The Paradox of Political “Stability” and Economic Fragility in Modi’s India

How is it that the BJP is politically conquering almost the whole of India, yet appears to be on the losing side of the economy? How is it that its seemingly unimpeachable political stability is not helping the Indian economy glow? Is it even correct to label India as the “fastest growing economy in the world”? Is it fallacious to argue that the present economic predicament is not merely born out of the Iran war and its repercussions, but is in fact structural and predates the war itself? How is it that despite stable macroeconomic indicators, the currency is falling like ninepins? Prof. Surjit Bhalla tried to answer many of these questions in his article “BJP is winning elections but losing the economy” , published in The Indian Express on 21 May 2026. Bhalla, who has long been close to the establishment, particularly the Modi regime, effectively dismissed Modi’s claims of “austere” measures and moral appeals asking citizens to save foreign exchange as little more than band-aid solutions. He pooh-poohed the claim that India is the fastest-growing economy in the world. He ridiculed Finance Minister Nirmala Sitharaman’s repeated argument that investors are “dying” to invest in India because it is a massive market. Bhalla asks a pointed question: if India is indeed such an irresistible investment destination, why are domestic investors themselves searching for greener pastures abroad? Unsurprisingly, his article created waves. True to his long-held theoretical positions, Bhalla arrives at one central prescription as the panacea for India’s dwindling economic position: improve the investment climate. Both foreign and domestic capital, especially Foreign Direct Investment (FDI), must be given maximum freedom. Bhalla is critical of the government’s economic governance, though his criticism comes from a distinctly neo-liberal angle. Remove restrictions. Liberalise further. Allow freer movement of foreign capital. According to him, this alone can solve the currency problem and many other economic weaknesses. He also rubbishes the claim that India is the fastest-growing economy. According to him, Bangladesh, with around 8.3 percent annual growth, outpaces India. “It is better to dispense with the moniker that we are the fastest growing,” he argues, placing India’s real growth closer to 4.7 percent. [1] The Conundrum of Currency Fragility Bhalla notes that many macroeconomic indicators appear stable. Political stability is unusually strong, almost resembling a one-party dominance across India. Current Account Deficit figures remain manageable. Inflation is relatively under control. Growth numbers appear steady. Yet why is the rupee sinking? Why does political stability coexist with currency fragility? Bhalla highlights several alarming facts: The rupee has declined for seven consecutive years. Last year alone, it depreciated nearly 12 percent against the US dollar. In 2025, it was among the worst-performing currencies in South Asia. [2] What then is the “surgical” policy he advocates? India, he says, must become attractive for investment again – attractive both to domestic and foreign capital. According to Bhalla, the government is indulging in knee-jerk responses. It is applying “band-aids” where “surgery” is required. Modi’s appeals asking Indians to invest at home are, in Bhalla’s view, economically ineffective. Capitalists are pragmatic. They do not respond to emotional or nationalist appeals. Profits – what Bhalla calls “economic incentives” – drive investment decisions, not patriotic exhortations. Domestic investors, Bhalla argues, are uncertain about government policy and unconvinced about the long-term business climate. Foreign investors too are unhappy. FDI is slowing. Yet Bhalla insists that higher FDI generally correlates with higher GDP growth because it brings technological advantages, capital flows, and integration into global supply chains – from raw materials to production to final markets. India’s Big Market Illusion Bhalla argues that India must abandon the mindset that merely being a “big market” automatically guarantees foreign investment. Is India really that large economically? He gives a striking comparison: India’s GDP is now roughly comparable to that of California alone. California, with a population of around 39 million people, has an economy roughly similar in size to India’s economy of nearly 1.4 billion people. [3] Bhalla argues that India continues to discourage foreign investment through long-standing protectionist policies designed to shield domestic capital. He points particularly to the Bilateral Investment Treaty (BIT) framework of 2015 and the expansion of Quality Control Orders (QCOs), which often generate bureaucratic delays and regulatory hurdles. He cites the rapid increase in QCOs [4]: from merely 14 in 2017 to nearly 765 in 2024. Foreign investors, he notes, are also compelled to wait five years before exiting partnerships and pursuing international arbitration, after first exhausting remedies in Indian courts. Such restrictions, Bhalla argues, discourage investment confidence. Even the government’s proposed review of the BIT framework, announced by Sitharaman, may not satisfy foreign investors because the core structure remains intact. At best, the waiting period may be reduced from five years to three. Bhalla therefore advises the government to use the present Middle East crisis as an opportunity to push through major reforms. Improve the business climate. Liberalise investment rules. Give capital maximum freedom with minimal restraints. Political stability alone, he argues, does not create investor confidence. Summary of Bhalla’s Position Bhalla’s entire effort is directed towards convincing the government to remove obstacles before foreign capital. FDI, according to him, is the best route toward real GDP growth. Do not boast about growth percentages, he warns. Do not assume India’s market is already irresistible. Political victories alone do not attract investors. Create an investment-friendly atmosphere. Offer incentives. Remove restrictions. Liberalise further. Give maximum freedom to capital. India, meanwhile, appears to be facing a deepening economic crisis. Government claims regarding GDP growth increasingly appear detached from lived economic realities. Modi’s appeals for “austere measures” reflect anxiety rather than confidence. One thing, however, is becoming increasingly visible: voices that once remained muted are slowly becoming vocal. At the Confederation of Indian Industry (CII) Annual Business Summit 2026 in New Delhi on 12 May 2026, Uday Kotak warned that India and the world were entering a volatile “tribal” geopolitical phase unlike the relatively stable post-1945 era. He argued that India had remained in a comfort zone for too long and called for “a little paranoia” or “strategic paranoia” to prepare for wars, oil shocks, supply-chain disruptions, and the structural transformations being driven by geopolitics and AI.