Akhil Vaani | Economic Survey Gets Diagnosis Right, But Stops Short Of Cure For A Viksit Bharat

On Sunday, 1 February 2026, Finance Minister Nirmala Sitharaman will present her ninth Annual Budget. Before that, on 29 January, she laid before Parliament the Economic Survey for the financial year 2025–26.

It’s Different This Time

This year’s Economic Survey makes a departure from tradition on the following counts:

• Due to special circumstances, it was presented three days before the Budget.
• More importantly, breaking free from tradition, instead of a two-part Economic Survey, the one for 2025–26 is a single composite document comprising 17 chapters.
• At 538 pages, it is possibly the longest ever Economic Survey — it is this way both because of the range of issues and the topics covered.
• The arrangement of chapters, which previously relied on precedence, is now based on the depth and time-relevance of national priorities.
• And most importantly, the Survey examines three critical topics of medium- to long-term interest to the country in special essays: the evolution of artificial intelligence, the challenge of quality of life in Indian cities, and the roles of state capacity and the private sector (including households) in achieving strategic resilience and strategic indispensability.

The Importance

Prepared by the Economics Division of the Department of Economic Affairs under the Ministry of Finance, the annual Economic Survey of India is a key document that reviews the economy’s performance and shapes policy discussions.

It provides critical insights ahead of the Union Budget, and its importance, among others, lies in the following:

Economic Review: It analyses macroeconomic indicators such as GDP growth, inflation,

the fiscal deficit, and sectoral performance over the past year, highlighting achievements and challenges.

Policy Guidance: It outlines government priorities, reform ideas, and a roadmap for fiscal measures without being binding.

Stakeholder Value: The Survey offers data-driven insights for policymakers, researchers, investors, and businesses to assess stability, the investment climate, and long-term trends.

Backdrop: Resilience Amidst The Global Risk Scenario

But before I analyse the Survey, I must put into perspective the overall geopolitical risks which the Survey considers important for the country going forward.

The three scenarios are:

• The first, with a 40–45 per cent probability, is Global Soft Landing (Benign External Environment), a managed disorder where global rules persist but commitments weaken.
• The second, equally likely, is Prolonged Global Slowdown with Fragmentation, where disorderly breakdowns are marked by sharper strategic rivalry and coerced trade, with shocks transmitted across borders.
• The third, though lower probability but high impact, warns of a financial crisis triggered by excessive leverage and speculative bets on artificial intelligence.

However, the Survey argues that India is far better positioned today than it was during previous global shocks. Strong foreign exchange reserves, a resilient banking system, diversified service exports, and improved fiscal credibility provide buffers.

Even in the worst of the global geopolitical risk scenarios, growth will taper somewhat but will not collapse, unlike in past crises.

Key Insights

One, GDP Growth: Despite global headwinds (geopolitical tensions, trade disruptions, worsening vulnerabilities and fragmented supply chains, among others), the Indian economy has maintained strong growth momentum in FY26, with the First Advance Estimates placing real GDP growth at 7.4 per cent, with growth largely driven by domestic demand, a manufacturing surge, a revival in private capital expenditure, and robust domestic investment, positioning India as the fastest-growing major economy.

The Survey projects that in FY2026–27, India is set to continue its growth momentum, with likely GDP growth of 6.8–7.2 per cent, supported by sustained domestic demand, export momentum, and infrastructure.

Looking ahead, the Economic Survey concludes that while global uncertainties remain elevated, domestic growth drivers are expected to continue supporting economic activity, and in the medium term, the Indian economy is poised to grow at 7 per cent, positioning it on a path of steady expansion amid global uncertainty.

I say that while the Survey talks of a medium-term growth certainty of 7 per cent (breaking away from 6.5 per cent growth over past two decades), it raises many red flags that need to be addressed for the country’s growth to move from a 7 per cent to 7.5-8 per cent trajectory. The two biggest red flags are a political economy dominated by repeated pre-election giveaways and a lack of skilling (proper skilling can increase employment by 12 per cent) and targeted reforms.

All said, while the Economic Survey ticks most of the problems right, it does not provide a pathway to achieve sustained real GDP growth of around 8–10 per cent annually from its current ~$4 trillion base (2025) for the country to become a developed nation by 2047 — roughly equivalent to a $25–30 trillion economy with per capita income of $15,000–20,000 (PPP-adjusted). Rather, its prognosis is that the GDP growth in the range of 8-9 per cent is not a feasible proposition.

The Economic Survey does not provide a nostrum for the country to become a Viksit Bharat.

