In a Fragile World, How the Economic Survey 2025-26 Will Enable Informed Debates
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. These are not just academic exercises; they are the foundational questions that will shape India’s future.
A Better-Than-Expected Year
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.
This is not just statistical optimism. It reflects real improvements in infrastructure, in ease of doing business, in the formalisation of the economy, and in the resilience of the financial system.
The Global Context
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. The trade deals with the EU and the US, and the framework agreements with other partners, signal a shift toward greater integration. But integration brings both opportunities and vulnerabilities.
Interesting Arguments with Policy Implications
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.
This is a sophisticated insight. Protectionism raises prices for consumers and costs for downstream industries. Lowering the cost of capital, by contrast, addresses the root cause of uncompetitiveness—expensive financing—without distorting prices.
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. Governments like to spend; they do not like to save. But savings are the foundation of investment, and investment is the foundation of growth.
Two Clear Policy Takeaways
There are two clear policy takeaways from the Survey.
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.
The Centre has done its part, but states are slipping. This creates a drag on the entire economy. If the Centre is saving and states are dissaving, the net effect is muted. Fiscal discipline must be a shared commitment.
Second, there is a need to reduce import protection. This is consistent with the Survey’s broader theme of openness. Protectionism may shelter inefficient domestic industries, but it also raises costs for consumers and for industries that rely on imported inputs. In a world where global supply chains are being restructured, India cannot afford to be closed.
The Longer-Term Questions
The Survey’s inclusion of chapters on AI, urban quality of life, and state capacity reflects a recognition that India’s challenges are not just about the next quarter’s growth rate. They are about the kind of society and economy India will be in 2030, 2040, and beyond.
AI will transform every sector. Cities will be home to most Indians. State capacity will determine whether the government can deliver on its promises. These are not side issues; they are central to India’s future.
Conclusion: Informed Debate, Better Policy
The Economic Survey 2025-26 is a more ambitious document than its predecessors. It tackles not just the immediate issues but the structural questions that will shape India’s trajectory. Its depth and breadth should enable more informed policy discussion and help India better prepare for the challenges ahead.
The growth numbers are encouraging. The reforms are working. But the global environment is fragile, and India cannot afford complacency. The Survey’s message is clear: stay the course on reform, maintain fiscal discipline, open the economy, and invest in the long term.
That is a message worth heeding.
Q&A: Unpacking the Economic Survey 2025-26
Q1: What is India’s projected growth rate for 2025-26 and 2026-27?
The first advance estimates project GDP growth at 7.4% for 2025-26, higher than last year’s projection of 6.3-6.8%. The Survey projects growth in the range of 6.8-7.2% for 2026-27. India’s potential growth rate has been revised up to 7%, compared to 6.5% three years ago.
Q2: What are the medium-term topics covered in this Survey?
The Survey includes dedicated discussions on three medium-to-long-term topics: 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. These reflect a broadening of the Survey’s scope beyond immediate macroeconomic issues.
Q3: What is the Survey’s argument about lowering the cost of capital?
The Survey 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, this is difficult given India’s structural savings deficit and political incentives for fiscally accommodative policies.
Q4: What are the two main policy takeaways?
First, general government budget deficits need to be brought down substantially to reduce the cost of capital. The Centre has consolidated with higher capex, but several states show weak fiscal discipline. Second, there is a need to reduce import protection, consistent with the Survey’s broader theme of openness.
Q5: How does the Survey view India’s position in the global economy?
India is well-off compared to other countries due to strong macroeconomic fundamentals, but this is not a guarantee of insulation from global shocks. Adverse shocks will be reflected in the external account and impact the rupee. Given India runs a current-account deficit, it must generate sufficient investor interest and export earnings. Recent trade openness is a positive.