[5] The writing on the wall is becoming harder to conceal. Political Stability or Manufactured Hegemony? The present “stability” itself may not be as organic as it appears. An ineffectual opposition, a largely servile mainstream media, sections of the judiciary increasingly striving for “greater cohesion” with the executive, the aggressive use of state machinery against dissent, and the tightening grip over constitutional bodies together create the appearance of political invincibility. Bhalla himself reportedly observed that the BJP’s “performance in West Bengal” could become a “resounding endorsement for Modi in 2029.” Yet beneath this appearance of strength, serious cracks are visible. Can such stability endure amid worsening economic contradictions? Political unrest continues to simmer. Massive protests erupted against the Citizenship Amendment Act and the proposed NRC. Farmers forced the government to repeal the farm laws after a prolonged agitation. The so-called double-engine government failed to contain the ethnic cauldron in Manipur. Refinery workers, labourers in Manesar, and migrant unorganised workers in Noida have repeatedly demonstrated how the new Labour Codes work against them. On 12 May, the Chief Justice reportedly made disparaging remarks about unemployed youth, calling them “cockroaches.” Days later, on 16 May, satirical online activists launched the “Cockroach Janata Party,” whose social media following exploded to nearly 19.5 million within days, surpassing the BJP’s online following figures. Its account was now withheld showing “secuity reasons”. If “cockroaches can cause security concerns” still only in the cyber space, how shaky our government is? Whether symbolic or satirical, such incidents reveal something deeper: discontent is widening beneath the surface. Pyrrhic Victories and a Shaky Throne The BJP’s electoral dominance increasingly resembles a pyrrhic victory – victories won by hook or by SIR. Political centralisation may project strength, but it cannot indefinitely substitute for broad-based economic confidence. The contradiction is becoming sharper: unprecedented political consolidation alongside deepening economic anxiety. If capital itself lacks confidence, if investors are uncertain, if unemployment grows, if the currency weakens year after year, then electoral victories alone cannot stabilise the foundations of the state. The throne may appear secure, but the ground beneath it is becoming unstable. History repeatedly shows that regimes often appear strongest immediately before structural crises erupt into open political turbulence. Economic distress accumulates silently before it acquires political language. What begins as murmurs among economists, bankers, workers, farmers, students, and satirical online movements can eventually crystallise into a broader social mood. That is perhaps why establishment voices themselves – from Bhalla to Kotak – are sounding increasingly anxious. One warns that India’s economy has “ hit a low and no guarantee that it cannot further low. Uday Kotak cautions that India had remained in a comfort zone for too long and argued that “a little paranoia” or “strategic paranoia” was necessary for businesses and policymakers to prepare in advance for shocks arising from wars, oil disruptions, supply-chain conflicts, and structural global changes driven by geopolitics and AI. The anxiety is no longer confined to critics outside the establishment. It is now emerging from within. Footnotes [1] It is not only Surjit Bhalla who has questioned the official GDP estimates. Several eminent economists and statisticians have, at different times, questioned the reliability of India’s post-2011 GDP growth figures. Arvind Subramanian argued that growth between 2011-12 and 2016-17 may have been overstated by about 2.5 percentage points because of methodological changes. And because of the disconnect between GDP and other indicators such as exports, investment and credit growth. Prof.Arun Kumar contended that the informal sector’s decline after demonetisation, GST and the pandemic was inadequately captured in official data, making actual growth far lower than reported. Raghuram Rajan questioned whether high GDP growth was consistent with weak employment and wage trends. Pronab Sen highlighted methodological and informal-sector measurement problems. P. C. Mohanan raised concerns over weakening statistical credibility and data quality. Ashoka Mody and Jean Drèze similarly pointed to the mismatch between headline GDP growth and indicators such as consumption, employment and rural distress. [2] Exchange Rate: As of 21 May 2026, one US dollar is approximately equal to ₹96.3 Indian rupees. [3] QCOs: QCOs are government regulations mandating that products conform to specified standards before they can be manufactured, imported, or sold in India. Critics argue that excessive QCOs create bureaucratic delays and discourage foreign investment. [4] GDP Comparison: California’s nominal GDP reached a record $4.25 trillionin 2025. India GDP (2025) India’s GDP at current prices was approximately $3.92 trillion in 2025, around $4.1 trillion according to IMF estimates. Source: Statista. [5] Business Today — “Get ready for tough times: Uday Kotak’s warning as Iran conflict impacts India, triggers WFH warning” , published 12 May 2026