Neoliberal Finance and Economic Gridlock: A Critical Analysis of the Indian Economy

Introduction

There has been debate in India’s mainstream policy circles over whether the economic slowdown is cyclical or structural (RBI, 2019). The gross domestic product (GDP) growth rate surged to around 6.5%–6.7% in 2024–2025, but other indicators give gloomy signals showing weak growth in key sectors of the economy, with higher unemployment. ¹ Industrial output grew by only 3%, while credit growth suggests a weakening economy; tax collections grew less than expected, and the rupee depreciated from ₹58 per dollar in 2014 to ₹91–92 in 2024–2025. The failure of policy measures, irrespective of the governments that have adopted them to address the problem, indicates that policies within the neoliberal setting are failing. In this context, this article attempts to trace the genesis of neoliberal finance and its effect on the Indian economy. This article presents an analytical framework for understanding neoliberal finance in India and examines how its contradictions affect financial markets and the broader economy.

There are numerous studies examining the impact of economic reforms across sectors of the economy. The work of Chandrasekhar and Ghosh (2002) is comprehensive in its scrutiny of neoliberal economic reforms, especially their failure to eradicate poverty. According to the authors, poverty stood at 34% in rural areas and 29% in urban areas in 1999–2000. However, using the $4.20/day lower-middle-income poverty line, about 23.9% of India’s population was poor in 2022–2023, showing that nearly one in four people still live with very limited resources. Indian multidimensional poverty stood at 11.28% in 2022–2023. ² Despite improvements in income poverty, human development indicators remain concerning, with about 35.5% of children under 5 stunted and high levels of anemia, indicating persistent nutrition and health deprivation. India’s development indicators remain weaker than those of several South Asian peers. In the 2025 UNDP Human Development Report, India ranked 130 out of 193, below Sri Lanka (89) and on par with Bangladesh (130). In the 2025 Global Hunger Index, India ranked 102 out of 123, below Sri Lanka (61), Nepal (72), and Bangladesh (85). In the UNDP Gender Inequality Index, India ranks 102, below Sri Lanka (89) but above Bangladesh (130) and Nepal (145). Oxfam (2024) underlines the severity of wealth inequality in India. The top 1% own over 40% of national wealth, whereas the bottom 50% hold only about 3%. The recent inequality estimates show that the top 1% wealth share had risen from about 13% in 1961 to roughly 40% in 2022–2023, and now exceeds the corresponding shares in countries such as China and the United States. Studies examining the financialization of the economy and its effects are limited. For instance, the extant literature primarily focuses on a particular aspect of global finance capital or the impact of global capital in a specific sector (Beena et al., 2022; Sen & Dasgupta, 2018), while understanding neoliberal finance in its entirety and its impact on the economy is essential. A holistic approach is necessary to understand this situation, one that critically examines neoliberal finance per se and interrogates its internal contradictions, especially as they manifest in economic gridlock in lower-middle-income countries such as India.

The focus on the political economy of finance in this article warrants an explanation. Neoliberalism is essentially the power of finance capital, particularly given the hegemony of the United States over the global financial structure. The neoliberal reforms were implemented to facilitate the flow of global finance capital. The wealth in such a system is primarily held in the form of financial assets. The policy framework in this system mainly focuses on preserving the value of these assets. Therefore, neoliberal finance and its implications for the economy and policy framework assume importance. Drawing on critical scholarship, this article argues that the current situation of the Indian economy is essentially a crisis of neoliberalism, which suffers from internal contradictions, and therefore, policy measures within such an ecosystem worsen the situation.

Underdeveloped economies such as India introduced economic reforms in July 1991 in the wake of the global balance-of-payments crisis of 1990–1991. This free-market policy impulse was first put forward in 1944 by the Bretton Woods institutions, namely, the International Monetary Fund (IMF) and the World Bank, which represent global capital. ³ Financial liberalization has been the primary focus of these reforms. As part of this package of structural reforms, foreign investment in low income nations, especially portfolio flows, was encouraged. India adopted an export-led growth strategy, and the government created special economic zones (SEZs) to support it. Domestic corporations were allowed to borrow from global markets in foreign currency at the same time. Parliament amended the Reserve Bank of India Act, 1934, through the Finance Act, 2016, to provide a statutory monetary policy framework and a Monetary Policy Committee (MPC).

The amendment defined the primary objective of the monetary policy as maintaining price stability. Under this flexible inflation-targeting framework, the government, in consultation with the RBI, set a Consumer Price Index (CPI) inflation target of 4%, with a tolerance band of 2%–6%, to be reviewed every 5 years. According to neoliberal–neoclassical economists, these reforms would attract the required capital and eliminate poverty in low income economies. They argued that these economies remained economically backward due to centrist or left-of-the-center policies, namely, state-led industrialization, emphasis on self-reliance, controls on foreign goods and capital, industrial licensing, preservation of foreign exchange, nationalization of banks, and the dominance of the state in economic activities and resource allocation. State-led development hs been dumped in favor of free-market policies since 1992.

The postwar low income nations primarily followed a state-led growth agenda. These nations had witnessed a drain of wealth due to colonialism, and even following independence, there was an apprehension about the role of foreign capital. In the late 1980s and early 1990s, the disintegration of the Soviet Union left the rising call for free markets unopposed (see Bhagwati, 2007). Globalization, against the nation–state nationalism of the 1950s, was presented as a universal remedy for global poverty. The nature of the state in many low income countries in the postwar era was shaped by welfare principles. Conversely, the neoliberal reforms advocated the withdrawal of the state from business and were importantly bereft of a welfare stance.

According to its advocates, neoliberal economic reforms aimed to expand production and investment in low income nations. Nevertheless, the primary aim was to expand finance capital, especially from the Global North. Hence, the focus in low income nations was on reforming the financial sector to facilitate global financial capital. These reforms included developing capital markets to ensure that agents hold wealth in financial assets rather than commodities, thereby facilitating the flow of return-seeking global capital.

India is one of the low income nations that adopted neoliberal reforms in 1991. Neoliberal scholars and think tanks considered India as one of the important markets that benefited from “structural reforms,” such as removing control on foreign goods and investments, privatization, removing regulations on private capital, substantially cutting down government expenditure on welfare, and promoting free-market policies (e.g., Bhagwati & Panagariya, 2014; Krueger, 2011; Mohan, 2017; Panagariya, 2004).

