Chief Economic Adviser V Anantha Nageswaran opens the Economic Survey 2025-26 with a candid admission that captures the contradiction of India's current economic state. "The paradox of 2025 is that India's strongest
macroeconomic performance in decades has collided with a global system that no longer rewards macroeconomic success with currency stability, capital inflows, or strategic insulation," he writes in the preface.
This obviously does not showcase the positive aspect of the Government’s economic documents. In the country’s defence, Nageswaran describes India as a "victim of geopolitics and a strategic power gap," acknowledging that despite achieving fiscal deficit targets (4.8 per cent vs 4.9 per cent budgeted), receiving three credit rating upgrades, and posting 8 per cent growth in H1 FY26, "the Indian rupee underperformed in 2025."
He further adds that “India runs a trade deficit in goods. Its net trade surplus in services and remittances is not enough to offset it. India depends on foreign capital flows to maintain a healthy balance of payments. When they run drier, rupee stability becomes a casualty." What he means is that India needs continuous foreign capital to keep the rupee steady. When that capital slows, the rupee comes under pressure.
The Survey also quotes the Lowy Institute, the Australian think tank, and its Power Gap Index, which delivers quite a damning assessment, showing India's power gap score at -4.0, "the lowest in Asia, excluding Russia and North Korea." This means India’s problems with the rupee stem not only from economic imbalances but also from a lack of sufficient long-term planning and strategic strength to manage these challenges effectively.
Nageswaran doesn't sugarcoat the external environment. He outlines three scenarios for 2026, assigning an 80-90 per cent combined probability to two deeply adverse outcomes:
Scenario 1 (40-45 per cent probability): "Business as in 2025, but one that becomes increasingly less secure and more fragile... minor shocks can escalate into larger reverberations."
Scenario 2 (40-45 per cent probability): "Disorderly multipolar breakdown... strategic rivalry intensifies, trade becomes increasingly explicitly coercive, sanctions and counter-measures proliferate, supply chains are realigned under political pressure, and financial stress events are transmitted across borders with fewer buffers."
Scenario 3 (10-20 per cent probability): "Systemic shock cascade... The macroeconomic consequences could be worse than those of the 2008 global financial crisis."
Against this backdrop, Nageswaran declares: "India must run a marathon and sprint simultaneously, or run a marathon as if it were a sprint." But he returns to defend the country's economic growth: "However, in all three scenarios, India is relatively better off than most other countries due to its strong macroeconomic fundamentals, but this does not guarantee insulation. The country benefits from a large domestic market, a less financialised growth model, strong foreign exchange reserves and a credible degree of strategic autonomy. These features provide buffers in an environment where financial volatility is imminent and geopolitical uncertainty is permanent."
The survey ends on a note of qualified optimism: "The deregulation and smart regulation initiatives undertaken by states in the last year, in particular, provide ample grounds for optimism that the state machinery is capable of reinventing itself and its mission, shifting from regulation and control to enabling."
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But the contradictions remain unresolved:
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Growth optimism (6.8-7.2 per cent for FY27) despite 80-90 per cent probability of global disorder
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Credit claimed for 1.7 per cent inflation when base effects did the heavy lifting
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Centre's fiscal prudence celebrated while states' populism crowds out productive spending
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PLI schemes incentivise production while businesses face inverted input costs
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Services contributed 9.3 per cent growth, but not compelling state capacity upgrades
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Rupee "punching below its weight" despite "stellar economic fundamentals"
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Economic complexity is stuck at rank 44 despite high potential (rank 2)
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AI is threatening to "hollow out India's core value proposition" without an adaptation roadmap
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Entrepreneurial state rhetoric is abundant, but labour codes are still not operationalised
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Climate transition aspirations without hard trade-offs quantified
The Economic Survey 2025-26 deserves credit for naming these contradictions. Whether India's state, private sector, and citizens can resolve them will determine if the country merely grows larger or genuinely transforms into Viksit Bharat.
As Nageswaran concludes: "A possible eruption of multiple global crises, which presents an opportunity for India to play a meaningful role in shaping the global order that emerges, necessitates the most agile, flexible, and purposeful governance that India has ever been called upon to muster since its Independence."
The author is a senior journalist based in Bengaluru
