India’s Economic Survey 2025–26, tabled in Parliament on January 29, delivers a candid and confident assessment of the economy at a turbulent global moment. Growth remains robust at 7.4% in FY26, driven largely by domestic demand and macroeconomic resilience. Yet the Survey is equally clear-eyed about the paradoxes India faces: a strong economy that still “punches below its weight” in currency markets, persistent trade vulnerabilities, and rising global fragmentation. The message for the Union Budget is unmistakable: Convert headwinds into strategic tailwinds.
Fiscal Gains Amid Global Disorder
The Survey’s fiscal narrative is one of quiet consolidation. The fiscal deficit narrowed to 4.8% of GDP in FY25, undershooting the target, with a glide path toward 4.4% in FY26. Credit rating outlooks have stabilised, inflation has been anchored around 4%, and banking sector stress has eased, with NPAs at a multi-decade low of 2.6 %. Structural reforms like, GST rationalisation, higher FDI limits in insurance, opening up nuclear power to private participation, and the long-pending Labour Codes, have strengthened medium-term growth prospects.
Yet the Survey does not oversell optimism. Growth is projected to moderate to 6.8–7.2% in FY27, reflecting external uncertainty. The sustainability of this trajectory hinges on whether public capital expenditure continues to crowd in private investment, with multipliers estimated at 2.5–3 times. Capex is no longer just a growth lever; it is the backbone of macroeconomic credibility.
Persistent Vulnerabilities Beneath the Surface
Despite strong fundamentals, the rupee continues to underperform, weighed down by a structural goods trade deficit. Services exports and remittances offer partial insulation, but are insufficient to fully offset external shocks. The initial impact of steep US tariff actions underscores India’s exposure to geopolitical trade risks.
The Survey’s Power Gap Index, placing India at the bottom among Asian peers, is particularly revealing. It signals a gap between economic size and strategic leverage, a reminder that growth alone does not translate into influence. With global scenarios ranging from “managed disorder” to outright fragmentation, and gold prices reflecting heightened systemic anxiety, India’s relatively low external debt offers protection, but not immunity.
The Survey sets out clear imperatives for the Budget
First, deepen fiscal consolidation without sacrificing growth. This requires prioritising high-multiplier infrastructure capex, particularly in energy transition, logistics, and public infrastructure. The quality and execution of spending will matter more than headline numbers.
Second, accelerate the manufacturing and MSME push. Tiered indigenisation strategies, reduced input costs, and targeted credit expansion, especially for women-led enterprises, which already account for over 26 % of MSMEs, can convert demographic scale into production strength. Linking renewables, SHGs, and rural livelihoods offers a pathway for inclusive growth.
Third, invest decisively in human capital. With an estimated 1.2 crore workers entering gig and platform-based work, skilling, AI readiness, and health and education investments are no longer social expenditures but economic necessities. Rising female labour force participation, now at 41.7%, must be matched with access to high-value sectors and care infrastructure.
Finally, empower states and simplify regulation. Faster clearances, streamlined green norms, and stronger state-level execution capacity are essential. The Survey’s implicit call is for an entrepreneurial state, one that builds trust, enables markets, and anchors a renewed social contract.
The Economic Survey 2025–26 does not promise insulation from global shocks, nor should it. Instead, it offers a realistic reform for resilience: disciplined public finances, investment-led growth, strategic openness, and people-centric development. The Union Budget now carries the responsibility of translating this diagnosis into durable strength.
Dr Vani Archana is a Senior Fellow with Pahle India Foundation, New Delhi.