Nevertheless, India is currently at a critical juncture. The economy has been slowing since 2012–2013, as GDP declined to 6.8% from a consistent growth rate of around 8%, which peaked at 9.1% between 2003–2004 and 2009–2010. It reached as low as 3.9% in 2019 with a slight revival, and the Ministry of Finance (2026) projects a 6.8%–7.2% growth rate. ⁴ However, multiple other indicators suggest otherwise. The manufacturing sector’s growth rate declined to 5.5% between 2012–2013 and 2022–2023, while its share of GDP remained stagnant at around 18%. Industrial investment decelerated to 33% and remained stagnant, indicating premature deindustrialization. The furthering of neoliberal reforms through policies such as “Make in India,” a revival policy measure that essentially furthered neoliberal reforms, such as the removal of th existing protection for labor, disinvestment (the partial or full sale of government stakes in public sector enterprises), and encouraging foreign direct investment (FDI) by removing regulations and compliance, could not revive growth (Nagaraj, 2019). The agriculture sector’s growth remained moderate at around 3%–3.5%. Agriculture and allied sector growth moved from about 6.6% in 2017–2018 to 2.1% in 2018–2019, rising to 6.2% in 2019–2020, and then slowing again to 4.0% in 2020–2021, before recovering to 4.7% in 2022–2023 and falling to 1.4% in 2023–2024, indicating higher volatility. In the post-reforms period (1991–2025), due to the withdrawal of public investment in agriculture and the deceleration of manufacturing, the share of employment in agriculture increased from 42% in 2018–2019 to 46.1% in 2023–2024 (Nagaraj, 2025). The service sector is showing cracks after fueling jobless growth at 8% (2004–2005 to 2011–2012) as its share of employment declined from 31.1% in 2017–2018 to 29.7% in 2023–2024. The majority of this employment is also in low-paid, low-skilled sectors, accounting for only 3% of the urban workforce.

The rupee is persistently depreciating to a record level (₹92) against the dollar. Despite this depreciation, India’s exports remained stagnant, as the share of the manufacturing sector in the exports declined from 68% to 61% during the same period. The banking and non-financial sectors are under strain from rising non-performing assets (NPAs), or loans that are unlikely to be repaid, and from liquidity constraints, that is, difficulties in accessing enough cash or short-term funds to maintain normal lending and financial operations. Micro, small and medium enterprises (MSMEs), as well as the unorganized sectors that employ a significant labor force, face credit constraints and a lack of state support (Hiremath & Deb, 2022). This pattern was further reinforced by the disruptive effects of demonetization in 2016, which disproportionately affected the informal sector and the working class while leaving the structural dynamics of finance capital largely unchanged. Unemployment is at a record high of 8.1% (Centre for Monitoring Indian Economy [CMIE], 2023; ILO, 2024), and about 90% of the labor force continues to be in the informal sector, of which only 25% earn regular wages, with a lack of protective labor legislation and social security (Dasgupta & Kar, 2025). Wealth inequality in India has increased sharply over time, with the top 1% share of total wealth rising from about 13% in 1961 to 40.1% in 2022–2023 (Oxfam, 2024). Importantly, a higher growth rate does not necessarily translate into people being better off. Higher growth is important, but distribution is critical for people’s welfare.

In this light, the present article critically evaluates the neoliberal financial system and its contradictions. The conceptual framework is primarily drawn from the contradictions of the capitalist system as noted by Karl Marx in his magnum opus Capital: A Critique of Political Economy. The present work also develops its critical insights from the works of Harris and Seid (2000) and Patnaik and Patnaik (2015) to analyze the neoliberal finance experience of India. Financial liberalization was aimed at the financialization and expansion of the global financial capital. However, neoliberal finance is inherently contradictory in its framework. On the one hand, it advocates limiting the economic role of the state, especially in redistribution and welfare, while simultaneously requiring an active state to construct, protect, and periodically rescue liberalized financial markets when volatility and global shocks threaten stability. For instance, while welfare expenditures are considered wasteful and price controls are seen as meddling with the efficient functioning of markets, tax concessions, public investment in land and infrastructure, and bailout packages to private corporate that substantially drain the exchequer are encouraged. As a result, policy prescriptions emanating from this framework destabilize the markets they aim to develop.

The neoliberal financial system exposes low income nations by removing capital controls and regulations, leaving them to the vagaries of global shocks, which eventually affect the working class through wage suppression, compression of social spending, higher inequality and other increased socio-economic burdens. The policy framework primarily truncates the redistributive function of the state but accords the state the responsibility to facilitate the expansion of global capital. The basic premise was to leave pricing and allocation to the free-market mechanism.

Whenever the market fails, the neoliberal policy aims to erode the state’s welfare goals further. Therefore, income deflation and a reserve army of unemployed labor become essential tools to sustain the system. The article argues that India’s current macroeconomic stress is best understood as a manifestation of the internal contradictions of neoliberal finance, rather than as a transient cyclical slowdown.

The article is organized as follows. The second section examines inflation targeting and shows that, in an economy where supply-side constraints often shape inflation, an interest-rate-centered framework operates primarily through demand compression, raising borrowing costs, weakening working-class consumption, and dampening investment and employment, while offering only limited inflation anchoring. The third section analyzes the interest-rate–capital-flows nexus to demonstrate how financial openness and dependence on FPI heighten the vulnerability to volatile reversals, thereby narrowing the domestic macroeconomic policy space. The fourth section extends the argument to the external sector, showing that export performance remains uneven despite persistent currency depreciation. At the same time, import dependence and foreign-currency liabilities deepen external vulnerability and crisis risk. The fifth section highlights the role of the state in this regime: rather than withdrawing, the state actively supports and de-risks private capital through selective interventions (tax concessions, refinancing, and bailouts) while constraining welfare and redistributive spending, thereby reinforcing inequality and insecurity. The conclusion draws these strands together to argue that policy options within the neoliberal framework are increasingly limited. Therefore, restoring macroeconomic stability with equity requires reorienting priorities toward employment and productive investment, strengthening welfare and redistribution, and regulating speculative finance and volatile capital flows.

Inflation Targeting

With the financialization of the Indian economy, maintaining the value of money became the central bank’s primary objective. In a neoliberal economy, maintaining the value of money is indispensable for the very existence of finance capital. Capitalism, dominated by global financial capital, is predominantly a money-using system in which most wealth is held in the form of money-denominated or financial assets. Money is not only a medium of exchange but also a store of value. To ensure the system’s proper functioning and to retain faith in it, the value of money must remain constant as people hold financial assets as long as their purchasing power is preserved. However, when inflation hikes, the value of these assets depreciates. A slight price increase will prompt people to switch from financial assets to commodities such as gold and other physical assets. Such a persistent shift can destabilize the financial system and, if sustained at scale, can push it toward breakdown (Patnaik & Patnaik, 2015). Dimson et al. (2023) show that financial assets hardly beat inflation, whereas commodities were the best inflation hedge between 1990 and 2022.

