By Surajit Mazumdar
The Economic Survey of 2025-26 adopts a self-congratulatory tone and tries to present a rather positive picture of the immediate and longer term health of India’s economy despite the uncertain global context. The analysis it seeks to present, however, makes selective use of the evidence and is marked by important gaps.
The Survey acknowledges that the global economic situation remains extremely uncertain and fraught with risk – most importantly because of India’s dependence on capital flows to cover its persistent deficit, with attendant implications for the stability of the exchange rate.
It also attributes this to the inability to become a significant exporter of manufactured goods, and the excessive dependence on services exports and remittances. It does not attribute this to liberalization and instead makes a case for lowering the cost of capital being the more effective alternative to protection.
The high cost of capital, however, is in turn on account of current account deficits whose counterpart is a savings-investment deficit. It is this ‘endogeneity’ of macroeconomic outcomes – whose different parts explain each other – that are emphasized, and the government is seen as the exogenous factor which can convert this into a virtuous circle by appropriate “reforms”.
This ‘exogenous’ factor of course did not come into being today. The Economic Survey, however, fails to draw the logical conclusion that this current state of affairs on India’s external front should be attributed to the Government’s past conduct, and therefore policy making has to undergo some serious rethinking. Indeed, by emphasizing the savings deficit and linking it to the cost of capital, the Survey ignores the fact that both the investment rate as well as the savings rate in India have declined in tandem from the levels attained almost two decades ago, as has alongside the pace of industrial growth and the share of manufacturing in production and employment.
That ‘fiscal consolidation’ with an emphasis on curbing public expenditure was the dominant theme throughout this phase of industrial and investment stagnation is not seen by the Survey as being a related phenomenon. It emphasizes instead the great achievements in this consolidation pst-Covid too – specially the shift towards capital expenditure. In making this argument, it ignores the fact that public investment in fact has also been marked by stagnation, as increase in investment on the government account has been accompanied by an opposite trend for public enterprises.
Surprisingly though, the Survey also avoids acknowledging the extremely poor revenue realisations from central taxes in the current financial year. As per the Controller General of Accounts, gross revenues from Central taxes grew by barely 3.3 per cent in April-November 2025-26 compared to the same period in the previous year. CBDT data for direct taxes up to 11.01.2026 show an increase of only 4.14 per cent over the previous year, and net collections are only being held up by a drastic reduction in refunds. Gross GST domestic revenue collections up to December 2025 are also just 6.8% higher than in the previous year.
That revenue realization trends show lower growth than nominal GDP should have been a cause of some alarm – that it may be reflecting an underlying economic reality. This should have been even more so because revenue growth has been lower than that of nominal GDP despite the increase in the latter being also exceptionally low. India’s estimated real GDP growth of 7.4 per cent for 2005-26, as presented in the First Advance Estimates, is based on an implicit GDP inflation rate of just 0.6 per cent – well below the lower ‘tolerance’ limit of RBI’s inflation targetting policy. Indeed, in sectors like agriculture, mining and construction, nominal GVA growth is lower than the real growth. These would normally be considered as reflecting a near deflationary situation in the economy – how this goes with a robust growth performance remains unexplained in the Economic Survey.
Moreover, these would also mean that the real rates of interest in the economy are extremely high despite the partial lowering of the repo rate, which has implications for the ‘cost of capital’ that the Survey considers to be a key factor. The survey emphasizes India’s domestic market as one of the sources of India’s strength. Yet it offers little in terms of answers to the challenge of making the best use of it by addressing the growing inequalities that restrict it to a narrow segment of the population, which in fact may be the one of the real ultimate causes behind investment and industrial stagnation.
(The author is a professor at JNU)