Economic Survey 2025-26 Identifies Critical Economic Contradictions Ahead of Budget
The Economic Survey 2025-26 has been presented against a backdrop of significant macroeconomic complexity, raising crucial questions about India's economic trajectory. While the document projects robust growth for the coming fiscal year, it simultaneously highlights several paradoxes that demand immediate policy attention.
Growth Projections Amidst Economic Paradoxes
The Survey forecasts that the Indian economy will expand within the range of 6.8 to 7.2 per cent during the 2026-27 financial period. This projection follows the first advance estimates, which indicated growth of 7.4 per cent for the current 2025-26 fiscal year. Achieving these targets and sustaining growth at approximately 7 per cent over the medium term presents substantial challenges within an increasingly uncertain global economic environment.
On the surface, India's macroeconomic indicators appear healthy. Economic growth remains strong, inflation has stayed relatively muted, corporate balance sheets demonstrate resilience, and the banking sector shows improved stability. Furthermore, significant policy reforms have been implemented, including:
- Rationalization of GST rates
- Finalization of multiple trade agreements
- Announcement of numerous structural reforms
Contradictions in Economic Performance
Despite these positive developments, the Economic Survey identifies several concerning contradictions. Household consumption patterns remain uncertain, with limited evidence of a broad-based revival in private investment cycles. Merchandise exports continue to demonstrate sluggish performance, failing to gain substantial momentum.
Perhaps most strikingly, the Survey notes the paradox of foreign investors withdrawing from Indian markets alongside a depreciating rupee, despite otherwise strong macroeconomic fundamentals. The Indian currency has recently hovered around 92 against the US dollar, raising questions about currency stability and investor confidence.
Critical Issues Requiring Policy Intervention
The Economic Survey emphasizes that India's economy depends significantly on capital inflows to maintain a healthy balance of payments position. However, when these inflows diminish, rupee stability becomes vulnerable. While a weaker currency theoretically enhances export competitiveness, the Survey argues that the rupee's current valuation does not accurately reflect India's stellar economic fundamentals.
In the contemporary global landscape, where India has not yet established a compelling artificial intelligence narrative and investment capital increasingly flows toward safe-haven assets like gold, this currency dynamic warrants closer examination. As the Survey explicitly states, India needs to generate sufficient investor interest and export earnings in foreign currency to address this challenge.
The Challenge of Fiscal Populism
Another equally critical concern highlighted in the document relates to fiscal populism practiced by several state governments. In recent years, multiple states have implemented unconditional cash transfer schemes. According to ICRA estimates, the combined cash transfers from eleven states totaled approximately Rs 1.5 lakh crore during 2025-26 alone.
These programs have substantially reduced the fiscal space available for more productive forms of public expenditure. The Survey reveals that committed expenditures—including salaries, pensions, interest payments, and subsidies—now consume 62 per cent of states' revenue receipts. The trade-offs between populist spending and productive investment have become increasingly apparent and problematic.
Looking Toward the Union Budget
The Economic Survey 2025-26 provides valuable insight into how the central government perceives the current economic environment and its challenges. The document successfully identifies the critical questions facing India's economy, particularly regarding investment patterns, currency stability, and fiscal discipline.
The fundamental question now becomes whether these identified issues will find meaningful reflection in the forthcoming Union Budget. As policymakers prepare budgetary allocations and policy announcements, addressing the paradoxes highlighted in the Survey will be essential for sustaining India's growth momentum and ensuring long-term economic stability.