The possibility of switching from financial assets to commodities in the event of an inflation shock is relevant not only in advanced economies but also in low- and lower-middle income economies. Notably, inflation needs to be kept lower in low- and lower-middle-income nations, although financialization in these economies is not comparable to that of their high income counterparts, because the decline in the value of money prompts return-seeking domestic and foreign institutional investors to switch to commodities in these countries as well. For instance, when inflation rises (especially via inflation surprises), stock markets often see heavy selling, while commodities such as gold and real estate tend to witness buying. This shift is because physical assets not only provide a hedge against inflation over specific horizons but also embed non-monetary benefits such as consumption services (real estate) and convenience yield (commodities). Importantly, a higher nominal interest rate (the interest rate quoted in the market, e.g., 7%, before adjusting for inflation) is indispensable to retain FPI. Hence, the value of money becomes an overriding concern in a neoliberal economy (Patnaik & Patnaik, 2015).

The value of money is often maintained by keeping a reserve army of unemployed youth and imposing income deflation in modern capitalism. A reserve army, that is, a large unemployed workforce, helps keep wage growth in check. Income deflation refers to the restraint or compression of working-class incomes through various mechanisms such as wage freezes, fiscal restraint and long working hours, so that cost and demand pressures on commodity prices remain contained. Patnaik and Patnaik (2015) show that capitalism ensures these conditions through colonialism and imperialism. They note, “It does not end with colonialism; on the contrary, its importance increases with financialization when the stability of the value of money becomes a matter of even greater overriding concern (whence the current obsession with inflation targeting).”

Since the introduction of economic reforms in India, the Reserve Bank of India (RBI) has become more sensitive to inflation, consistent with the neoliberal framework. Higher inflation may erode the real wages of large labor groups, and inflation targeting is thus expected to serve the interests of the impoverished as well. However, the impoverished are suffering from food inflation and already face lower wages. At the same time, the monetary policy in a neoliberal setup focuses on the demand side, using interest rates to manage the aggregate demand. Food, fuel, and other essential commodities are primarily influenced by supply conditions, which in turn depend on natural factors and supply bottlenecks such as transport disruptions or input shortages. Inflation driven mainly by these supply constraints rather than by excess demand is termed a supply-side inflation problem. An inflation-targeting framework that relies primarily on the policy interest rate is not well-suited to address such supply-side inflation. Also, in an economy with structural problems, a large population without regular employment, lower skills, lower wages, and a sizable population below the poverty line, the demand for commodities is essentially a basic necessity.

In contrast, the inflation-targeting framework within a neoliberal setting suppresses the demand of large, economically disadvantaged groups by maintaining a higher interest rate regime (income deflation). Inflation is an essential feature of a lower-middle-income economy with greater growth potential. Economic growth is indispensable when a large population is unemployed or semi-employed with undignified wages and over-dependent on agriculture. Therefore, overemphasizing inflation targeting through interest rates is not desirable for such an economy.

Nevertheless, barring periods of global economic recession and the COVID-19 pandemic, the RBI has been hawkish despite signs of gloomy economic growth at various points (Khuntia & Hiremath, 2014). The RBI was reluctant to soften its hawkish stance due to inflation concerns. A closer analysis of the MPC minutes shows that the policy stance was either hawkish or calibrated tightening. In a free-market setup, the central bank uses the policy interest rate as the primary tool to control inflation. It influences short-term interest rates through open market operations and repo transactions—buying and selling government securities or exchanging liquidity against government securities under repurchase agreements. The interest rate, or repo rate, became not only the central but also the effective sole instrument of monetary policy, with inflation as its prime concern.

Such a policy approach is consistent with the neoliberal framework, which treats inflation primarily as a demand-side problem. In this view, supply-side pressures are either assumed to be transient or absorbed through the demand channel via real-income compression, which reduces the aggregate demand. However, headline inflation in practice is often driven by food, fuel, and other essential commodities whose prices respond disproportionately to supply-side factors such as weather shocks, global commodity cycles, geopolitical disruptions, import pass-through, supply-chain inefficiencies, and market power (including hoarding and anti-competitive practices). An interest-rate-based monetary policy, by construction, cannot remove these supply constraints; it mainly operates by suppressing demand, without addressing the underlying sources of price increases.

The RBI also acknowledges the limited efficacy of monetary policy in addressing supply-side inflation and therefore upholds the focus on the CPI (Subbarao, 2011). In consonance, the RBI shifted the focus from the wholesale price index to the CPI. Nevertheless, the weight assigned to essential components was reduced in the index. RBI also adopted flexible inflation targeting in 2016, similar to its US counterparts. It targets 4% CPI inflation with a ±2% band. The central bank’s hawkish stance brought down inflation for a limited period. However, the 4% midpoint has not operated as a strong anchor, as inflation remained above 4% in most years between 2016 and 2025, even if within the 6% tolerance band. The 6% tolerance band was also breached in 2020–2021 and 2022–2023. The registered fall in the CPI was primarily due to the suppression of the demand for consumption by the large working class. The higher interest rate structure, the primary and sole monetary policy instrument, increased the average cost of capital for the industry to 14%. The hawkish stance of monetary policy often led to higher interest costs for Indian industry. The interest cost for all sectors is expected to grow at a compounded annual growth rate of 16% from 2022, similar to the pre-COVID-19 period, irrespective of size, whereas the interest burden on corporations increases by 30% (India Ratings & Research (Ind–Ra), 2023). The higher interest rate structure increased the cost of capital for the private sector, especially for MSMEs and the unorganized sector, which employs the majority of the workforce in India (see RBSA Advisors, 2023). The increased cost of capital often leads to decreased wages or increased prices.

