Capital flow disruption, INR impact key risks for India in 2026: Eco Survey

The Economic Survey 2025-26 highlighted three possible scenarios emerging in the year ahead that can have an impact on how the global economies shape up going ahead

A disruption in capital flow and its impact on the Indian rupee are among the key risks for India in 2026, Economic Survey 2026 pointed out Thursday. It highlighted three possible scenarios emerging in the year ahead that can have an impact on how the global economies shape up going ahead.  Though India is relatively better off than most other countries due to its strong macroeconomic fundamentals, the survey points out that it does not guarantee insulation.

 

There is a lingering concern that the negative effects of the ongoing global political and economic turmoil may manifest with a lag, the survey cautions. Fragility, uncertainty and episodic shocks, it said, are increasingly structural features of the system, and the balance of risks has shifted perceptibly over the past year.  

 

 

Geopolitical competition has intensified, the security environment in Europe has become increasingly complex, and financial vulnerabilities associated with leveraged technology investments are looming. Trade policy is now shaped primarily by security and political considerations rather than efficiency or multilateral rules. Taken together, the survey said these developments suggest a world that is less coordinated, more risk-averse, and more exposed to non-linear outcomes with a narrower margin of safety. 

 

The financial markets, it said, are already pricing this fragility and hence safe-haven investment options such as gold witnessed a healthy run in 2025. 

 

“The best-case scenario for the world (the survey terms it the first scenario) in 2026 is ‘business as in 2025’, but one that becomes increasingly less secure and more fragile. In this setting, with the margin of safety being thinner, minor shocks can escalate into larger reverberations. One could attach a subjective probability of around 40 per cent to 45 per cent to this scenario unfolding in 2026," the Economic Survey said.

 

In the second scenario, to which the Economic Survey has also attached a 40-45 per cent probability, the chances of a disorderly multipolar breakdown rises materially and cannot be treated as a tail risk.

 

Under this outcome, strategic rivalry intensifies, the Russia–Ukraine conflict remains unresolved in a destabilising form, and collective security arrangements unravel. Trade becomes increasingly explicitly coercive, sanctions and countermeasures proliferate, supply chains are realigned under political pressure, and financial stress events are transmitted across borders with fewer buffers and weaker institutional shock absorbers. 

 

"In this world, policy becomes more nationalised, and countries face sharper tradeoffs between autonomy, growth, and stability," it adds.

 

The third scenario, with a residual probability of 10 per cent-20 per cent, involves the risk of a systemic shock cascade, the survey said, in which financial, technological, and geopolitical stresses amplify one another rather than unfolding independently.

 

The recent phase of highly leveraged AI-infrastructure investment has exposed business models that are dependent on optimistic execution timelines, narrow customer concentration, and long duration capital commitments. A correction in this segment would not end technological adoption, but it could tighten financial conditions, trigger risk aversion and spill over into broader capital markets, the survey cautions.

 

"If such developments were to coincide with geopolitical escalation or trade disruption, the resulting interaction could produce a sharper contraction in liquidity, a sudden weakening of capital flows, and a shift toward defensive economic responses across regions," the survey said.

 

Though the third scenario remains a lower-probability event, its consequences, the survey cautioned, would be significantly asymmetric. "The macroeconomic consequences could be worse than those of the 2008 global financial crisis," it said.