By Shivanand Pandit
The Economic Survey 2025–26 arrives at a moment of profound global disruption. Trade fragmentation, geopolitical conflicts, volatile capital flows, technological realignments, and the erosion of a rules-based international order have fundamentally altered the global economic landscape. Against this backdrop, the Survey presents a nuanced assessment of India’s economic resilience while issuing a clear warning: macroeconomic stability alone will no longer suffice. The next phase of India’s growth must be anchored in competitiveness, productivity, and institutional strength. Projecting real GDP growth of 6.8 to 7.2 per cent in FY27 and revising India’s potential growth upwards to 7 per cent, the Survey exudes confidence in domestic fundamentals. Yet, it consciously tempers optimism with realism, emphasising that sustaining growth in a harsher external environment will demand policy agility, fiscal discipline, and deeper structural reforms.
Beyond the Headlines
India’s near-term growth prospects remain robust, supported by healthy domestic demand, stable inflation, strong corporate and bank balance sheets, and comfortable foreign exchange reserves. The Survey rightly notes a “growth paradox” — where despite sound macroeconomic fundamentals, the rupee has weakened and capital flows have been volatile. This, it argues, reflects global risk aversion rather than domestic fragility. However, the Survey implicitly acknowledges that India’s room for policy complacency has shrunk. With the economy operating close to potential, future growth gains will depend less on cyclical support and more on raising investment rates and total factor productivity. Private investment, while improving, remains uneven, and its revival will hinge on policy predictability, lower cost of capital, and regulatory certainty.
One of the Survey’s most consequential departures from conventional thinking lies in its treatment of the current account deficit (CAD). Challenging the notion that emerging economies can comfortably run persistent CADs, it argues that in a world of high global interest rates and volatile capital flows, such deficits impose a rising “risk premium”. The Survey makes a compelling case that manufacturing-led exports, rather than services alone, are essential for external stability, strategic autonomy, and shock absorption. Services exports, it notes, have already carried much of the burden. The next phase requires India to scale up its manufacturing footprint within global value chains. Yet, a critical gap remains: while production-linked incentives (PLIs) are acknowledged, the Survey cautions against complacency. Without performance accountability, PLIs risk creating inefficient enclaves. What remains under-emphasised is the need for large-scale investment in skills, R&D, and technology adoption, without which manufacturing competitiveness cannot be sustained.
The Survey introduces a mature reinterpretation of self-reliance — “strategic swadeshi” — distinguishing it clearly from blanket protectionism. It advocates intelligent import substitution only in areas of critical national vulnerability, while warning that equating resilience with protection would undermine export competitiveness. This balanced framing is welcome. However, execution will be challenging. India’s tariff structure remains complex, and non-tariff barriers such as quality control orders risk becoming de facto trade barriers if not rationalised. The Survey’s implicit endorsement of deeper trade integration — including through FTAs and potential entry into large trade blocs — must be matched by decisive action in the forthcoming Budget.
On fiscal policy, the Survey underscores that fiscal consolidation is no longer optional, especially as India becomes more integrated with global bond markets. While the Centre’s consolidation efforts are commendable, the Survey flags a growing concern: deteriorating state government finances. Rising revenue deficits, increasing debt levels, and the proliferation of unconditional cash transfer schemes threaten expenditure quality and long-term growth. The Survey correctly identifies capital expenditure as the most reliable driver of per capita income growth, warning that populist transfers without sunset clauses could erode fiscal space and raise sovereign borrowing costs. A notable recommendation is the call for greater transparency and standardisation of state-level fiscal data, including off-budget liabilities. Without market-based differentiation in borrowing costs, fiscally prudent states are unfairly penalised — a distortion that weakens accountability.
Despite India’s macroeconomic stability and market size, FDI inflows remain below potential. The Survey’s proposal for a “single, empowered centre of accountability” to engage global investors is pragmatic and overdue. Fragmented institutional processes and regulatory unpredictability continue to deter long-term capital. However, the Survey could have gone further in addressing why risk capital in emerging technologies bypasses India. Beyond facilitation, investors seek credible dispute resolution, policy stability, and execution certainty over multi-year horizons. Without strengthening these institutional foundations, promotional efforts alone will have limited impact.
The Survey’s recommendation to shift from entity-based to activity-based regulation reflects a forward-looking understanding of financial innovation. As banks, NBFCs, fintechs, and markets increasingly overlap, regulatory silos create blind spots and arbitrage opportunities. A diversified financial ecosystem can lower capital costs and enhance resilience — but only if regulatory coordination improves. The Survey correctly notes that stability-focused regulation must now evolve towards proportionality and contestability, ensuring innovation without compromising systemic safety.