In a neoliberal economy, firms find it easier to lay off workers or pay low wages under unhealthy working conditions to save costs rather than cut profit margins. The higher interest structure lowered wages with unfavorable contractual employment terms (income deflation) and kept a large population outside the employment net. The CMIE (2023) data show that the unemployment rate in urban and rural areas is 7% and 8.7%, respectively. Young people accounted for 82.9% of India’s unemployed population (ILO, 2024), while the share of educated youths rose to 65.7% during the study period. According to data released by the Ministry of Rural Development (2024), the demand for work under the Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) scheme increased substantially. The program is implemented under the MGNREG Act, 2005, which provides a legal guarantee of up to 100 days of wage employment per financial year to rural households whose adult members volunteer for unskilled manual work. Employment must be provided within 15 days of the demand; failing this, an unemployment allowance is payable under the Act. The increased demand for work under the scheme may indicate stress on rural livelihoods and a limited availability of alternative employment. ⁵

Targeting headline inflation with the repo rate suppressed the consumption among people with low incomes. The rise in food and core commodity prices was termed a supply-side problem, but the interest rate policy cannot tackle it, leading to the suppression of consumption and income (wages). Advocates of anchoring headline inflation often justify this approach by invoking the risk that food inflation may trigger a wage–price spiral. Yet the evidence points in the opposite direction: wages have lagged GDP growth over 2014–2025, indicating persistent wage stagnation rather than wage-led price pressure. Using interest rates to contain headline inflation, therefore, risks compressing consumption while leaving the supply-side drivers intact. Consistent with this, evidence from the National Sample Survey Office (NSSO, 2024) suggests that household consumption has grown substantially more slowly than GDP over 2011–2023, implying a disproportionate burden on disadvantaged groups. With climate-related shocks further increasing volatility in essential commodities, the current inflation-targeting framework has limited the capacity to manage the recurrent supply-driven inflation. The debt burden of households rose by 80% and 42% in rural and urban India, respectively (Ministry of Statistics and Programme Implementation (MoSPI), 2020). India ranks 111th out of 125 countries in the Global Hunger Index, indicating severe food deprivation for a large population (Concern Worldwide, 2023). Using survey data from 2010 to 2022, Karlsson et al. (2024) report that India has the third-highest prevalence of children who had not consumed any food in the preceding 24 hours. The evidence from the Indian economy shows that the neoliberal policy of inflation targeting is achieved at the cost of economic growth, employment, and a higher incidence of poverty and hunger.

Within mainstream economics, the effectiveness of interest rate-focused monetary policy is questioned. An interest-rate hike increases the cost of borrowing, discourages interest-sensitive spending, and reduces inflationary pressures. Banerjee et al. (2018) show that this channel is comparatively less effective. By contrast, money-based targeting seeks to stabilize prices by managing monetary conditions more directly, typically by limiting growth in money supply and/or bank credit. Further, using the interest rate to target inflation is less effective in an economy with a significant presence of a vast subsistence economy, a dichotomous structure of ‘organized–unorganized’ across all sectors, underdevelopment of credit and insurance markets, and unequal relations between large and small firms, which undertake part in production on behalf of the former. Additionally, these features of the real economy often lead to unintended outcomes of monetary policy. Instead, inflation targeting imposes disproportionately burdensome costs on agriculture and the informal economy.

Inflation in low and lower-middle income countries such as India is predominantly a supply-side problem rather than a demand-side one. The interest rate-focused monetary policy cannot control inflation due to supply-side factors. Even in advanced countries of the Global North, higher interest rates can damage the economy, leading to stagflation (Weber & Paul, 2022). A large share of India’s consumer expenditure basket is concentrated in food, fuel, and other essential commodities, whose prices are susceptible to supply conditions. Climate change and associated extremes such as irregular monsoons, droughts, floods, and heatwaves can disrupt agricultural output, storage, and transport, tightening supply and pushing up prices. Because these shocks originate on the supply side, they are only weakly responsive to interest-rate hikes, which mainly operate by compressing the demand. Structural constraints further amplify such price pressures. These include (a) the predominance of the informal sector, where prices and wages adjust through channels that are less interest-sensitive; (b) continued dependence on agriculture and agricultural supply chains that are vulnerable to seasonal and climatic volatility; and (c) sectoral reallocation toward services, where productivity growth is uneven and relative-price changes can persist. In this context, this article posits that India’s inflation is primarily supply-driven, including climate shocks and structural imbalances.

The structural imbalance in the Indian economy is an important source of inflation (Hiremath, 2019), yet it has received little attention in the inflation debate. A hike in interest rates hardly influences inflation due to structural imbalances, excess growth in the service sector, and near stagnation in commodity-producing sectors, such as agriculture and manufacturing. Instead, such a narrow focus on the monetary policy leads to undesirable consequences. According to macroeconomic data published by the RBI (2023), the share of the manufacturing sector in GDP remained stagnant at around 20% between 2010–2011 and 2019–2020, while the employment share declined slightly from 13% to 11%. The percentage of the population dependent on subsistence agriculture remains at 49%, with stagnant and often negative, growth. The service sector remained the most significant contributor to GDP, accounting for 63%, but its share of employment was only around 40%. Importantly, a majority of this employment is in the low-wage, low-skilled sector, gig work, and the informal sector. The operating surplus-to-gross output ratio in agriculture and allied activities turned negative during this period, indicating an alarming situation in rural India. The surplus in the manufacturing sector remained stagnant at around 13.7%. Of late, the surplus in the service sector has also declined.

The labor income share in manufacturing is half the capital share, whereas the labor income share in the service sector is slightly greater than the capital share. The employees’ compensation as a percentage of gross output increased across sectors, but the service sector’s share was higher than that of agriculture and manufacturing. The increase in income inequality between commodity-producing agriculture and manufacturing and service sectors (e.g., information technology, transport, trade, financial services, tourism, and hospitality) pushes prices upwards, resulting in skewed consumption. However, such inflation is inimical to the neoliberal–neoclassical framework within which the central bank operates. ⁶ The supply-side, as well as structural imbalance-driven inflation, further suppresses the working class’s consumption. Consistent with this, the National Income Accounts data show that private final consumption expenditure on food remained broadly unchanged, averaging 17% of GDP between 2011 and 2021, suggesting that the economy did not experience a sustained shift away from basic necessities. Meanwhile, the total non-durable consumption rose modestly from 24% to 26% of GDP over the same period, indicating that a larger share of aggregate demand was absorbed by frequently purchased essentials (and/or their rising prices). In contrast, the GDP shares of durables and semi-durables remained flat, implying no corresponding expansion in discretionary or upgrading-type consumption. Taken together, these compositional shifts are consistent with inflation and anti-inflation policies working through the expenditure side by constraining the real demand and reorienting the consumption toward necessities, thereby weakening the growth impulse.

