At the moment, it seems as if India’s economic troubles have eased. Crude prices have moderated, foreign investments are trickling in, markets have stabilised and the pressure on the rupee has subsided. But it would be a mistake to ignore the pain points. From recent IPO announcements to trade data, from iPhone sales to cash transfers — all point towards the infirmities and the structural fault lines in the economy.
Over the past few days, two mega IPOs have been announced – Reliance Jio and NSE. Both these companies are in the services sector. This is not exceptional. Seven of the 10 largest recent IPOs have been from firms in financial, retail or other services segments. These include LIC, Paytm, Tata Capital, Zomato and Vishal Mega Mart. The exceptions, engaged in manufacturing, are Hyundai and LG Electronics. Notably, both are foreign firms. This isn’t an encouraging trend. But one that is reinforced by FDI data.
In 2025-26, the sectors that attracted the largest share of FDI equity inflows were services, computer software and hardware, trading and construction. The few manufacturing segments that did receive sizeable flows were non-conventional energy and automobiles. All this suggests that not only are more firms in the services sector raising larger amounts from the domestic markets, but foreign investment is also flowing more to these segments. In the trade data as well, the divergence is deepening.
Manufacturing exports are struggling. Between 2021-22 and 2025-26, goods exports grew by under 5 per cent. Total growth, not per annum. With imports galloping by 26.5 per cent, the merchandise trade deficit has widened from $191 billion to $333 billion over the period. Excluding oil, the deficit works out to $213 billion. China accounts for half of this, despite continuing policy ambiguity over the trade and investment relationship with Beijing.
Services exports have fared much better and now account for almost half of the country’s trade. In fact, if you exclude oil, the services trade surplus offsets the goods deficit. But IT exports are now at risk with rapid advancements in AI. Some have argued that when the AI cycle shifts from development to deployment there will be opportunities for Indian firms. But will that really be the case?
Nervous investors are pointing to Anthropic’s numbers for clues on how this may unfold. In the April-June quarter, its revenues, which are more skewed towards enterprise customers, are expected to touch $10.9 billion. Its annualised revenue (run rate) has been estimated to exceed $45 billion this year. This is stunning growth. Add to this the numbers for OpenAI and Gemini, and, as some have argued, the large scale deployment of AI is already underway. It is, therefore, reasonable for investors to ask: To what extent will Indian IT firms be needed for implementation and operational support? And if more of the AI space is cornered by global capability centres, as a few believe, will Indian investors not even get to partake in this round of wealth creation?
With high-skilled IT services under pressure, a financial sector with limited capacity to create low and medium skilled jobs and manufacturing struggling to gain traction, the one area where jobs are being created is low-end services. Delivery riders for Zepto, which has just filed its papers for an IPO, have gone up from 49,278 in 2024 to 2.21 lakh in 2026 — more than a four-fold increase. Zomato and Blinkit have almost doubled to 10 lakh riders in two years. Swiggy now has 6.1 lakh riders, while Uber, at 14 lakh active drivers, outstrips Indian Railways. The gig economy is emerging as an urban employment sink.
This lack of more productive job opportunities sits alongside the dramatic explosion of incomes/wealth at the very top. There are several markers of this deepening fault line and its implications for consumption. Case in point is Apple’s India revenues outstripping those of HUL according to Kotak mutual fund. Fortune remains at the top of the pyramid.
The political response has been to pivot even more aggressively towards populist schemes. In 2025-26, 12 states were estimated to spend Rs 1.68 lakh crore on cash transfers, which works out to 0.5 per cent of GDP as per PRS Legislative Research. This is in line with total spending on R&D that is pegged at 0.6-0.7 per cent of GDP. This is hardly laying the foundations for sustainable long-term growth.
Till next time,
Ishan
Recommended readings
Shashi Tharoor, “Ideology, defection and the death of purpose in politics”, June 25
Faizan Mustafa, “A passport that doesn’t count, a narrowing idea of citizenship”, June 27
