India’s Goldilocks phase: A possibility to become the world’s third largest economy

The latest International Monetary Fund (IMF) World Economic Outlook has raised India's growth projection from 6 to 7.3 per cent. It forecasts global growth at 3.3 per cent, signalling India as a key global growth engine.
Economists describe India as entering a Goldilocks phase. This term signifies an economy characterised by strong, sustained growth, moderate inflation and improved macroeconomic stability. If India sustains its growth trajectory, it could overtake Germany and Japan in the coming years and move into the global top three.
Over the last decade, a transparent, broad-based transformation has unfolded across India. It rests on four major pillars that repeatedly surfaced in the Davos 2026 discussions. The first pillar is large-scale public investment in physical, social and digital infrastructure.
The second pillar is inclusive growth, which aims to make gains accessible to all sections of society. The third pillar is the renewed thrust on the manufacturing and innovation sector. The fourth pillar is simplification and deregulation.
A series of reforms has been undertaken to make it easier to start and run a business, reduce red tape and the legal framework; and improve the overall investment climate. These four pillars, combined with rapid technological advances, create new opportunities for productivity gains.
India is looking at macroeconomic growth of 6 to 8 per cent in real terms, 2 to 4 per cent inflation and nominal growth of 10 to 13 per cent, with a 95 per cent confidence interval, over the next five years. The scale of progress can be gauged with a few indicative statistics: 540 million new bank accounts, 800 million people with access to government subsidised monthly food staples through the nationwide food security programme and roughly 250 million people have emerged from extreme poverty.
If these trends continue, India is expected to maintain robust growth in the coming years and attract long-term capital investments as the investors associate India with stability and predictability.
Despite the positive sentiments about India, the Goldilocks phase is neither permanent nor guaranteed. One major concern is global debt, which could reduce capital flows to India.
Financial crisis in major world economies can spill over into emerging economies like India, potentially causing currency volatility and tighter financial conditions. Additionally, geopolitical tensions and supply chain disruptions could directly affect India's trade, limit access to technology and increase energy prices, posing risks to economic stability.
According to Gita Gopinath, an Indian origin economist who is currently a professor at Harvard University and a senior leader at the International Monetary Fund, stated at Davos 2026 that pollution is a crucial roadblock for India. According to the World Bank's 2022 report, 1.7 million lives are lost in India each year due to pollution.
She also spoke on how pollution poses a bigger long term threat to India’s economy than tariffs. She further stated that investor perspectives and confidence could be influenced by the pollution levels and India must address the issue on a war footing, as it is a crisis situation.
Some of the other challenges include land acquisition, deregulation and underutilisation of demographic dividends.
Despite these challenges, the overall mood at Davos 2026 regarding India was one of cautious optimism. Juvencio Maeztu Herrera the Global CEO of Ikea stated that ‘India is a large market with a young population, it is a democracy and has the potential to leapfrog from agriculture to artificial intelligence’. India must build a business-enabling ecosystem, demonstrate committed regulatory governance and continue prudent macroeconomic management to foster growth and development amidst massive competition and shifting trade norms.
The task ahead is to leverage the Goldilocks phase as a springboard to become the third-largest economy in the world by maintaining a sustained and broad-based transformation that improves lives across all sections of Indian society.