Ashraf Engineer
July 16, 2026
I had a thought-provoking conversation recently with a political scientist from a leading American university. I told her that I see hope as an economic variable, as real and consequential as interest rates or inflation. She agreed but pointed out that hope is not simply a positive force. It can spur action with good consequences, but it can also produce irrational behaviour that causes serious damage.
I decided to dig up all I could on the topic. Turns out economists have wrestled with it for decades.
The four-letter word we don’t talk about
Every Budget speech, every monetary policy review, every GDP projection is built around variables we treat as the true measures of economic health: growth, inflation, employment, the current account deficit… These are the numbers that make headlines but there is another variable operating underneath, which determines whether households spend or save, whether entrepreneurs take risks or sit tight, whether workers migrate or stay put. That variable is hope.
It may appear to be a soft concept but it is, in fact, the precondition for most economic decisions. The middle-class family that takes a 20-year home loan is not doing so because a spreadsheet assured them it would be fine. They are doing so because they believe their income will hold and improve, that the apartment will increase in value. That’s hope and, when it translates into action across millions of households simultaneously, it moves the economy.
The numbers back this up. Housing finance has expanded at a steady pace with outstanding individual home loans at Rs 37 lakh crore, a rise of nearly 10 times over the past decade, according to the Economic Survey 2025-26.
In September 2024, individual outstanding home loans stood at Rs 33.53 lakh crore, with the middle-income group accounting for 44% of this debt. These are not wealthy families with safety nets but people making a bet on their future. That bet is hope, expressed in EMIs.
The economists who saw it
John Maynard Keynes came closest to naming it directly. In his ‘General Theory of Employment, Interest and Money’, written in 1936, he described “animal spirits’, the instinctive urge to act that drives people forward even when rational calculation counsels caution. As he wrote, “Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” Hope is the most constructive such spirit. It is the precondition for risk-taking, and risk-taking is the precondition for growth.
Albert Hirschman, the political economist who worked on development thinking, wrote about the “possibility of development”, the belief, held widely enough, that things can get better through collective action. That belief does not emerge from data. It emerges from institutions people trust, from visible stories of mobility, from a sense that the rules of the game are fair. Without it, even the most rational policy interventions lose traction.
India’s startup boom is perhaps the clearest example of hope functioning as an economic input. In 2016, when the Startup India initiative was launched, there were roughly 500 formally recognised startups in the country. By December 2024, according to the Department for Promotion of Industry and Internal Trade (DPIIT), that number had crossed 1.59 lakh. By 2025, India had crossed 2 lakh DPIIT-recognised startups, the third-largest startup ecosystem in the world, behind only the US and China. Analysts note that 49,160 startups were added in 2025 alone, the largest single-year addition since the initiative began.
What drove this? Policy support, capital availability, etc, yes. But underpinning it was a generation that believed that starting a company was a viable path. That belief, seeded by early successes like Flipkart and Infosys, and watered by government narrative, is hope translated into economic activity at scale.
The downside of hope
My political scientist friend’s caution deserves to be taken seriously. Hope untethered from fundamentals is not a resource, but a liability.
The 2008 global financial crisis was, in part, a story of institutionally manufactured hope (subprime mortgages, dressed up as the American dream, sold to people who couldn’t afford them). The hope was real but the foundation wasn’t. When it collapsed, it took years to rebuild trust in the system.
India has its own version of this risk. The real estate sector has, at various points, run on manufactured confidence – projects sold on renders that were never built, delivery timelines that were never met. The Real Estate (Regulation and Development) Act, 2016, (RERA) was, in part, a recognition that unchecked hope in this sector has caused enormous harm to buyers who bet their savings on promises that weren’t kept. Regulatory credibility, in this sense, is a hope-management tool.
The flipside is equally important: despair travels faster than hope. A financial crisis, a failed monsoon, a policy shock can destroy economic confidence in days. Rebuilding it takes years. This is partly why recoveries feel so much slower than the crises that precede them. The household that watched its neighbours lose their home won’t return to borrowing when interest rates fall. It will wait for a sustained period of visible stability before trust and hope return as behaviour.
India experienced this in a raw way during the COVID-19 pandemic. The sudden lockdown of March 2020 devastated informal-sector incomes and triggered mass reverse migration. Urban unemployment hit 15.4% in June 2021 and the GDP contracted to a four-decade low. The economic damage was severe. But the damage to hope – the erosion of the belief that tomorrow would be better – was more consequential, because it persisted long after the indicators began recovering.
Hope as a political construct
Hope is not politically neutral either. Governments construct it, deliberately. A credible development narrative, whether or not it fully delivers, generates real economic activity because enough people believe in it and act on it. Conversely, policy uncertainty, institutional erosion and perceived unfairness drain hope even when GDP numbers look fine.
India’s inequality data is a case in point. The World Inequality Lab’s report, co-authored by economists including Thomas Piketty, found that by 2022-23, India’s top 1% controlled 22.6% of national income and 40.1% of national wealth – historically unprecedented levels. The Oxfam India report was stark: the bottom half shared just 3%.
The person in the bottom quarter of the income distribution who watches wealth concentrate at the top is not experiencing growth but a hope deficit, which has economic consequences. It suppresses consumption, discourages investment in children’s education, accelerates migration from rural to urban areas and, at its extreme, generates social instability.
This is not an argument against growth. It is an argument that growth without visible, distributed benefits corrodes the very optimism that sustains it.
The policy problem
Managing hope is harder than managing a repo rate. It requires institutions that people trust, policies that deliver visible outcomes across income groups, and a media and public discourse that allows honest accounting of both progress and failure.
What India needs, but has not yet fully built, is a hope architecture – a framework that treats belief in the future as a strategic resource to be nurtured rather than a byproduct of good policy. That means credible housing delivery for the middle-class, not just announcements. It means startup ecosystems that reach Tier 2 and 3 cities with real capital, not just registration numbers. It means inequality that is honestly acknowledged and addressed, not papered over by headline GDP.
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Whether you go with Hirschman and call it the “possibility of development” or Keynes’ “animal spirits” or my political scientist friend’s “often-undiscussed variable”, India’s policymakers should be measuring hope as carefully as they measure inflation. And they should understand that when you lose it, neither a rate cut nor a spending package brings it back overnight.
That is the lesson that recoveries keep teaching and that economies keep forgetting.
