Economic Survey 2025-26: Navigating Growth in a Turbulent World
The world faces its highest level of uncertainty since World War II, raising critical questions about India's economic trajectory. The Economic Survey 2025-26, released recently, provides a comprehensive analysis of whether India can sustain the impressive growth momentum it has maintained since the pandemic era.
India's Growth Resilience Amid Global Turmoil
The survey presents compelling evidence of India's economic resilience. Despite global geopolitical shocks and volatile capital flows, India has achieved a remarkable combination of high growth projected at 7.4% for 2025-26 alongside very low inflation levels. This performance stands out in a world where many economies struggle with stagnation or recession.
Several factors underpin this macroeconomic stability:
- Sustained reduction in fiscal deficit
- High public investment in infrastructure development
- Strong banking sector balance sheets
- Manageable current account deficit
- Low external debt burden
These fundamentals earned India three credit rating upgrades last year, reflecting growing international confidence in the economy's structural strength.
The Capital Flow Challenge in Uncertain Times
However, the survey sounds a cautionary note about emerging market vulnerabilities. India, like other economies running current account deficits, faces significant risks from volatile international capital flows. During periods of heightened geopolitical uncertainty, capital inflows can reduce dramatically or even reverse direction.
The rupee's depreciation accelerated last year, dropping by over 6%, illustrating this vulnerability. The survey makes a crucial observation: in today's uncertain world, capital movements are increasingly driven by geopolitical considerations and strategic alliances rather than traditional macroeconomic fundamentals and trade efficiency metrics.
India's Strategic Position and Potential Scenarios
The survey analyzes India's position through three potential future scenarios:
- Gradually Rising Uncertainty: Similar to 2025 conditions but with increasing global instability (40-45% probability)
- Intensified Geopolitical Tensions: Weaker institutional shock absorbers and sharper trade-offs between autonomy, growth, and stability (40-45% probability)
- Catastrophic Economic Breakdown: A more severe global disruption scenario (10-20% probability)
In all three scenarios, India remains relatively well-positioned thanks to its large domestic market, less financialized growth model, substantial foreign exchange reserves, and strong macroeconomic fundamentals. These factors provide India with valuable strategic autonomy, though they don't guarantee complete insulation from global capital flow disruptions.
Policy Priorities and Structural Challenges
The survey identifies several critical policy areas requiring attention:
Fiscal Policy: While applauding the Centre's fiscal consolidation and infrastructure investment focus, the survey warns about deteriorating expenditure quality in several states, rising unconditional transfers, and revenue deficits that hurt investor confidence and increase capital costs.
Trade and Industrial Policy: Persistent current account deficits raise borrowing costs in global debt markets. The survey acknowledges that India's service export surplus significantly offsets merchandise trade deficits but notes that infotech-enabled service exports remain fragile compared to manufactured goods exports.
This leads to an industrial policy recommendation: rather than protecting upstream industries (like steel, metals, and fibers) which increases downstream manufacturing costs, policy should support downstream manufacturers facing hyper-competition from export-dominant China.
The Self-Reliance Framework Reimagined
The survey's emphasis on manufacturing over services and GDP growth over employment growth reflects its overarching theme of self-reliance with resilience. While this concept recalls India's planned development era of the 1950s, its contemporary interpretation differs significantly.
Today's self-reliance combines traditional economic independence with resilience against multiple shocks:
- Environmental challenges from climate change
- Geopolitical disruptions in an uncertain world
- Volatile global capital flows
Key Focus Areas for Future Development
Three chapters of the survey deserve special attention for their forward-looking analysis:
- Artificial Intelligence Adaptation: How India should prepare for and leverage AI technologies
- Urbanization and Cities: Managing India's rapid urban transformation
- Public Policy Priorities: Balancing immediate needs versus future development, particularly for undernourished and underemployed citizens requiring social safety nets
The survey represents a detailed, evidence-based analysis that has become essential reading for anyone serious about understanding India's economic trajectory. While questions remain about implementation and balancing competing priorities, the document provides a comprehensive framework for navigating growth in an increasingly uncertain global landscape.