Lately, India has been experiencing rising inflation, especially in the post-pandemic period. There is no evidence of wage–price push inflation as unemployment remains at an all–time-high (CMIE 2023; ILO, 2024), and wages lag far behind prices (ILO, 2024). The growth rate in agriculture wages steeply declined from 22% in 2011–2012 to 5.21% in 2021–2022. The average wage growth in this sector was stagnant at 6.5% between 2011 and 2021. The non-agriculture wages in rural areas also exhibited a similar decline from 2010 to 2022 (EPWRF, 2022). The growth rate of wages in organized manufacturing also displayed a steep fall from 11% in 2010–2011 to 4% in 2021–2022 (ASI, 2022).

The profitability of listed corporates rebounded strongly through the pandemic/post-pandemic period; aggregate profits of listed firms rose from about $34b in FY21 to about $84b in FY25, pushing average net profit margins to double-digit levels (RBI, 2025). Motilal Oswal (2025) reports that the corporate profit-to-GDP ratio (4.7%) is now at a 17-year high. However, the input cost growth decelerated, a pattern consistent with profit-linked inflation. FICCI–Quess Corp finds a compounded annual wage growth of 0.8% in engineering/manufacturing/infrastructure, rising to 5.4% in fast-moving consumer goods. The Annual Survey of Industries (ASI) (2022) indicates that the wage share in industrial output has remained around 2.5%. During the pandemic recovery, large firms reduced their debt burdens (deleverage), improving their balance sheets. Household purchasing power lagged, and household debt stood at about 42% of GDP in 2024. These patterns discredit “inflation expectations” and the wage–price spiral narrative. Neoliberal economists find it challenging to explain this rising inflation, despite having adopted a stringent inflation-targeting framework since 2016. The current economic situation in many economies, including advanced ones, is threatening the very existence of finance capital. At the same time, the economies that adopted the neoliberal reforms are in the doldrums. The recent working paper from the IMF, which mandates that low income economies adopt the free-market economic system, shows that while the inflation-targeting framework is inadequate, such a policy hurts economic growth (Bhalla et al., 2023). The evidence contradicts several IMF working papers advocating inflation targeting.

Furthermore, Pollin and Bouazza (2022) show that there is no reliable evidence on the effectiveness of targeting in controlling inflation. Instead, inflation targeting primarily achieves its contractionary effect by raising mass unemployment, weakening workers’ bargaining power and lowering economic growth. This is a peculiar situation due to the neoliberal finance policy framework.

Interest Rate, Capital Flows, and Domestic Economy

In a neoliberal framework, the higher interest rate structure is not only an inflation-controlling mechanism but also a necessity to retain FPI. Higher interest rates combined with the diversification motive pushed speculative funds into low income countries in the early 1990s. India gradually dismantled controls on foreign capital flows and restructured its governance to attract foreign investment. It offered tax concessions to attract foreign investment. For example, India introduced an income-tax deduction for units in SEZs under Section 10AA and a 15% concessional corporate tax rate for new manufacturing companies under Section 115BAB as part of its broader strategy to attract domestic and foreign investment. The 2019 corporate tax reforms, including an optional 22% rate and a 15% rate for new manufacturing firms, SEZ duty/tax benefits, IFSC-specific exemptions, and targeted exemptions such as Section 10(23FE) for eligible sovereign wealth and pension funds investing in infrastructure, were also introduced. The tax concessions encouraged foreign investors to enter India (Chandrasekhar & Ghosh, 2013). The portfolio flows were expected to infuse liquidity and improve the efficiency of the capital market. As argued by financial economists, these flows were expected to reduce the cost of capital and improve information and valuation. Capital flows were also expected to finance the current account deficit (CAD). FPI flows have been primarily concentrated in the financial sector rather than the non-financial sector due to higher, quicker returns in the former.

Critiques of the free flow of these funds cautioned about the adverse impacts of their volatility, disruptive nature, feedback loops (situations where rising asset prices attract more capital inflows, which in turn further push prices upward or downward), and momentum trading (investment strategies where investors buy assets whose prices are rising and sell those that are falling; see Hiremath and Kattuman (2017) for a review of the literature on the debate). The primary objective of hot money was to seek quick returns. The Asian currency crisis in 1997 also highlighted the adverse consequences of allowing the free flow of portfolio capital. The same occurred during the global financial crisis (GFC), when foreign investors pulled out despite sound macroeconomic conditions in host countries.

Disruptive reversals of capital flows, even in response to early signs of stress, can undermine financial stability, constrain domestic macroeconomic management, and complicate monetary policies in emerging economies. Evidence from India supports this argument. The 2007–2008 GFC began in the United States when risky subprime home loans were bundled into mortgage-backed securities, spreading hidden losses across banks worldwide. When housing prices fell, and big firms (e.g., Lehman) collapsed, trust and lending froze globally. India, on the eve of the GFC, was growing at 9.1%, the rupee was relatively stronger, and exports were positive.

Nevertheless, when a crisis was merely seen, FPI to India flipped from a net inflow of $20,328m in FY2007–2008 to a net outflow of $15,017m in FY2008–2009, despite strong fundamentals—high growth, adequate reserves, and stable banking-sector indicators at the time. Disruptive reversal of flows caused anxiety in the Indian stock market, which crashed, weakening the rupee by 21.2%; GDP growth fell to 6.7%; credit squeezed to 17.8% from 24.1%; and liquidity became tight. These trends show that foreign investors pulled their investments despite the fundamentals of the Indian economy being sound. Such outflows underscore the central problem with neoliberal financial openness: domestic outcomes become highly contingent on global investors’ risk appetite rather than on domestic fundamentals. Such fictitious capital can exit abruptly to protect returns, shifting the adjustment burden onto the local economy through currency stress, tighter credit, and slower growth, thereby constraining the democratic macroeconomic policy space and financial stability. The adjustment is borne disproportionately by the working class through job losses, costlier credit, and cuts in public spending.

The analysis of FPI data reveals that FPI flows were persistent, especially outflows during periods of global economic and financial stress. Although FPIs are often expected to enhance stock market efficiency, defined as the extent to which stock prices rapidly and accurately incorporate available information so that no investor gets abnormal returns, inflows seldom deliver these anticipated benefits. Empirically, Hiremath and Kattuman (2017) find no notable improvement in India’s stock market efficiency associated with FPI activity. Instead, these flows often sparked panic in the market through heavy selling. FPIs finance a significant portion of India’s CAD. However, reliance on such volatile flows rather than long-term solutions outside the purview of neoliberal settings exposed the current account to global shocks. Notably, the Asian and Latin American crisis episodes, for instance, Mexico (1994–1995), Thailand (1997), Brazil (1998–1999), and Argentina (2001–02), illustrate how large CADs financed by short-term inflows can flip into sudden stops and capital flight, triggering crises.

