India on a strong plank to show sustained growth in uncertain times

The Economic Survey is more of a qualitative appraisal of the Indian economy that delves deeper into what has driven various economic variables during the year. Being announced before the budget, it suggests a path that should be taken to achieve medium-term goals.  The starting point has been the gross domestic product (GDP) growth forecast for fiscal 2026-27 (FY27), which has been put in a range of 6.8-7.2 per cent. This can be bordering on being conservative as the performance in FY26 has been good at 7.4 per cent notwithstanding external headwinds. But this number is crucial for the formation of the budget, where it can be expected that the nominal growth will be taken as around 10 per cent, which is similar to what was proposed in the FY26 Budget. 

 

 

The Survey rightly points at three areas that need to be addressed through the course of the year. The first is consumption that has shown signs of picking up post goods and services tax (GST) rationalisation. This will have to be maintained through the year to ensure that growth keeps ticking. 

 

The second is investment, especially from the private sector. Here, too, there are some signals that this may have picked up this year, though may not yet be broad-based. But this engine has to fire to ensure that the growth momentum is maintained. The Survey is talking of potential growth of 7 per cent for India in the medium-run, which will need both these to increase. 

 

The third is specific to infrastructure, which is both an opportunity and challenge. The opportunity comes from the scope that exists in all areas starting from roads to social infrastructure. The challenge is twofold – funding these projects as well as project execution. 

 

By achieving these objectives, the economy will be able to withstand the global headwinds which has added a lot of uncertainty to the environment. This had a strong bearing on our external account as evidenced by both a weakening rupee as well as rather volatile foreign investment flows. It has also been pointed out that the foreign portfolio investor (FPI) flows have been diverted to an extent to AI-related investment opportunities in the USA, Taiwan and Korea. 

 

Further, divergent policies by central banks across the world has led to investors changing direction often depending on various regimes. The survey, however, has also highlighted the external strength of the economy as evidenced by high import cover as well as low current account deficit. 

 

The positive factors highlighted by the survey refer to the series of reforms undertaken on the fiscal front as well as on the labour front, which has provided support to the growth process. Also, the fact that the government has signed several free trade agreements (FTAs) is a big positive for the industry in particular, as well as exports as their consummation will help companies to reap the benefits. The European Union (EU) FTA, in particular, is important as it is the largest trading partner for India. 

 

An interesting suggestion put forward has been on subsidies. The Survey says that subsidies and other discretionary spending has to be rationalised to contain overall revenue expenditure covering salaries, pensions, interest rates. One can expect some measures to be taken in the Budget to be announced on 01 February. 

 

On the whole, the Survey paints a positive picture for the economy as well as outlook, though cautions more on the external environment, which can continue to be slippery and can cause uncertainty. The strong reforms package introduced as well as strength of the domestic economy would mitigate these challenges – is the message that one can take.

 

Madan Sabnavis is Chief Economist, Bank of Baroda. Views are personal.