Key Points
Growth remains structurally strong: Real GDP growth is estimated at 7.4% in FY26, with FY27 projected at 6.8–7.2%, and India’s potential growth rate revised upward to around 7%, reflecting sustained infrastructure expansion, supply-side reforms, and rising productive capacity.
Macro stability has improved, but external vulnerability persists: Inflation averaged 1.7% (Apr–Dec 2025), bank asset quality strengthened with GNPA at 2.2%, and forex reserves rose to $701.4 billion; however, reliance on foreign capital to finance the goods trade deficit keeps the cost of capital elevated and exposes the rupee to global financial conditions.
Structural transformation is investment-led and manufacturing-focused: Public capital expenditure has risen over fourfold since FY18, logistics infrastructure has expanded sharply, and policy emphasis is on manufacturing competitiveness, MSME scaling, integration into global value chains, and disciplined industrial policy to strengthen export capacity and long-term currency stability.
The Economic Survey is an analytical document prepared by the Department of Economic Affairs under the Ministry of Finance that assesses India’s economic performance, provides detailed sectoral evaluation, and frames policy priorities ahead of the Union Budget. It synthesises macroeconomic data, structural indicators, and forward-looking models to inform fiscal, monetary, and regulatory decision-making.
The Survey is structured into multiple chapters covering the economy’s state, fiscal developments, monetary and financial intermediation, sectoral contributions, infrastructure, external sector dynamics, inflation trends, labour markets, agriculture, industry, technology, urbanisation, and strategic policy frameworks.
The Survey projects real Gross Domestic Product (GDP) growth for FY27 (2026-27) in a range of 6.8-7.2%, slightly lower than the estimated 7.4% real GDP growth in FY26 according to First Advance Estimates.
It also revises India’s potential growth rate to around 7%, up from 6.5% three years prior. This revision reflects improvements in productive capacity due to infrastructure expansion, deregulation, capital formation and supply-side enhancements.
In analytical terms, potential output is the level of GDP consistent with full employment and stable inflation. Raising its estimate to 7% indicates, the Survey sees structural shifts in capacity utilisation, logistics efficiency, and integration of small and medium enterprises into formal value chains.
The Survey shows the Union government’s fiscal deficit fell to 4.8% of GDP in FY25, under the budgeted 4.9% target, and is on track for a 4.4% target in FY26. It points to improved revenue receipts (which rose to 9.2% of GDP in FY25), higher tax buoyancy, and sustained public investment (including capital expenditure rising over four-fold since FY18 to 4% of GDP).
However, it identifies a structural risk: rising revenue deficits at the state level, driven by unconditional cash transfers and populist spending, which may crowd out capital formation and weaken sovereign borrowing costs in the medium term.
The Survey highlights that investor assessments of sovereign risk now increasingly incorporate general government finances, not just central government metrics – a departure with implications for bond yields and long-term financing costs.
The Survey emphasises that India’s cost of capital remains high due to reliance on foreign savings and persistent current account deficits. This structural characteristic requires a risk premium on external capital and, therefore, elevated domestic financing costs. It argues that India’s persistent current account deficits – driven by goods trade deficits not fully offset by services and remittances – necessitate foreign savings to finance investment. This foreign savings dependence imposes a risk premium on capital, keeping financing costs elevated relative to economies with sustained external surpluses.
It states that only when India becomes a surplus-generating economy through stronger manufacturing exports, productivity improvements and deepening financial markets can the cost of capital fall sustainably.
Prescribing policy recommendations, the Survey says reduce taxes on debt instruments to improve the attractiveness to deepen bond and credit markets, enhance credit for lower-rated borrowers, and consider an institutional shift toward activity-based regulation to reduce arbitrage and enhance market liquidity – structural changes aimed at lowering long-term finance costs.
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India’s merchandise export share rose from approximately 1% of global merchandise trade in 2005 to 1.8% in 2024, while services exports expanded sharply, reaching $387.6 billion and growing 13.6% in FY25. Total exports reached a record $825.3 billion in FY25, growing 61% year-on-year. Further, foreign exchange reserves increased to $701.4 billion as of January 2026, providing import cover for around 11 months and covering 94% of external debt.
Yet the Survey notes India’s external position remains vulnerable to trade fragmentation, geopolitical risk and capital flow volatility, with the rupee’s underperformance reflecting the limitations of net services and remittances to offset trade deficits in goods.
The document underscores that manufacturing export ecosystems are quantitatively more effective at producing currency strength and external balance than services exports alone, due to their employment, productivity and logistical integration.
It stresses the strategic importance of broad-based merchandise exports, integrating into global value chains, and leveraging free trade agreements (FTAs) to diversify markets — exemplified by recent pacts with the EU, UK, Oman, New Zealand, Australia and the UAE.
Agriculture: Foodgrain production reached an estimated 3,577.3 lakh metric tonnes in Agricultural Year (AY) 2024-25, an increase of 254.3 LMT over the previous year, driven by higher output of rice, wheat, maize and coarse cereals. Agriculture continues to support rural consumption and employment.
Industry and Manufacturing: Manufacturing Gross Value Added (GVA) grew robustly (7.72% in Q1 and 9.13% in Q2 of FY26), showing evidence of structural recovery supported by Production Linked Incentive (PLI) schemes attracting over ₹2 lakh crore investment, generating ₹18.7 lakh crore output and creating over 12.6 lakh jobs.
