Indian economy and business: your questions answered

Good morning from cold and wet London. I am working this week from the FT’s headquarters in Bracken House, getting trained on some useful skills and meeting colleagues in our vibrant newsroom.

Today’s newsletter will be a bit different. If you recall, I’ve been asking you to send me your questions about the union budget and the economy over the past few weeks. Today I am answering those questions. The responses will also be featured in FirstFT Asia, the regional edition of the FT’s flagship weekday briefing (sign up here if you haven’t already). 

Thanks for participating, Jiyan Roytalukdar, Dhrumil Jambudia and others. 

Note: Questions have been lightly edited for brevity and clarity.

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Do you think India’s economy is set to improve now?

That is certainly what the government is hoping for. The tax cuts announced in the budget are expected to put more cash in the hands of consumers in order to get the consumption engine going. Days after the budget, the Reserve Bank of India cut interest rates for the first time in nearly five years. That will also add liquidity in the system. GDP numbers will be announced later today, and we will be able to see if these measures are yielding early results.

However, a few critical issues remain. Inflation numbers are high and so is unemployment. And the government’s capital expenditure is not expanding. The “K-shaped recovery” that economists talk about — where the rich get richer and the poor get poorer — is also a matter of concern. It is unrealistic to expect the economy to fully recover and fire on all cylinders. Some economic indicators will show recovery (I’m betting on encouraging GDP numbers today), but some will continue to lag behind. 

What’s behind India’s high unemployment? How is it different from the UK or EU?

India’s challenges are very different from those of the UK or EU. We have a large and largely young population, which is in contrast to the ageing populations of the UK and EU. According to a report by the International Labour Organization, 33 per cent of young people in India are not in employment, education or training. More worryingly, the report found that the probability of any kind of employment is lower as education rises, except for youth with technical education, and a large part of the educated young are overqualified for the jobs they have. 

India’s unemployment problem does not have a magic fix. Government-funded infrastructure projects are significant generators of jobs, but the government’s spending on infrastructure is not growing significantly. 

For the educated unemployed, the outlook is even grimmer. Technological advancements, especially AI, are eating into the already dwindling job numbers. The gender gap is also acute, with fewer women joining the workforce. There is also a significant regional skew in both skills and employment availability. 

What plans does India have for AI? Do you think they will work?

An AI policy is being worked on both by the central government and by several states. The budget did increase allocation to Rs20bn ($296mn) for the IndiaAI mission, which was launched in April 2024, with an aim to bring AI to various sectors of the economy. This scheme provides start-ups and researchers access to subsidised graphic processing units that will help in building a homegrown generative AI model. 

There is a lot of anxiety that India has missed the boat, especially after the news of China’s DeepSeek. I was at the Nasscom conference in Mumbai earlier this week, and it seemed to me that the technology community was more upbeat. There are a lot of exciting projects that are in development and largely the opinions expressed by industry leaders in the forum was that building a large learning model is not necessary in order to create exciting AI products and services.

Is India’s education sector doing well? What will it take to build good educational institutions here? 

Education in India is one of those tricky areas, where private capital has transformed select sections. The K-12 bracket is a lucrative segment for private investment as parents are willing to devote a significant chunk of their monthly earnings to ensure a better quality of education for their children. This is true for both urban and rural India and across most income classes. The quality of government-funded schooling varies state by state. While some, like Kerala and Delhi, have shown significant transformations, others are still plagued by crumbling infrastructure and absent teachers.

At the college level, things are more complicated. Institutions come up as responses to market demand, depending upon the economic flavour of the decade, and then disappear as these sectors reach saturation. Think private engineering colleges in the 1990s or pilot training and air hostess schools in the 2000s. Only a handful of institutions have managed to adapt to these changes in the job market and endure.

Building a good educational institution in India is not for the weak-hearted. The high level of capital investment that is required is just the beginning, operational challenges are even more significant, starting with access to high quality, qualified teachers. One of the points in the joint statement after Narendra Modi’s meeting with Donald Trump was that American universities would be encouraged to set up campuses in India. I’ll be watching the space to see what happens.

What’s going on with the stock market?

Indian stocks have been on a downward trajectory since October 2024. The benchmark index has slipped 13 per cent from the highs in September. Foreign portfolio investors have been taking money out of Indian equities during this time, seeking better returns in other markets, such as the US (Trump trade, as it is now called) and China (DeepSeek trade).

There are no immediate positive cues to turn Indian markets around. Selling pressure continues, especially on small and mid-cap stocks which have seen the sharpest fall so far. Domestic market participation has been fuelled in the past few years by systematic monthly investment plans. If market returns continue to be negative and investors stop their contribution to these plans, it will lead to a further fall. In a poll on Feb 18, we asked India Business Briefing readers what their stock market strategy was, and 53 per cent said they were planning to hold their stocks while 28 per cent were buying the dips.

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Buzzer round

Why is the Tokyo government planning to allow staff to work four-day weeks?

Send your answer to indiabrief@ft.com and check Tuesday’s newsletter to see if you were the first one to get it right.

Quick answer

On Tuesday we asked: Do you think India is leading in both the adoption and governance of AI? This is how you voted.

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Thank you for reading. India Business Briefing is edited by Tee Zhuo. Please send feedback, suggestions (and gossip) to indiabrief@ft.com.