Secondly, Inflation in the Comfort Zone: The Survey notes that domestically, retail inflation (CPI) has followed a clear downward trajectory, reaching 1.7 per cent in 2025–26, driven primarily by a steep decline in food prices — especially vegetables, pulses and spices — supported by favourable agricultural conditions and timely policy interventions.

Core inflation, too, while appearing sticky, is shown to be largely influenced by surges in precious metals; when these are excluded, underlying inflationary pressures are more subdued. The analysis highlights the critical role of government interventions in stabilising food and edible oil prices.

As regards the year ahead, the Survey projects that the outlook remains favourable, with inflation within target ranges, supported by strong agricultural output, stable global commodity prices, and continued policy vigilance.

However, risks from currency fluctuations, base metal price surges and global uncertainties persist, warranting ongoing monitoring and adaptive policy responses. Nonetheless, the Survey expects inflation to remain within the tolerance range of 2-6 per cent.

Importantly, the Survey analyses inflation primarily as a supply-side phenomenon in the Indian context. The chapter notes that food prices, not core inflation, drive volatility and inflation expectations. Improved supply management, buffer stock policies, and timely administrative interventions have helped contain price spikes.

It challenges the view that inflation control is solely a monetary task. Instead, it highlights the role of logistics, storage, market access, and agricultural reforms in maintaining price stability. Inflation expectations are now better anchored, enhancing policy credibility.

However, climate variability and global commodity shocks remain risks. The chapter stresses that long-term inflation control depends on structural improvements rather than reactive measures.

Three, Fiscal Prudence: The Economic Survey 2026 notes steady progress in fiscal consolidation for FY26, with the fiscal deficit narrowing to a targeted 4.4 per cent of GDP from the revised 4.8 per cent in FY25.

This improvement reflects higher revenue receipts (up 11.1 per cent to Rs 34.96 lakh crore), better tax buoyancy, controlled expenditure growth (7.4 per cent to Rs 50.65 lakh crore), and sustained capex at 3.5 per cent of GDP despite global pressures. Macroeconomic stability has been maintained through quality public spending and an infrastructure focus, halving the deficit share since the pandemic peaks.

Economists anticipate further consolidation to around 4.2 per cent of GDP, balancing growth support with debt sustainability (liabilities at 56.1 per cent of GDP). The Survey signals fiscal comfort via revenue momentum and borrowing efficiency, enabling private investment crowding-in amid a 6.8–7.2 per cent growth outlook.

However, a key concern flagged in the Economic Survey is the fiscal health of sub-national governments — states and local self-government levels. While states have improved transparency, their contingent liabilities and off-budget borrowings remain risks. The Survey argues that the next phase of fiscal reform must focus on state and municipal finances, as urbanisation and service delivery increasingly depend on local governments.

In this connection, the Economic Survey rightly notes that: “From a macro perspective, any fiscal indiscipline at the State level also casts a shadow on the sovereign borrowing costs. With markets pricing government debt on a consolidated basis, persistent revenue deficits or an expansion of committed expenditures at the State level could affect sovereign bond yields. This underscores the importance of coordinated fiscal discipline across levels of government, where fiscal policy is oriented toward expanding productive capacity and income growth rather than creating permanent expenditure commitments.”

As regards the fiscal indiscipline of states, the survey raises the following key points-

• Direct cash transfers with no sunset clause are making profligate- its share has already increased to Rs. 1.7 lakh crore in FY26. In place of the present cash transfer schemes, the survey recommends a shift towards targeted time-bound and outcome-based cash transfer, alongside better disclosure of state finances and off-budget liabilities. The survey also urges states to prioritise capital formation and human capital investment over open-ended cash support.
• The survey notes that only 11 state governments had revenue surplus in FY25 against 19 in FY24, with the result that states are borrowing to meet daily needs such as salaries,  pensions, interest and subsidies.
• Another aspect of state fiscal worry is the rising level of debt to GSDP as well as higher interest payments. In FY25, debt was 28.1 per cent of GSDP and interest payment to revenue receipts at 12.6 per cent. In some states, the debt to GSDP ratio has crossed 50 per cent.

Four, Monetary Management and Financial Intermediation

The Survey notes that India’s monetary framework has matured significantly. Inflation targeting has improved credibility, transmission mechanisms are stronger, and the banking system is healthier than at any point in recent decades. Low non-performing assets, strong capital adequacy, and broad-based credit growth reflect systemic stability.

