Chapter 1.2Indian Economic Outlook through the lens of Rural India
India has moved to become the fourth largest economy in the world, with the GDP touching $4.19 trillion as per IMF’s World Economic Outlook 26th May, 2025. India has rebounded strongly post the pandemic and is projected to be the world’s fastest-growing major economy (6.3% to 6.8% in 2025-26). As per OECD, India’s growth rate is projected to be the highest among the G20 nations. The sustained growth is powered by the investments in public infrastructure, digital connectivity, private consumption and rural transformation initiatives by the government of India.
Inclusive Growth Through Resilient Microfinance Nanaiah Kalengada
1.2 Indian Economic Outlook through the lens of Rural India
India has moved to become the fourth largest economy in the world, with the GDP touching $4.19 trillion as per IMF’s World Economic Outlook 26th May, 2025. India has rebounded strongly post the pandemic and is projected to be the world’s fastest-growing major economy (6.3% to 6.8% in 2025-26). As per OECD, India’s growth rate is projected to be the highest among the G20 nations. The sustained growth is powered by the investments in public infrastructure, digital connectivity, private consumption and rural transformation initiatives by the government of India.
The rural economy contributes close to 46% of the country’s GDP, with over 65% of the population residing in rural India. A range of flagship programs launched by the Government of India are accelerating development and unlocking rural demand. For example improving road connectivity through Pradhan Mantri Gram Sadak Yojana, rural electricity via Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), BharatNet Project for digital transformation, National Rural Health Mission (NRHM) for improving rural healthcare, Pradhan Mantri Awas Yojana-Gramin for providing housing to the economically weaker segment of the society and Mission Amrit Sarovar with an objective to conserve water for future.
- PMGSY has built over 7.8 lakh kilometers of roads, connecting remote villages to markets, schools, and healthcare services, enabling economic activity and access to social services.
- DDUGJY and Saubhagya Yojana have significantly expanded access to power in rural India. As per World Bank data, India has achieved 99.5% coverage on electrification.
- Ayushman Bharat is enhancing rural health coverage and laying the foundation for an integrated digital health ecosystem.
- BharatNet is a rural broadband project by the Indian government aimed at connecting all Gram Panchayats (GPs) with high-speed internet. As per the Ministry of Communication report dt 2nd Aug ‘24, 95.15% villages have access to internet with 3G/4G mobile connectivity, and as of March 2024, out of a total of 954.40 million Internet Subscribers in India, there are 398.35 million Rural Internet Subscribers, enabling digital service delivery seamlessly in rural India.
- MGNREGA, implemented by the Ministry of Rural Development, guarantees 100 days of wage employment in a financial year to every rural household whose adult members volunteer to perform unskilled manual work.
While government-led programs are playing a vital role in uplifting the rural economy, a deeper understanding of its evolving dynamics is essential. Factors such as demographic shifts due to migration, rising rural wages, and the increasing impact of climate change are reshaping rural livelihoods and economic opportunities.
Migration: Migration to urban areas continues to have a dual impact on the rural economy. On one hand, it might lead to a shortage of agricultural labour; on the other, it generates remittances that drive rural consumption. According to the Economic Survey 2023– 24, more than 40% of India’s population is projected to live in urban areas by 2030, based on NITI Aayog projections. The Periodic Labour Force Survey (PLFS) 2020–21 conducted by MoSPI reports that migration patterns include 18.9% rural-to-urban. Interstate migration remains concentrated, with Maharashtra, Gujarat, Delhi, Haryana, and West Bengal as key migrant-receiving states, while Uttar Pradesh, Bihar, Rajasthan, Madhya Pradesh, Uttarakhand, and Odisha are major sourcing states, as per the National Institute of Urban Affairs. The economic impact of remittances is also reflected in the growth of microfinance portfolios in states like Bihar & UP, where remittance flows are likely supporting borrower repayment capacity and credit demand.
Rural Wages: Rural wages have shown consistent growth in FY25. As per Labour Bureau data (April–September 2024), rural wages rose by over 4% year-on-year each month. Agricultural wages increased by 5.7% for men and 7% for women, while in non- agricultural sectors, the growth was 5.5% for men and 7.9% for women. This steady rise in earnings—particularly for women—is a positive signal for the microfinance sector, where over 95% of borrowers are women. Higher rural incomes directly support improved repayment behaviour and loan utilization.
Climate Impact: Climate variability remains a major risk to rural livelihoods, with erratic monsoons, floods, and rising temperatures dis-rupting agricultural productivity. Recognizing this, the Government of India has introduced schemes like the Pradhan Mantri Fasal Bima Yojana (PMFBY) and Agri Stack to improve climate resilience and support farmers. Time and again, adverse weather conditions have impacted microfinance loan performance. However, government-backed initiatives like PMFBY offer some financial protection to vul-nerable rural borrowers, including those ac-cessing microfinance.
Rural India remains a cornerstone of India’s economic growth. The Government of India’s sustained focus on rural development, through initiatives on infrastructure development, digital connectivity, healthcare, housing, and livelihood support, is steadily transforming the rural economy into a more robust and productive engine of growth. Internet penetration provides an opportunity to leverage tech to deliver financial services to rural India. These initiatives are not only enhancing the quality of life and economic participation of rural citizens but are also creating the opportunity for greater financial inclusion and positioning rural India as a key driver of inclusive national development.