Modi's A-Team and the Goldilocks Equation: Assessing the Durability of India's Political-Economic Momentum

India's recent economic performance has been nothing short of a miracle. For the second consecutive quarter, the economy has grown at a blistering 8.2% pace, while inflation has fallen to a near-historical low of 0.71% in November. This rare "goldilocks" equilibrium-high growth paired with low inflation-is not a random occurrence. It is the direct product of Prime Minister Narendra Modi's political capital and the rapid, coordinated execution of a core team of five key bureaucrats.

The political mandate for this "second act" of reforms was solidified in 2025. After a slowing economy was further hit by a 50% US tariff, an armed conflict with Pakistan, and China's cold shoulder, a few state election wins provided the necessary political breathing room. This allowed Modi to awaken from post-pandemic complacency and task his trusted A-team with salvaging the economy. The results have been a series of swift, synchronized moves across the policy spectrum.

The team's playbook was comprehensive. Reserve Bank of India Governor Sanjay Malhotra led a monetary easing campaign, slashing rates and restoring liquidity. At the finance ministry, Tuhin Kanta Pandey at SEBI worked to calm market nerves, while Cabinet Secretary TV Somanathan drove a deregulation mission that saw 16 states implement 38 reforms in a single year. Meanwhile, NITI Aayog's Rajiv Gauba advised on cutting trade barriers, and Principal Secretary Shaktikanta Das, now working directly for the PM, orchestrated a broader economic policy framework. Together, they delivered tax cuts, legislative reforms, and trade pacts in a year where many things that could be set right... were.

The outcome is a fragile equilibrium. The Q2 GDP growth of 8.2% and November inflation of 0.71% are the tangible results of this political-bureaucratic engine at work. Yet the durability of this Goldilocks moment is now the central question. It rests entirely on the continued alignment of a strong political mandate with the execution of a small, high-performing team. Any shift in either dynamic could quickly unravel the careful balance.

The Goldilocks Conditions: A Strategic Asset for the Agenda

The current macroeconomic environment is not just a backdrop for India's growth; it is a strategic asset actively deployed to serve dual objectives. The government's political narrative of inclusive growth finds its most potent evidence in the labor market. The unemployment rate fell to 4.7% in November, the lowest level in months. This is a powerful political signal, especially as it was driven by a sharp decline in the rate among women-a demographic often cited as a key to unlocking the nation's full productive potential. The policy window created by subdued inflation is equally critical. With CPI inflation at 0.71% in November, the central bank and finance ministry have the room to maintain supportive monetary and fiscal policies without triggering a price spiral. This allows for continued investment in public infrastructure and targeted support for micro, small, and medium enterprises (MSMEs), the engines of job creation.

The government's fiscal stance is calibrated for this moment. It is described as broadly neutral, aiming to support growth while simultaneously rebuilding fiscal buffers. This balanced approach is essential. It provides the necessary support to sustain the momentum from domestic demand and public capital expenditure, which are key growth drivers. At the same time, it ensures the state is not left vulnerable to future shocks. The upcoming fiscal year will see the cost of new policy initiatives, like a GST reform, absorbed within this neutral framework, with estimates suggesting it will cost around 0.1% of GDP. This measured fiscal discipline is a prerequisite for maintaining market confidence and credit ratings.

Together, these conditions form the foundation for a longer-term strategic agenda. The goldilocks equilibrium-high growth paired with low inflation-creates the stability needed to prepare for future challenges. It allows the government to focus on structural reforms that build resilience, such as enhancing public-private partnerships to accelerate infrastructure development and ease persistent bottlenecks. It also provides the breathing room to navigate external headwinds, like the higher tariffs applied by the United States, which are expected to weigh on exports. In essence, the current macroeconomic setup is a gift of time and space. It enables the A-team to execute its reform agenda with less immediate pressure, working to sustain the growth momentum and fortify the economy for the next phase of its ascent.