Portfolio flows are sensitive to interest rates and pull out of portfolio investments in stocks and bonds in response to US interest rate hikes or rate cuts in India. The monetary policy followed in India, like that of any emerging economy, focused primarily on the interest rate channel to retain capital flows and maintain the value of money, so that investors retain wealth in financial assets and avoid switching to commodities. Such flows are also used to finance CAD. Such a trend is consistent with the theoretical framework of Patnaik and Patnaik (2015) for analyzing global capital. Of late, higher interest rates have kept returns-seeking foreign investors happy but have been hurting domestic investment and economic expansion (see the section “Inflation Targeting”).

Furthermore, a significant portion of the portfolio’s flows into India is routed through tax havens. Besides higher returns, foreign flows are sensitive to regulations in low- and lower-middle income economies economies and often refuse to be subject to host-country regulations. Often, FPIs use participatory (P) notes, an offshore derivative instrument issued abroad by a registered FPI against Indian securities held as the underlying, allowing overseas investors to gain economic exposure to Indian markets without registering directly with the Securities and Exchange Board of India (SEBI). Such an instrument was permitted by the regulatory authority to attract FPIs, undermining domestic laws. When SEBI proposed to restrict this route, the primary route of portfolio flows led to heavy selling by foreign investors, which eventually triggered a market crash in October 2007. Again, the proposed regulation of P-notes raised anxiety among foreign investors, as evidenced by FPI outflows during the period. In 2019, the finance minister of the Government of India announced the introduction of a tax surcharge (25%/37%) on wealthy trusts as a part of the Union Budget (Government of India, 2019). This announcement prompted heavy selling by portfolio investors, leaving the Indian stock market under acute liquidity pressures. The reversals led to 7% of wealth erosion from India’s stock exchange. The government was forced to withdraw the tax surcharge on FPIs. The persistence of high interest rates, despite a weak economy, limited regulatory control over portfolio investments, and the failure of fiscal policy to tax them suggests that the domestic macroeconomic policy became subordinated to global capital under a neoliberal regime.

External Debts, Trade, and Financial Crisis

As part of the 1991 neoliberal reforms, India began moving toward a more outward-oriented, export-led growth strategy. The peak (non-agricultural) customs tariff was cut from 150% in 1991–1992 to 50% by 1995–1996, and then reduced further to about 20% by 2004–2005 and 10% by 2007–2008. These rate cuts were accompanied by a rationalization of tariff slabs (a narrower spread and fewer bands), making the tariff regime simpler and more transparent. India registered a notable 13.5% growth rate in exports in the first two decades of reforms, and the growth rate stood at 11% between 1991 and 2018. India has significantly diversified its export basket since liberalization, moving beyond traditional agriculture, textiles, and gems, higher-value engineering goods, refined petroleum products, chemicals and pharmaceuticals, electronics, and a rapidly expanding range of modern services. Nevertheless, the annual average increase in exports of goods and services has been highly volatile. The growth rate was downbeat in 1997 and 2009 due to the East Asian currency crisis and the GFC, respectively.

Exports have witnessed a consistent decline since 2010, reaching negative growth in 2015. Although there was some recovery, it was far from satisfactory. In the last 10 years, the compound annual growth rate of exports was around 6.9%. India’s share of world exports stood at 2.3% (1.7% merchandise and 3.5% services) in 2018. The steep and persistent fall in the exchange rate also failed to revive export growth through the competitiveness effect. Mainstream economists cite the global recession, the shortage of domestic labor, and environmental regulation as causes of a slowdown in exports, particularly of manufactured goods.

However, the evidence does not support any of these claims. The SEZs debunk these claims of neoliberal advocates. SEZs were created as an exclusive export center with substantial state support and exemptions from mandatory labor and environmental regulations. India has already compromised on labor regulations while keeping a large population below a minimum wage and in unhealthy working conditions. The environmental regulations were also relaxed despite risks to ecologically sensitive areas.

FDI was attracted to achieve improved exports, especially from the manufacturing sector. The FDI was expected to boost domestic investment, bring innovative technology, promote export trade, and facilitate economic growth. Nevertheless, after initial euphoria, yearly FDI as a percentage of GDP hovered around 2.5% during 2001–2023 and peaked at about 3.5% in 2007–2008. Net FDI to GDP generally remained between 1% and 2% during the same period. Greenfield FDI is a type of FDI in which a foreign company establishes a new operation in a host country, such as building a factory, an office, or a service center from scratch rather than acquiring an existing local firm. According to the standard neoclassical theory, it benefits the host country by bringing fresh capital that expands productive capacity and infrastructure. It also creates direct and indirect jobs and often transfers technology, skills, and management know-how to local workers and suppliers. Over time, it can boost productivity and exports, raise tax revenues, and increase competition, thereby improving efficiency in domestic markets. However, India’s majority FDI is not in greenfield operations but mostly takes the form of equity funds. These funds, often termed brownfield FDI, are primarily engaged in acquisitions that add little to capital formation or the productive capacity of the economy. The evidence shows that most FDI is in the form of equity funds that contribute little to the real economy (Bain & Company, 2024). One of the objectives of liberalization was to promote exports through FDI. However, the empirical evidence of FDI contributing to export growth is weak. Since 70% of the FDI in India is in the form of equity funds (Nagaraj, 2025), the role of FDI in promoting exports is therefore limited.

As a percentage share of GDP, total exports registered tremendous growth and reached around 24% year-on-year growth by 2008. However, this growth declined to 21% in 2009. Export growth is also primarily due to services, especially IT and financial services. In goods, India’s global share remains modest (1.8% in 2024) compared with China’s (14.6%). “Make in India” was a reform repackage of the policy within the neoliberal framework, introduced in 2014. It emphasized reviving the manufacturing sector and boosting India’s exports by attracting FDI and improving ease-of-doing-business indicators. However, the average real export growth between 2014 and 2018 remained at 3.68%. According to the World Trade Organization (WTO) (2024), India’s share of global merchandise and services exports is 1.7% and 3.5%, respectively. The “Make in India” initiative focuses on improving ease-of-doing-business indicators to attract FDI. Nonetheless, the index is based on a narrow sample and is often criticized for its faulty methods. The labor and environmental regulations were further compromised to achieve the same. Such deregulations would push the working class into highly adverse working conditions, including excessive and involuntary work, hazardous environments, a lack of industrial protection, and the absence of effective grievance mechanisms, without bargaining power and with undignified wages.

