The government on Thursday projected that the Indian economy could expand by 6.8-7.2% in the next financial year, with the benefit of a significant rise in its medium-term growth potential to 7%, up from an estimated 6.5% three years ago.
The projection, contained in the Economic Survey 2025-26 tabled in Parliament, struck a subtly cautious note compared with the latest forecasts by the International Monetary Fund (7.3%) and the World Bank (7.2%). It also implied a modest deceleration from the 7.4% growth estimated by the National Statistical Office in its first advance estimates for the current financial year.
Survey sees better 2026-27 growth after reforms
Until a few months ago, the outlook for growth in 2026-27 was markedly more conservative. A series of structural reforms undertaken amid unusually strong external headwinds appear to have helped the economy gain firmer footing despite global adversity, the Survey noted.
Observing that “India’s rise is not merely commercial but also geopolitical in its implications,” the Survey envisaged a future in which India acquires far greater strategic relevance even in a fractured global order. “In simple terms, when the world moves from ‘thinking about buying Indian’ to ‘buying Indian without thinking,’ India will have attained strategic indispensability,” Chief Economic Advisor V Anantha Nageswaran, the lead author of the Survey, wrote.
The Survey reiterated Nageswaran’s earlier optimism that ongoing trade negotiations with the United States could conclude during the year, helping to reduce uncertainty on the external front.
On the investment outlook, the Survey assumed that capital stock growth would rise to 7.6% during FY26–FY30, from a low of 6.1% in FY23. This projected pace is broadly in line with the pre-pandemic average seen between FY13 and FY20, though still below the 8.6% recorded during the investment boom years of FY03–FY12.
The Survey flagged the high cost of capital as a key structural constraint and argued for a shift towards generating “sustained external surpluses” driven by exports, productivity gains and deeper financial markets. “India’s long-run challenge is not merely to manage liquidity or credit cycles, but to transform itself into a surplus-generating economy. Only then can its cost of capital fall,” it said.
Taking heart from reforms and policy measures rolled out in recent years—including the Goods and Services Tax overhaul, income-tax reliefs, new labour codes, eased green-clearance norms and a recalibration of Quality Control Orders—the Survey said “policy dynamism, purposeful governance and stellar macroeconomic fundamentals” had steadied the economy.
It also pointed to the easing of macroprudential measures imposed in 2023, aggressive interest rate cuts by the Reserve Bank of India, and easier liquidity conditions as key growth drivers, alongside benign inflation, robust rainfall and agricultural prospects, and low external liabilities.
In his preface to the Survey, Nageswaran highlighted what he termed the “paradox of 2025”—that India’s strongest macroeconomic performance in decades has coincided with a global environment that no longer rewards such success with currency stability, capital inflows or strategic insulation. While noting that the rupee was “punching below its weight,” he said an undervalued currency could aid exports at a time of rising protectionism, even as it caused investors to pause, contributing to capital outflows.
Survey flags ‘power gap’, calls for tougher stance
The Survey also argued that India is operating below its full strategic potential. Its “power gap” score of (-)4.0 is the lowest in Asia, excluding Russia and North Korea, Nageswaran wrote. Some quarters believe India could have adopted a more assertive posture in response to recent adverse economic actions and commentary by the Trump administration.
“The best-case scenario for the world in 2026 is business as in 2025,” the Survey said, cautioning that geopolitics could become “increasingly less secure and more fragile.”
Looking ahead, the Survey offered several pointers for the Union Budget for FY27, to be presented in February. Its policy prescriptions included long-mooted measures such as ending the open-ended fertiliser subsidy regime through calibrated urea price hikes, and resolving cross-subsidisation in railway fares.
Explaining why “manufacturing matters,” the Survey argued that unless the sector gains momentum, institutional weaknesses would persist, as services alone cannot exert sufficient pressure on state capacity. While acknowledging the potential gains from trade agreements such as the India–EU free trade agreement, it called for deeper process reforms and deregulation at the state level. “There is a need to move away from import substitution and integrate more deeply into global value chains,” the Survey said.