Micro, Small and Medium Enterprises (MSMEs) were highlighted as critical to industrial supply chain participation: they account for 35.4% of manufacturing output, contribute 48.58% of exports, and represent 31.1% of India’s GDP
Services: The services sector accounted for around 53.6% of GDP and 56.4% of GVA, marking the highest share on record, with IT and business services continuing to attract high FDI inflows and diversify export markets.
The Survey emphasises servicification – the deep integration of software, design, R&D and logistics into manufacturing processes – as a strategy to boost productivity, competitiveness and export diversification.
Headline inflation on a Consumer Price Index (CPI) basis was 1.7% for April–December 2025, lowest since CPI data began, with food and fuel price moderation being primary contributors.
The Survey notes that this benign inflation environment has sustained household purchasing power, aided consumption growth, and provided space for policy flexibility. The Survey interprets this subdued inflation as evidence of improving supply-side conditions, supported by infrastructure growth, deregulation and improved logistics that have reduced systemic cost pressures.
The national highway network expanded from 91,287 km (FY14) to about 1,46,572 km in FY26. Capital expenditure increases have significantly expanded high-speed corridors from 550 km (FY14) to 5,364 km (FY26), and created 3,500 km of new rail lines. India also became the third-largest domestic aviation market, with airports increasing from 74 in 2014 to 164 in 2025. Space sector advances include autonomous satellite docking capability.
Over 55 crore bank accounts have been opened under the PM Jan Dhan Yojana as of March 2025, with 36.63 crore in rural and semi-urban areas – expanding financial inclusion.
Unique mutual fund investors crossed 12 crore, with approximately 25% being women, indicating deepening capital market participation.
Education enrolment, healthcare access improvements, employment portal registrations and labour market reforms are detailed to show long-term structural enhancement of India’s human capital base.
The Survey makes climate action a core development strategy, noting the need to sequence mitigation with energy security and finance availability. It also spotlights rapid AI compute cost pressures due to global GPU demand, and emphasizes that regulatory frameworks must evolve alongside AI deployment to manage risks.
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Chief Economic Advisor (CEA) VA Anantha Nageswaran characterises 2025 as a paradox:
“India’s strong macroeconomic outcomes collided with a global order that no longer rewards such success with currency strength or unfettered capital inflows.”
The rupee’s underperformance exemplifies this dynamic, attributed to external financing constraints and goods trade deficits, the CEA says.
Nageswaran emphasises that policy credibility, predictability, and administrative discipline are strategic assets in a world of geopolitical volatility and fragmented trade – reinforcing the Survey’s theme of strategic sobriety rather than reactive pessimism.
CEA Nageswaran articulated three possible global macro scenarios:
Scenario 1 (40-45%): Continuation of fragile but integrated global dynamics where volatility persists and minor shocks trigger policy interventions.
Scenario 2 (40-45%): Disorderly multipolar breakdown with intensified strategic competition, supply chain realignments, and trade coercion.
Scenario 3 (10-20%): Systemic stress cascade where financial, technological and geopolitical stress interact to create severe macro shocks, potentially exceeding the impact of the 2008 global financial crisis.
In all scenarios, India’s buffers – a large domestic market, relatively less financialised growth, robust reserves and strategic autonomy – offer resilience, but external volatility in capital flows and exchange rates remains a binding constraint.
The Economist frames India’s reform trajectory around the concept of an entrepreneurial state – one that structures risk, acts under uncertainty, and iterates policy through learning rather than paralysis. Examples include mission-mode semiconductor platforms, green hydrogen initiatives, and state deregulation compacts prioritising land, labour, utilities, and permissions.
State-level deregulation is seen as a strengthening of governance capacity rather than retreat, with cross-agency coordination and iterative problem-solving built into institutional processes.
The Survey endorses a calibrated strategy of disciplined Swadeshi, moving beyond traditional import substitution towards strategic resilience and strategic indispensability, balancing near, medium, and long-term priorities. This includes targeted manufacturing competitiveness, critical input cost reduction and deeper integration into global value chains – particularly in labour-intensive sectors supported by trade agreements (e.g., with the EU, UK, UAE).
Nageswaran emphasises integration of agriculture, manufacturing and services as cohesive engines of growth, highlighting education reforms, digital inclusion, urban planning, and healthcare system strengthening as essential for long-term human capital formation.
Labour codes’ implementation is singled out as critical for formal employment expansion and social security coverage, including gig and platform workers.
The Survey stresses that currency strength and stability are linked to export competitiveness, particularly in manufacturing, and that service exports alone cannot underwrite durable external balances. Balanced trade integrated with value chains is key to long-term currency performance.
The negotiations for reducing external uncertainties, including ongoing trade talks with the United States, are expected to mitigate tariff-related market distortions.
The CEA advocates:
Reducing cost of capital through tax reforms on debt instruments and credit enhancement mechanisms.
Deepening PPP frameworks to reduce structural uncertainties in public-private infrastructure delivery.
Maintaining fiscal discipline at both central and state levels to protect sovereign borrowing costs.
Prioritising buffers, redundancy and liquidity to absorb external shocks without compromising growth momentum.
The Economic Survey 2025-26 outlines a technically detailed roadmap for India’s next phase of balanced, resilient growth in the face of global fragmentation. It combines sectoral diagnostics, macroeconomic reinterpretation, fiscal and monetary structural insights, and forward-looking policy frameworks grounded in strategic autonomy, deregulation, state capacity enhancement, and integration with global markets.
It reinforces that while India’s fundamentals remain strong, long-term stability will depend not just on conventional macro indicators but on institutional quality, export competitiveness, strategic buffer creation, and systemic reforms aligned with a global environment marked by uncertainty and geopolitical complexity.
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