Structural Risks and the Test of Momentum

The current momentum, while robust, faces a series of structural tests that will determine its durability. The goldilocks equilibrium is not immune to external shocks, and the growth model's reliance on external demand presents a clear vulnerability. Higher tariffs applied by the United States are expected to weigh on exports, especially in labour-intensive and export-oriented sectors such as textiles, chemicals, and engineering goods. This headwind directly challenges the merchandise export sector, which remains a critical component of the growth narrative. While domestic demand is projected to support the economy, the widening trade deficit signals that this external pressure is already taking a toll.

At the same time, the bedrock of broad-based growth-the micro, small, and medium enterprise (MSME) sector-continues to face persistent challenges. Despite strong performance in large enterprises, MSMEs are the bedrock for broad-based growth, accounting for nearly 30% of GDP and over 45% of exports. Their ability to scale and innovate is essential for sustaining inclusive expansion. Yet, they remain vulnerable to policy implementation gaps, access to finance, and the very trade headwinds that hit exporters. The risk is that growth becomes increasingly concentrated in large firms, undermining the sector's role in job creation and diversification.

A third, more subtle pressure is on the inflation front. Current low headline inflation is projected to gradually converge towards the 4% target. This is a positive trajectory, but it carries the clear risk of reigniting price pressures from higher oil import prices. The economy has benefited from a period of easing energy costs, which has helped contain imported inflation. However, any significant spike in crude oil prices could quickly reverse this trend, compressing the fiscal and monetary policy space that has been so carefully preserved. The central bank's survey data already signals some upward pressure on input costs and wages, a reminder that domestic inflationary forces are not dormant.

These are the structural tests the current momentum must pass. The external trade headwind, the unresolved challenges for MSMEs, and the latent risk from energy prices all serve as potential disruptors to the goldilocks equation. The government's neutral fiscal stance and the A-team's execution will be put to the test in navigating these vulnerabilities. The durability of India's political-economic momentum now hinges on its ability to manage these frictions without sacrificing the growth and stability it has so carefully built.

Catalysts, Scenarios, and the Political Calculus

The forward path for India's political-economic momentum is now defined by a handful of decisive catalysts and scenarios. The central near-term catalyst is the outcome of bilateral trade negotiations with the United States. As noted, higher tariffs have already weighed on exports, particularly in key sectors. A successful resolution that leads to lower tariffs would be a direct boost to export volumes and investment sentiment. It would also provide a tangible victory for the A-team's diplomatic and economic coordination, reinforcing the government's narrative of effective global engagement. Conversely, a stalemate would cement the trade headwind, testing the resilience of domestic demand as the sole growth engine.

The key risk, however, lies in the durability of a critical labor market signal. The sharp decline in the unemployment rate to 4.7% in November is a powerful political asset. Yet, the government's central test is whether this improvement, especially the notable drop among women, is fully structural or partly cyclical. If the gains are vulnerable to a downturn in manufacturing or services, the political capital built on inclusive growth could erode quickly. The government must ensure that policy support is robust enough to bridge the gap until the broader economy-particularly MSMEs and exports-regains its own momentum.

For the ruling coalition, the political calculus hinges on timing. The central test is whether policy can sustain growth and employment through the next round of state elections. The economic outlook, with growth projected at 6.7% in FY2025-26 and beyond, provides a solid foundation. But the government's neutral fiscal stance and the A-team's execution must work in concert to manage the trade deficit and inflation risks. The goal is to deliver visible economic stability and job creation in the lead-up to the polls, turning the current goldilocks conditions into a lasting political dividend.

The bottom line is that the momentum is not self-sustaining. It requires active stewardship. The catalysts are clear: a trade deal with the US and a resilient labor market. The risks are equally clear: a trade stalemate and a fragile recovery in women's employment. The government's ability to navigate these factors will determine whether the current political-economic engine continues to run smoothly or begins to sputter.