However, the Survey rightly cautions against expecting monetary policy alone to deliver low interest rates or rapid growth. India’s relatively high real interest rates are linked to external-sector constraints and structural savings–investment dynamics rather than solely to the policy stance. The chapter stresses that durable reductions in the cost of capital require improvements in export competitiveness and current account strength.

Another important point the Survey notes is that financial intermediation remains bank-centric, limiting long-term financing options for infrastructure and innovation. In view of this, the Survey argues for deeper bond markets and a shift in regulation from compliance-heavy frameworks to risk-based supervision.

The Survey ultimately presents monetary policy as effective within its mandate, while reminding policymakers that structural reforms, not rate adjustments, hold the key to sustained financial efficiency.

Also, in connection with the transformational changes needed, the Survey rightly raises the red flag: “While India’s financial system is becoming more resilient, diversified, and inclusive, it faces new challenges emanating from dynamic forces. These challenges include the need to improve regulations, manage the use of AI in finance, and scale up to meet the demands of a growing, aspirational population. This necessitates that the regulatory authorities navigate prudently to reconcile growth with stability.”

Five, Trade

The Survey notes that on the trade front, India’s total exports reached record levels of USD 825.3 billion in FY25 and USD 418.5 billion in H1 FY26, driven by strong growth in services exports and sustained momentum in non-petroleum, non-gems and jewellery exports.

It further notes that the expansion of higher-value manufacturing exports — especially in electronics, pharmaceuticals and electrical machinery — along with diversification of export destinations and import sources, has strengthened resilience amid rising protectionism and tariff uncertainties.

But the bigger message of the Survey is that the key stabilising factor in India’s trade is the services trade surplus, which consistently offsets a large portion of the merchandise trade deficit, supported by strong growth in software, business services, and the expanding role of global capability centres.

In this connection, the Survey rightly notes that India runs a large trade deficit, which is not fully offset by the services trade surplus and inward remittances, leaving the country dependent on foreign capital flows to maintain a healthy balance of payments. And the Chief Economic Adviser rightly noted in his press coverage: “When the run dries, rupee stability becomes a casualty.”

Clearly, for India’s Viksit Nation aspiration to actualise cutting-edge manufacturing, trade must reach a much higher pedestal, and for this, innovation, quality and cost competitiveness hold the key.

Six, FDI and FII

The Survey also notes that gross FDI inflows reached USD 55.6 billion in the first eight months of FY25–26 (up from USD 47.2 billion year-on-year), with equity FDI hitting USD 35.2 billion in H1 FY26 (April–September 2025), marking an 18 per cent increase over H1 FY25’s USD 29.8 billion.

Services and computer software/hardware led gains, driven by PLI incentives, China+1 shifts, and 95 per cent auto-route approvals; IT sector inflows doubled.

For FY26–27, the Survey projects continued strength, aiming for sustained double-digit growth through a multi-faceted strategy that tackles structural and cyclical factors amid global volatility. Key interventions include implementing the India–UK CEPA and the India–EFTA agreements, the India–Israel BIT; streamlining trade policies for GVC integration; competing vigorously with emerging destinations; and leveraging fundamentals such as 7.4 per cent growth and demographic advantages.

The Survey highlights risks from US tariffs but recommends FTAs (covering 40 per cent of exports by FY27) and reforms as safeguards, positioning India to turn FDI into the next phase of growth.

The Survey is as candid as possible about the significant structural weaknesses in the country’s external sector. Manufacturing exports remain concentrated and lack scale, quality, and cost-effectiveness, limiting India’s ability to generate mass employment and foreign exchange through goods trade.

The Survey rightly argues that global competitiveness today is shaped less by tariffs and more by logistics, standards, quality, cost competitiveness, and integration into value chains. The Survey emphasises the need to align trade policy with industrial, logistics and skilling strategies.

Overall, regarding the external sector, the Survey advocates patience and persistence — playing the long game to build export capabilities rather than seeking quick gains through protectionism.

Seven, Reforms

The Survey clearly focuses on long-term reforms, not only to fast-track all-round inclusive development, but also to attract more foreign investment, generate sufficient investor interest, and earn export revenues in foreign currency to cover the rising import bill. The Survey rightly says: “India must run a marathon and sprint simultaneously or run a marathon as if it were a sprint.”

Eight, Infrastructure

The Survey puts into perspective the critical need for fast-tracking substantively higher investment in the infrastructure sector, and it describes the recent investments as a major policy success. Roads, railways, ports and airports have expanded rapidly, reducing logistics bottlenecks and improving productivity.

