Dr Aurodeep Nandi of Nomura warns that India's growth model is more fragile than the headline GDP number suggests, and that without stronger domestic demand and a serious R&D push, the middle income trap looms large.
India's GDP growth rate rarely makes headlines for the wrong reasons. At 6–7.5%, it is the envy of most major economies. But at the ET Alpha Wealth Summit's panel on India's growth story, Nomura India Economist Dr Aurodeep Nandi offered a more uncomfortable read, one that cuts beneath the headline and asks whether the quality of India's growth is actually building lasting prosperity.
His verdict: India scores 6 to 7 out of 10 on growth durability today. Getting to 8 or 9 requires a structural shift that has not happened yet.
Nandi was part of the panel discussion on the topic 'India's Growth Story: How Durable it is?at the ET Alpha Wealth Summit in Mumbai last week. Along with Nandi, the panel included Garima Kapoor, Deputy Head of Research and Economist at Elara Securities, Sakshi Gupta of HDFC Bank, and Dharmakirti Joshi of CRISIL. Deepak Ajwani, Editor, ET Digital, moderated the panel.
The India story is not one story
Nandi's first intervention was a corrective. When people talk about the "India story," they assume a single, coherent growth engine. The reality is more uneven. Current growth is being driven primarily by consumption, and specifically, consumption in the top half of the income distribution. India's services exports and remittances are the two pillars quietly holding up the balance of payments even as capital flows remain weak.
What has not kept pace is manufacturing, stuck at around 16–17% of GDP for years. Private investment has not responded meaningfully to either the corporate tax cuts of recent years or the massive public capex push. The conventional economic logic, that government infrastructure spending crowds in private investment, has simply not worked as advertised.
"Why will you invest if your current factory is still operating at 75–80% capacity?" Nandi asked. The answer is you won't, not until domestic demand recovers.
The Middle Income trap is not a metaphor
Nandi introduced one of the panel's sharpest data points. In 1990, India and China had comparable per capita incomes. Today, China's per capita income stands at roughly $14,000 — on the verge of escaping the middle income trap. India's is around $2,500–$2,600. The same lower-middle-income classification it held three decades ago.
Countries that escape this trap, he argued, need more than steady GDP growth. They need the kind of quality growth that meaningfully lifts household incomes, generates domestic demand, and creates a virtuous cycle. India has the former. The latter remains elusive.
Why foreign money is still leaving
When ₹21,000 crore of FII money exited Indian markets in a single day, the reflexive explanation pointed to better returns elsewhere — South Korea's AI rally, higher US yields. Nandi does not disagree, but he pushes further.
Higher US 10-year yields — now around 4.5% — give global investors a clean, low-risk alternative to emerging market exposure. The rupee depreciation risk alone makes India a harder sell when dollars can compound at home.
But the deeper issue is structural. India is not in the AI value chain where it matters most. The country has no presence in frontier AI model development, no dominant position in semiconductor manufacturing, and its main AI roles — data centres and adoption — do not excite global capital allocators in the way chip design or model training does.
At the core of all of this, Nandi argues, is India's chronic underinvestment in research and development. "It is the lack of R&D that has always been there in India, which has to rapidly change," he said, warning that even India's services export strength faces long-term pressure as AI restructures global IT delivery and H-1B visa policies tighten.
The one pocket of optimism
Asked where investors are being too pessimistic, Nandi pointed to two areas. Premium consumption, catering to the upper end of India's income pyramid, remains structurally well-placed. And fears about El Niño derailing the rural economy and spiking food inflation may be overdone: historical data shows that weak rainfall does not reliably translate into either outcome.
India's long-term story is not broken. But building something durable out of it demands harder choices than the headline growth rate suggests.
