In a fragile world: Economic Survey 2026 will enable informed debates

Economic Survey 2025-26 flags stronger growth but warns that global uncertainty, fiscal discipline, and lower import protection are key to sustaining momentum

The Economic Survey 2025-26, presented in Parliament on Thursday and prepared by economists at the Ministry of Finance, led by Chief Economic Advisor V Anantha Nageswaran, has been reconfigured compared to recent Economic Surveys. As the document notes, this “... reflects the weight of the momentous changes happening elsewhere”. Changes across different parts of the world and in various areas have indeed increased uncertainty, and medium-term economic outcomes will depend on how these developments unfold. The expansion in the Survey’s depth and breadth should enable more informed policy discussion and help India better prepare to deal with emerging challenges. The Survey also includes discussion on three topics that are of medium to long-term interest: The evolution of artificial intelligence, the challenge of quality of life in Indian cities, and the roles of state capacity and the private sector in achieving strategic resilience. 

This financial year has turned out to be much better than what it was expected to be. According to the first advance estimates, growth in the rate of gross domestic product this financial year is projected at 7.4 per cent, up from last year’s Economic Survey projection of 6.3-6.8 per cent. The latest Survey notes that India’s potential growth rate has been revised up to 7 per cent, compared to 6.5 per cent three years ago. It has projected the growth rate in the range of 6.8-7.2 per cent for 2026-27. The increase in growth potential does indicate that reforms undertaken in recent years and a massive boost in government capital expenditure have increased the economy’s productive capacity. In the short run, outcomes will depend on global factors, and there are different possibilities. Although, as the Survey notes, India is well-off compared to other countries because of strong macroeconomic fundamentals, this is not a guarantee of insulation. Adverse global shocks will be reflected in the external account and their impact on the rupee. The rupee has been under pressure over the past several months because of selling in the stock market by foreign portfolio investors. The risk of global upheaval increases for India because it runs a current-account deficit and needs to attract foreign investment. In this regard, the Survey rightly notes India needs to generate sufficient investor interest and export earnings. India’s recent openness to trade is a positive in this regard, and it would be interesting to see how the upcoming Budget approaches this issue. 

There are several interesting arguments in the Survey with medium-term policy implications. For instance, it notes that where upstream inputs are costly and capital-intensive, lowering the cost of capital is a more efficient way to provide support than raising import protection. However, lowering the cost of capital is not easy in an economy that is structurally deficient in savings, and there are political incentives for fiscally accommodative policies. There are two clear policy takeaways. First, the general government budget deficit needs to be brought down substantially to reduce the cost of capital in the economy. The Survey notes that the Centre has achieved consolidation with higher capital expenditure while several states have shown weak fiscal discipline. While states may contest this position, what India really needs is to adjust fiscal rules to the economy’s financing capacity. This has become more important at a time when the availability of global savings has become a risk. The cost is also likely to be higher. Second, there is a need to reduce import protection.