The survey notes that public sector efforts alone cannot meet growing infrastructure requirements. A multipronged financing approach is essential to attract the requisite investment from the private sector and long-term institutional investors. This strategy requires strengthening resource mobilisation across all levels through innovative measures, including viable user charges and empowering municipal bodies to float bonds for localised resource generation. The survey also calls for a sectoral pipeline of PPP projects for long-term visibility of bankable projects, with predictable exit and restructuring pathways, along with a renegotiation framework for complex projects to sustain investor confidence and scale up PPP in critical sectors.

Clearly, the uneven private investment recovery in infrastructure is a major structural worry, and the Survey rightly stresses improved risk-sharing and urban infrastructure as the next priorities. But the fundamental problem remains, despite the best efforts in the last 25 years, Bharat has not got its infrastructure PPP story right.

Nine, Agriculture and Food

The Survey presents the sector as both a stabilising force and a productivity challenge. While it continues to support livelihoods and food security, productivity growth remains constrained by fragmented landholdings, input-heavy practices, and limited diversification.

The Survey acknowledges the role of MSP and procurement in income stability but argues these cannot substitute for reforms in irrigation, technology adoption, and market access. Climate risks further underscore the urgency of building resilience.

The Survey rightly calls for a shift from price-centric policies to income resilience and value addition, positioning agriculture as an engine of inclusive growth rather than a mere subsistence sector.

Ten, Services – New Frontiers

The Survey notes that services remain India’s primary growth driver and export strength. It highlights the expansion of IT services, global capability centres, tourism, logistics, and professional services. At the same time, it recognises that AI and automation are reshaping service delivery models.

The Survey notes that while services provide stability and foreign exchange, it cautions against overdependence. Services alone cannot absorb India’s labour surplus or ensure external balance.
The Survey argues for complementarity between services and manufacturing, with skills and innovation as the connecting thread.

Eleven, Manufacturing

As regards the industry and the manufacturing sector, the Survey offers one of its most critical assessments. It argues that while PLI schemes have boosted capacity creation, exports and ecosystem depth lag. Compliance costs, logistics inefficiencies and scale limitations constrain competitiveness.

The Survey introduces a three-part Swadeshi Framework that promotes “disciplined Swadeshi” for manufacturing to build strategic resilience amid global disruptions like export controls and supply chain risks. The three-tier framework categorises sectors for indigenisation based on urgency, feasibility, and cost-effectiveness, evolving toward export capability.

• Tier 1: High Urgency Vulnerabilities – Critical inputs needing rapid scaling, e.g., oils/pulses, fertilisers, APIs, power electronics, telecom gear. Focus: immediate domestic production to cut import dependence.
• Tier 2: Feasible Strategic Payoffs – Phased efforts in maturing tech, e.g., magnets, battery cells/cathodes, solar wafers/cells. Emphasises clusters, learning, and gradual localisation.
• Tier 3: Low Urgency/High Cost – Upgrade competitiveness via exports and firm capabilities, e.g., cranes, industrial machinery, EV drivetrains, non-critical medical devices. Avoids mandates where substitution is inefficient.

Finally, the Survey reframes the critical need for industrial policy, moving fast from protection towards integration, scale and productivity. Manufacturing success is tied to clusters, supplier networks and export discipline.

Twelve, Urban Focus

Most importantly, the Economic Survey opens a new frontier by mandating that every million-plus city prepare a statutory 20-year City Spatial and Economic Plan (to be updated every five years) with three non-negotiable elements:

• a transport network plan
• a housing supply plan with annual unit targets
• a land-value capture framework linked to infrastructure corridors

The Survey further notes, rightly, that future urban policy must prioritise system performance over standalone projects, integrating housing, mobility, sanitation, climate resilience and finance while designing liveable, climate-ready cities that support inclusion and long-term economic efficiency.

Positioning cities as economic assets that require deliberate investment and strategic planning, the Survey rightly notes that recognition of cities as economic infrastructure is a necessary first step toward aligning public policy, fiscal priorities and planning frameworks with India’s development trajectory.

Postscript

A careful analysis of the Economic Survey makes me postulate that it has been good as diagnostics, trying to bring to the fore the key issues facing the country both at the macro and the sectoral level, but it falls just short of suggesting the right measures, reforms and nostrums to remove the bottlenecks that are hampering the Bharat Growth Story.

The author is a multidisciplinary thought leader with Action Bias, India-based international impact consultant, and keen watcher of changing national and international scenarios. He works as president, advisory services of consulting company BARSYL. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.