share," Dev stated.

Structural Transformation Challenges

The EAC-PM Chairman emphasized that structural transformation remains crucial for India's economic development. He highlighted significant imbalances in the current economic structure:

"Increasing manufacturing and services is essential," Dev noted, pointing to the need for better alignment between employment distribution and economic contribution.

Investment and Growth Requirements

Dev stressed the critical importance of reviving private investment to achieve India's growth targets. He noted that private investment's share has declined in recent years, creating challenges for reaching optimal investment rates.

"Government investment through budgets and capital formation is important, but private capital must increase significantly. Without its revival, we cannot reach an investment rate of 35-38%," he explained.

Global Challenges and Strategic Response

The Chairman acknowledged global headwinds including geopolitical tensions, rising protectionism through tariffs, and weakening multilateral institutions such as the WTO. The Government of India is addressing these challenges through a comprehensive four-fold approach:

• Supporting affected industries and MSMEs
• Diversifying export markets
• Accelerating free trade agreements
• Continuing dialogue with major partners like the US

Dev provided specific examples of export diversification, noting that seafood exports from Andhra Pradesh are being redirected to Australia, while free trade agreements are being fast-tracked.

Domestic Market Focus

Emphasizing the domestic economy's importance, Dev noted that exports account for only about 20% of India's GDP, while 80% depends on the domestic market. "Policies must therefore focus on capital, efficiency, and productivity within the domestic market," he stated.

The middle-income trap, as explained by Dev, refers to a situation where a country's economic growth stagnates after becoming a middle-income nation, unable to make the leap to high-income status, as seen in Latin America. India's strategy to avoid this trap centers on sustained structural reforms, increased private investment, and maintaining growth momentum through both domestic market strengthening and strategic international engagement.

Prime Minister's Economic Advisory Council Chairman S Mahendra Dev has projected that India's favorable economic momentum will continue through the next two years, with growth expected to remain robust at 6.5-7% in FY27. Speaking to Moneycontrol, Dev indicated that the impact of US tariffs on India's economy has been significantly lower than initially anticipated, supporting the positive outlook.

Economic Growth Projections

The Chairman outlined key factors supporting sustained economic growth in the coming years:

According to the statistics ministry's first advance estimate released recently, India's economy is projected to grow 7.40% in FY26. The sustained growth trajectory is expected to be driven by high domestic consumption and continued government focus on public capital expenditure.

'Goldilocks' Phase to Continue

Dev expects India's 'Goldilocks' economic phase—characterized by high growth and low inflation—to persist for the next two years. "Next financial year, CPI inflation could be about 4%, which is not too high given low base, even as growth remains stable," he stated. This balanced economic environment provides an optimal backdrop for sustained development.

Currency and Investment Outlook

Despite the rupee's challenging performance in 2025, where it emerged as Asia's worst-performing currency against the dollar with a 5-6% decline and touching a record low of ₹91.08, the outlook for 2026 appears more optimistic:

• Expected increase in Foreign Direct Investment (FDI) inflows
• Anticipated rise in Foreign Portfolio Investment (FPI)
• Potential rupee appreciation driven by improved capital flows

Corporate Investment Revival

The private sector shows encouraging signs of investment revival. Corporate investment announcements between April and September reached a decade high of ₹15.10 lakh crore. This momentum is exemplified by major announcements such as Google's plan to establish AI data centres in Andhra Pradesh with an investment of $15.00 billion.

Export Performance and Diversification

India's export sector demonstrates resilience through strategic diversification:

Dev highlighted that India's entry into Free Trade Agreements (FTAs) with various partners has contributed to export diversification, enhancing overall export resilience. "Our exporters have diversified to other countries, and due to which our goods exports in April-November are higher than last year in the backdrop of global uncertainty surrounding trade," he noted.

The Chairman expects continued investment from global corporates in the upcoming fiscal year, particularly in technology and banking sectors, supported by favorable government policies. The combination of export growth diversification and increased corporate investment is expected to contribute positively to GDP growth in the coming years.