2026 has begun with a sense of cautious optimism that the economy is experiencing a cyclical upswing. Recent GDP prints have surprised to the upside, credit growth is accelerating and some surveys reveal business sentiment may be firming. Near-term buoyancy should not be surprising. The economy has benefitted from a raft of supports in 2025: GST and income tax cuts, monetary and regulatory easing, positive terms-of-trade impulses from lower crude prices, and a second successive strong monsoon. Together, these tailwinds are driving a cyclical lift. The real question is: What will it take for growth to remain strong once the cyclical impulses fade? To do so, the economy must successfully navigate two rotations.

The first rotation is of demand drivers. Post-pandemic growth was driven by a surge in public investment, a revival of the real estate sector, and strong service exports. But several of these impulses are fading. Central capex grew 30 per cent annually for four years post-pandemic but this pace was always going to strain the economy’s absorptive capacity. So, central capex has downshifted to around a 10 per cent annual pace even as state capex risks being cannibalised by competitive populism. Meanwhile, residential real estate has slowed sharply over the last year, unsurprising because it was being driven narrowly by the upper echelon, who have likely reached some saturation point. For the recovery to sustain, demand needs to rotate towards the post-pandemic laggards of private consumption and private investment. What will this entail?

Urban and rural consumption have been in a game of whack-a-mole since the pandemic. Can they finally grow in........

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