Every year, the Economic Survey (ES) sets the background for the Union Budget. While the Budget answers the “what”, the Survey explains the “why”. The Economic Survey 2025–26 has been presented amidst elevated global uncertainty and growth challenges.
2025–26 does not focus on short-term stimulus or big announcements. It draws attention to the measures needed for preparing India for a tougher, less predictable world.
Key message of ES-2026: India’s growth story is strong—but sustaining it in a fragmented, geopolitically tense world requires discipline, competitiveness, and state capacity, not shortcuts.
Summary:
· Growth is strong, but must be defended
· Discipline beats populism
· Competitiveness beats protection
· Process reforms beat flashy schemes
· For long-term investors, this Survey reinforces one message:
· India’s opportunity lies not in quick wins, but in steady, structural progress.
Global Context: A World That No Longer Rewards Good Behavior
Global volatility is not cyclical anymore—it is structural. India’s policy response is shifting from optimization to resilience.
The Survey candidly highlights that globally growth exists, but it is fragile, uneven, and increasingly driven by geopolitics rather than economics.
Trade policy is now shaped by national security. Capital flows are volatile. Financial markets are pricing uncertainty, not optimism. Even countries with sound macro fundamentals are no longer guaranteed currency stability or steady capital inflows.
For India, this is an important reality check. Strong growth, low inflation, and healthy banks are necessary but no longer sufficient.
India’s Macro Picture: Strong, Stable, and Improving
India’s potential growth rate is higher than before—but sustaining it needs continuous reform.
Despite global headwinds, India’s domestic fundamentals look solid. Growth has remained strong through 2025. Inflation is largely contained, with food prices being the main source of volatility. Banks are well-capitalised and credit growth is healthy. Corporate balance sheets are strong. Public investment has lifted overall economic capacity.
A key upgrade in this Survey is the revision of India’s potential growth rate to 7%, up from 6.5% earlier. This reflects sustained infrastructure creation, logistics improvements, and gradual productivity gains.
Fiscal Policy: Discipline Is No Longer Optional
Loose fiscal behavior in states can raise borrowing costs for everyone. Expect Budget 2026 to double down on fiscal discipline and subtly discourage populism.
One of the strongest chapters in this Survey is on fiscal developments. The message is firm: fiscal credibility has become a strategic asset.
The Centre has met its consolidation targets, reducing the fiscal deficit sharply from pandemic highs. However, the Survey raises a red flag on state-level fiscal behavior, especially the rise of unconditional cash transfers and revenue deficits.
With Indian government bonds now globally indexed, investors are increasingly looking at general government finances, not just the Union Budget.
Cost of Capital: The Structural Problem Nobody Can Ignore
Lower interest rates alone won’t solve India’s investment challenge. Export competitiveness and productivity matter more.
The Survey makes a crucial point that often gets missed in market commentary:
India’s high cost of capital is not just about interest rates—it is structural.
Countries that run persistent current account deficits must pay a premium for global capital. Until India becomes a stronger exporter of goods (not just services), borrowing costs will remain relatively high.
Energy costs and inverted tariffs further add to the competitiveness challenge.
External Sector: Services Help, Manufacturing Anchors Stability
Manufacturing-led exports are back at the center of India’s long-term strategy.
India’s services exports—especially IT—have done heavy lifting for years. They stabilize the balance of payments and generate foreign exchange.
But services exports cannot substitute for manufacturing exports when it comes to currency strength, employment scale, and institutional upgrading.
A notable positive development is the recently concluded India–EU Free Trade Agreement, which opens doors for labor-intensive manufacturing exports and deeper technology integration.
Industry and Manufacturing: Protection Is Not the Answer
Policy support may favor competitiveness over comfort.
While strategic indigenisation is necessary, excessive protection of upstream industries raises costs for downstream exporters. This weakens competitiveness rather than strengthening it.
The focus going forward should be on (i)Innovation and R&D; (ii) MSME scale-up; (iii) Logistics efficiency; (iv) Integration into global value chains; and (v) Lowering the cost of capital and inputs is seen as more effective than raising tariff walls.
Infrastructure: From Building Assets to Using Them Well
Infrastructure themes remain intact, but returns and efficiency will matter more than headline capex numbers.
Public infrastructure spending has been a major growth driver over the past decade. The Survey acknowledges its success—airports have doubled, freight movement has improved, and logistics bottlenecks are easing.
The next phase, however, is about utilisation, execution quality, and private participation. Simply spending more is no longer enough.
Inflation: Tamed, But Climate-Sensitive
Inflation risks are structural and climate-linked, not demand-driven.
Inflation has moderated globally and domestically. Core inflation is subdued, signalling stronger supply-side conditions.
However, food inflation remains volatile due to climate shocks—heatwaves, uneven rainfall, and crop disruptions.
This links inflation management directly to climate adaptation, logistics, and agricultural productivity.
Agriculture: Productivity Over Price Support
Agri reforms may be gradual, but value addition is the real opportunity.
Agriculture continues to employ a large share of India’s workforce, but income stability depends on productivity, not just support prices.
The Survey stresses on crop diversification; better irrigation and water use; stronger food processing and allied sectors; food management systems and supply chains are critical to both farmer incomes and inflation control.
Climate Policy: Sequencing Over Speed
India’s green transition will be practical, not ideological.
Unlike earlier years, the Survey takes a pragmatic stance on climate action.
It emphasizes, mitigation matters but adaptation, energy security, and affordability matter just as much. A rushed transition that raises costs or increases import dependence can hurt competitiveness.
Public transport, climate-resilient infrastructure, and domestic clean-tech manufacturing get priority.
Employment and Skilling: Getting the Basics Right
Human capital quality, not just job numbers, will shape long-term growth.
Employment indicators have improved, but skill mismatches persist. The Survey is realistic about AI. It sees AI as a productivity enhancer, not an immediate job destroyer—but warns against over-investment driven by hype. Education–industry linkages, apprenticeships, and on-the-job training are highlighted as critical.
Urbanization: The Missing Economic Engine
Urban infrastructure and governance reforms are emerging as a long-term theme.
One of the most striking additions to this Survey is its deep dive into urbanization.
Indian cities lack fiscal autonomy, planning capacity, and economic agency. Housing, transport, sanitation, and land constraints are holding back productivity.
The Survey argues that cities must be treated as engines of growth, not administrative units.
The Bigger Idea: The Entrepreneurial State
Threaded through the Survey is a larger idea—the need for an entrepreneurial state.
This does not mean state control or state capitalism. It means:
· Faster decision-making
· Smarter regulation
· Willingness to experiment and course-correct
· Trust-based governance
· Deregulation, process reform, and institutional capability are framed as growth enablers.
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