Despite trade openness and efforts to revive exports, the less-than-expected performance of exports is a cause of concern, as imports are on the rise, especially oil imports. The CAD narrowed sharply after the 1990–1991 balance-of-payments crisis, when the current account balance was around –3.1% of GDP in 1990–1991. It remained generally contained through the late 1990s. In the early 2000s, India even recorded a current account surplus (e.g., 0.5% of GDP in 2003), supported by strong earnings from services exports and remittances or private transfers from Indians working abroad. From 2004 to 2005, the current account reverted to a deficit, primarily because imports (especially oil-related) grew faster than exports, widening the merchandise trade deficit. The CAD widened further in the early 2010s and reached a peak of 4.8% of GDP in 2012–2013 (i.e., close to 5%), amid a large trade deficit and weaker net earnings from services, remittances, and other non-goods transactions. However, the CAD has been growing since 2004, reaching as high as 5% of GDP due to falling exports, increased imports, high oil prices, and stiff competition from Asian markets, especially China, in the global market.

India partially liberalized its exchange rate system and subsequently gradually moved to a managed floating regime. The rupee has depreciated over the years against all major currencies: the US dollar, the Pound Sterling, the Yen, and the Euro. The annual percentage change has never reached the level of 1992. ⁷ Higher depreciation was observed in 2008 due to the GFC. These trends have been highly volatile in the post-GFC period due to the tapering of quantitative easing by the US Fed, the falling GDP growth, and volatile capital flows. In short, India’s exchange rate has been volatile since liberalization. The central bank always followed an asymmetric approach to exchange rate management, intervening whenever the rupee appreciated, in line with the export-led strategy. Instead of focusing on the core strength of the trade sector, the monetary policy became a central determinant of trade.

Lately, the depreciation has been persistent and steep. In the standard neoclassical theory, this rupee depreciation in a free-market economy (a neoliberal setup) is expected to increase India’s exports and reduce the current account deficit. However, the rupee depreciation and exports have been moving in opposite directions since 2008. This trend has been persistent since 2011. The exclusive focus on exports exposes the economy to global shocks and makes it dependent on foreign demand. The lack of domestic demand, possibly due to lower wages and higher unemployment under neoliberal India, deepened the external crisis.

From the perspective of finance capital, credit is indispensable for firms, in general, and those operating in the export sector in particular, to significantly expand production when the currency depreciates. However, high interest rates, intended to keep the value of money constant and retain foreign capital flows, increase the cost of capital and stall expansion plans. Besides, an overburdened banking sector and a high-interest-rate regime in emerging economies such as India stifle access to credit and increase the cost of debt. Such credit constraints hurt employment-generating MSMEs and unorganized enterprises, including handicrafts and handlooms.

One of the contradictions of neoliberal finance is to increase domestic interest rates to retain foreign investment while allowing domestic firms and households to borrow in foreign currency. Countries like India often keep interest rates relatively high at home to attract foreign investors, while at the same time allowing local companies to borrow from overseas markets. Because borrowing abroad can look cheaper, many Indian firms, especially smaller ones, have taken loans in foreign currencies (e.g., US dollars).

The problem is that firms in low and lower-middle income countries usually cannot borrow internationally in their own currency. Their currencies are seen as riskier, and the US dollar dominates global finance. Foreign-currency loans grew sharply after India’s economic liberalization. Nevertheless, these loans can become highly risky in the face of an external shock. For example, if the rupee weakens, the company suddenly needs more rupees to repay the same dollar debt. This raises both the value of the debt on the balance sheet and the cost of interest payments. So even if foreign-currency borrowing seems low-cost at first, it can leave companies exposed when exchange rates move against them.

Exports can sometimes reduce this risk because exporters earn foreign currency, which can help them repay foreign-currency debt when the domestic currency falls. Many mainstream economists warn that borrowing in foreign currency while earning mainly in domestic currency creates a “currency mismatch,” which can trigger severe financial crises in low and lower-middle income economies. (Eichengreen et al., 2022; Krugman, 1999). While financial liabilities increase instantaneously, the goods sector responds with a time lag. The Asian currency crisis of 1997, the GFC of 2008, and several other crises were important lessons for neoliberal regimes to understand their failure. However, mainstream Indian policy think tanks largely responded to these crises by proposing policy changes within the neoliberal framework, rather than exploring alternative development strategies beyond it. The steep and persistent currency depreciation not only failed to boost exports but also increased foreign-currency liabilities. The increased cost of debt discouraged future investment. Higher interest rates in the domestic market and other credit constraints are the primary barriers to firms raising funds domestically. Such constraints further affected investment, especially in MSMEs and the unorganized sectors. Banks and financial institutions primarily served the needs of large corporates due to their sheer dominance, family-group promotership, and political nexus. In other words, elite capture appears to shape the allocation of public-funded credit in India.

The Role of the State in Neoliberal Finance

Several countries in the Global South adopted a form of state capitalism in the postwar period following their independence. ⁸ The economic framework in post-independent India was that of state capitalism with a welfare outlook. The financial system was developed in such a way as to finance industrialization, which was beyond the control of speculators to determine output and employment (Raj, 1973).

In contrast, neoliberal finance promotes a financial system that allows speculators to determine the employment prospects of the working class. Although neoliberal finance appears to advocate a free-market economy, in reality, it merely curtails the state’s social and welfare role. State capitalism remains relevant in the neoliberal regime, where public resources are used exclusively to facilitate global finance. Government spending on infrastructure to support industrial capital, substantial support for SEZs, bank refinancing with corporate exposure, and corporate bailouts attest to the fact that public resources act as a bulwark for private capital. In contrast, fiscal prudence is maintained in social sector spending and in the roll-back of welfare measures, thus pushing the working class into a cycle of poverty, debt, and inequality.

The recent intense spat between the RBI and the government is a testament to the contradiction between neoliberal finance and the inherent crisis of such an ideological setup. Viral Acharya, then the RBI’s deputy governor, warned the government about the potentially catastrophic effects of undermining the central bank’s independence. According to Acharya (2018), “Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets and ignite an economic fire.” The government was pressuring the RBI to cut interest rates, which was contradictory, as the former had brought legislation to amend the RBI Act. It also demanded relaxation of the prompt corrective action framework, dilution of disclosure norms for defaults, higher dividends, and extension of exclusive refinance windows for mutual funds, non-banking financial companies, and housing finance companies, among others. The government was reportedly also asking the central bank to hand over some of its surplus reserves. The central bank was resisting these demands while asserting further independence.