Among its medium-term concerns, the Survey’s treatment of urban stress is particularly insightful. Rapid urbanisation has not translated into commensurate productivity gains, constrained by weak governance, poor planning, and infrastructure strain. The suggestion to grant greater autonomy and use data-driven planning merits serious consideration. Equally notable is the proposal for an economic agency on artificial intelligence, tasked with enhancing productivity while mitigating labour disruption. Given India’s large workforce, the AI transition poses both an opportunity and a risk — an area where proactive policy will be critical.
New Reality, Old Rules
The Economic Survey 2025–26 opens with a candid assessment of the global environment, acknowledging that economic policymaking worldwide is now driven less by efficiency and multilateralism and more by security, geopolitics and domestic political considerations. It recognises intensifying geopolitical conflicts, the weaponisation of energy and finance, technology controls through export restrictions, and the erosion of genuinely free trade. The Survey even notes the rise of ultra-nationalism and inward-looking economic strategies that are narrowing the space for global cooperation. However, this honesty fades when the Survey turns inward. Despite detailing global headwinds with clarity, it stops short of applying the same rigour while assessing domestic economic conditions, leaving its conclusions open to scepticism.
Relying on the First Advance Estimates, the Survey projects real GDP growth of 7.4% in FY26, attributing it to resilient domestic demand, capital formation, improving manufacturing activity and strong services growth. Yet a closer look at sectoral data reveals limited movement in mining, manufacturing, utilities and construction—sectors most vulnerable to global shocks. Moreover, ongoing trade negotiations and tariff concessions, particularly under the India-EU deal, are likely to affect domestic manufacturing across agriculture, automobiles, machinery, chemicals and electronics. In contrast, services emerge as the true growth engine, with services exports reaching a record $387.5 billion in FY26.
The Survey repeatedly asserts that manufacturing is “gaining traction”, pointing to stable Gross Value Added at 17 to 18 per cent of GDP and projected growth of 6.2 per cent. At the same time, it attributes manufacturing’s stagnant GDP share to relative price effects rather than weak output, raising unresolved questions about output quality, value addition and competitiveness.
While advocating strategic indispensability and arguing that “Swadeshi is inevitable”, the Survey remains cautious on import substitution and instead calls for scaling manufacturing in the mould of late-industrialising economies. Yet concrete policy pathways to achieve this transformation remain unclear, pending budgetary action.
On inflation, the Survey highlights easing price pressures and improved purchasing power. This assessment, however, contrasts with lived experience. Headline inflation has declined largely due to seasonal factors, while core inflation remains elevated, driving up costs of housing, healthcare, construction and raw materials—pressures felt by households and small businesses alike.
The Survey also strikes an uncritical tone on employment. It praises government initiatives such as skill programmes, the e-Shram portal and the four labour codes, portraying them as balanced reforms. This optimism overlooks widespread criticism that the labour codes weaken worker protections while increasing employer flexibility. Notably, MGNREGA finds little mention in the employment chapter and is instead described elsewhere as having “reached its limits”, making way for a new legislative framework.
Similarly, the discussion on gig and platform workers focuses more on formalisation through documentation than on meaningful income security or wage protection. Proposals to digitally track employment through systems such as UAN IDs raise concerns about surveillance and exclusion rather than empowerment.
On artificial intelligence, the Survey suggests workers adapt by shifting to AI-resistant occupations such as caregiving, baking or environmental restoration—recommendations that appear disconnected from the scale and complexity of labour market disruption likely ahead. In sum, while the Economic Survey presents a confident narrative of domestic stability despite global turbulence, it glosses over structural weaknesses, policy trade-offs and distributional stresses. The result is a document that acknowledges global disorder but appears unusually assured about India’s internal resilience—raising questions about whether optimism has replaced honest economic introspection.
Time to Act
The Economic Survey 2026 carefully avoids the extremes of celebration or alarmism. Instead, it reflects a sober understanding that India has moved into a new phase of development where the principal challenge is no longer merely sustaining growth, but ensuring that growth is durable, inclusive, and of high quality amid an increasingly hostile global environment. The Survey’s core message is unambiguous: economic resilience in the years ahead will depend on India’s ability to enhance competitiveness, expand goods exports, strengthen institutions, and build robust execution capacity across all levels of governance.
However, frameworks and diagnoses, however well-articulated, are only as effective as their implementation. The true test of the Survey’s relevance will lie in policy follow-through. Without clear and credible reform signals in the Union Budget, backed by sustained political will and administrative discipline, many of the Survey’s insights risk remaining well-intentioned aspirations rather than transformative outcomes. In a world where uncertainty, fragility, and episodic shocks are no longer temporary disruptions but enduring structural features, India cannot afford the luxury of choosing between caution and ambition. It must simultaneously protect macroeconomic stability while actively pursuing growth-enhancing reforms — playing defence against external risks while going on the offensive to build economic scale and strategic influence.
Ultimately, it is this ability to convert intent into execution — rather than headline GDP growth numbers alone — that will determine whether India successfully transforms the current phase of global turbulence into a lasting foundation for economic strength and geopolitical relevance.
