The Economic Survey has been presented in midst of heightened geopolitical conflicts and global uncertainties. While the Indian economy has been doing well in terms of domestic macro parameters, there could be severe risk to capital flows in midst of the global uncertainties. This in turn could de-stabilise the economy. The survey emphasises on the need to maintain adequate buffers in these uncertain times. In the last one year, India has seen sharp FII outflows and net FDI flows have also been subdued, and we are seeing consequences of that on Indian rupee. The survey emphasis on the need for improving India’s investment attractiveness and export competitiveness.
Services strong, manufacturing needs infra and skills
India’s services exports have been performing well even in midst of the global turmoil. While services exports have been a big supporting factor, the survey emphasises that we cannot reduce our focus on the manufacturing sector. Success in the manufacturing sector requires improvement in infrastructure, skilling manpower, scaling up MSMEs, easing of regulatory hurdles and improving the institutional capacity. Broadly, this would involve upgrade in State capacity, which will reap further dividend over a long period of time.
Even in midst of global uncertainties, the year 2025 turned out better than what was being feared at the beginning of the year. However, there is still a lot of uncertainties for 2026 and the coming years. Hence, the survey emphasises on the need for pro-active strategy and not a defensive mechanism. In midst of growing global protectionism, India should continue focussing on global integration through trade agreements like the recent India-EU FTA, India-UK FTA and others signed in the last few years. However, at the same time, India should also move towards Swadeshi, but through intelligent import substitution and not blanket protection. We should focus on indigenisation in sectors that have critical vulnerability for the nation and where domestic production is feasible.
For FY27, the Economic Survey expects GDP growth in the range of 6.8-7.2%. This is broadly in line with our GDP growth expectations of 7%. However, global uncertainties loom high and any further disruption to exports or capital flows could disturb the growth trajectory. Importantly, the survey has revised India’s potential growth rate to 7%, up from 6.5% three year ago. In the last few years, Centre’s focus on capital expenditure has grown strongly aiding the economy’s potential growth rate. Moreover, structural reforms, like tax rationalisation, new labour code, easing of regulatory hurdles, FDI liberalisation, logistics improvement would be supportive of higher potential growth rate.
Survey warns state finances under stress
While India’s growth outlook looks positive and inflation is under control, it is important for the Government to focus on its finances. The Centre has been diligently moving towards fiscal consolidation, having reduced the fiscal deficit from a high of 9.2% in FY21. The tax revenue collection has been lacklustre this year. However, the Centre is likely to meet it fiscal deficit target of 4.4% of GDP in FY26, supported by higher non-tax revenue and expenditure rationalisation. However, the Economic Survey highlights the concerns around some of the state government finances. With several states going for unconditional cash transfers in the last few years, stress has developed in state government finances. It is not enough if the Centre manages fiscal consolidation, but there is fiscal profligacy at the state level.
Overall, the Economic Survey, has highlighted the need for smart and pro-active strategies to counter the heightened global risks. Broadly the message is that the turbulent times are here to stay and we should gear up for the same. This is an apt time to focus on long-term reforms and accept delayed gratification.