The deceleration of output, massive unemployment, and the total slowdown of economic activities are plaguing the Indian economy. After pursuing neoliberal reforms that slowed growth and caused financial stress, the RBI and the government attempted to resolve these problems within the same neoliberal framework. Their conflict reflected the internal contradiction of neoliberalism. The neoliberal policy produces instability, yet policymakers continue to seek remedies through the very framework that generated the problem. RBI accorded the status of “doctrine” to its inflation targeting through interest rates. The government’s demand for easing the monetary policy is legitimate, but it does not yield benefits unless fiscal policy measures go beyond the neoliberal framework. Following the change of guard, Shaktikanta Das assumed charge as the RBI governor on December 12, 2018; the RBI shifted into an easing cycle, cutting the policy repo rate from 6.50% to 6.25% in February 2019 and to 5.15% by October 2019 (further to 4.40% in March 2020 and 4.00% in May 2020), yet private investment remained weak, with gross fixed capital formation already in contraction from Q2 FY2019–2020. Amid the current fall in economic growth, the RBI is reverting to hiking interest rates, indicative of a move to facilitate financial capital and thus ensure income deflation and a reserve army of unemployed youth.

Further, the government’s demand to relax prompt corrective action and dilute disclosure norms indicates that it is using public resources to bail out private capital from its entrepreneurial risk. In the past, the government, through the RBI, encouraged indiscriminate lending by public sector banks to large corporations to address the slowdown caused by the 2007–2008 global crisis. After weaknesses in its supervisory role became apparent, the RBI moved to address rising bad loans that are unlikely to be repaid by implementing a mechanism that places restrictions on financially weak banks, such as limits on lending, dividends, and branch expansion, along with stricter disclosure norms. Nevertheless, such measures in a neoliberal financial system can trigger market panic among speculators, leading to a crisis.

As the sole shareholder of RBI, the government can legitimately demand dividends from it. The democratically elected government is mandated to serve the public, and its concerns do not always lead to political business cycles. The suffering of the masses is more important than the wrath of markets. Nevertheless, dividends are not sufficient to address the economic situation. The elected government is not using fiscal policy to address the economic stalemate. It is restrained from using fiscal policy to influence investment, output, and employment in a neoliberal setup, as the commitment to limiting public expenditure binds it. Expenditure on public welfare is expected not only to raise prices but also to boost the income of the working class in the long run. The Fiscal Responsibility and Budget Management Act, 2003, mandates the union government and state governments in India to keep the fiscal deficit around 3%. However, the governments achieve this primarily by cutting the public expenditure on welfare, including health and education. Public expenditure on welfare undermines the capitalist system’s need for a reserve army of unemployed labor and for income deflation. In light of the adverse economic situation, the neoliberal government is seeking quick relief for the national bourgeoisie, particularly the upper middle class and dominant upper-caste groups, that is, socially privileged caste groups that have historically held disproportionate economic and social power in India. ⁹ This intermediate property class supports neoliberal policies. Hence, the rift between RBI and the government overwhelmingly evidences the contradictions in the neoliberal framework and the dead end it has reached.

Nevertheless, both the RBI and the government were on the same page as long as there was monetary stimulus for corporations and indiscriminate credit from public sector banks to overleveraged firms with insufficient interest coverage ratios. Large private companies account for a larger share of public sector banks’ total NPAs, despite RBI representatives often serving on these banks’ boards. There are several corporate defaults, and the RBI has been reluctant to disclose the names of willful defaulters in the corporate sector. This evidence shows that state capitalism in a neoliberal regime facilitates the privatization of profits while socializing the risk and loss.

These contradictions in neoliberal finance had an adverse impact on the Indian economy. According to ASI data, real gross value added in India’s manufacturing sector declined from 13.1% per year in 2015–2016 to −0.9% in 2019–2020. The average annual growth rate during 2012–2013 and 2019–2020 was 3.5%. Growth remained stagnant during this period, around 15%, according to the National Statistical Office estimates based on the earlier national accounts series. The manufacturing sector’s share in employment fell from 12.5% in 2011–2012 to 11.4% in 2023–2024. The continued weak rupee increases the import bill and the debt burden. The rising commodity prices due to supply shocks add to the woes. Flat exports, a weakening currency, rising foreign debt, and the need to keep interest rates higher all point to the dead end of policy options in the neoliberal finance setup. The interest rate used to control inflation was also used to attract foreign investment, manage the exchange rate, and provide monetary stimulus.

The objective of the fiscal policy in a neoliberal regime is to keep compressing the provision of public goods to the masses and maintain the value of money. As a result, the interest rate becomes the critical determinant of investment, output, and employment (Patnaik, 2022). Such reliance was evident during the GFC. In a neoliberal setup, the government is not expected to provide fiscal support to the working class, as such measures stand in contrast to the market mechanism, which attempts to ensure lower wages and the constant value of money. The role of the neoliberal government is confined to using public resources to facilitate global capital. As a result, the Indian economy is currently facing higher unemployment and greater income inequality. COVID-19 further exposed neoliberal finance capital and its failure to address such shocks. Mainstream economists were weakly prescribing fiscal stimulus to save corporate profits rather than the welfare of the working class. Although frequent crises, including the GFC and the pandemic, called into question the claims of reform advocates, no attempts were made to transcend the macroeconomic policy under the neoliberal regime.

Concluding Remarks

The neoliberal reforms emphasized the return of the power of finance. India followed these reforms in letter and spirit. Thanks to diverse political discourse and pro-social welfare voices, reforms in India were gradual, unlike in many low-income countries. ¹⁰ Nevertheless, the fault lines in neoliberalism have become more evident since the GFC. The economy is under severe stress, with output decelerating and unemployment high. The subordination of the macroeconomic policy to global financial capital left a large segment of the working class entrenched in poverty, debt, and structural inequality. The policy options within the neoliberal setting to overcome this stalemate will reach a dead end unless India moves beyond it. Therefore, India needs to strengthen the state’s developmental and welfare functions, complementing the monetary policy with active fiscal and industrial measures. It must rebalance macroeconomic priorities toward employment and productive investment while expanding redistributive and welfare measures.