By D.K. Srivastava
Economic Survey 2025-26 provides a detailed assessment of the performance of the Indian economy especially in the post-Covid years. It also provides some clues as to the forthcoming GoI’s budget for 2026-27.
Growth: performance and prospects
A key underlying parameter for the forthcoming budget is the underlying GDP growth. Although the budget requires only the nominal GDP growth for 2026- 27, this nominal growth comprises two elements namely real GDP growth and implicit price deflator-based inflation.
The Survey clearly gives a real GDP growth range of 6.8% to 7.2% for 2026-27. In the background of this, the survey has analyzed India’s potential growth for the medium term and estimated it at 7%. In arriving at this number, they implicitly argue that India’s medium- term growth potential is higher by 50 basis points than what has been projected by the IMF at 6.5%.
According to the Survey, the potential growth of 7% consists of contributions of 1.9% points from total factor productivity, 3.72% points from growth in capital stock and 1.33% points from that in labour. For 2026-27, due to continuing global uncertainties, we may consider the lower limit of the range of real GDP growth at 6.8% to be feasible.
To this we have to add the IPD based inflation to arrive at the nominal GDP growth for 2026-27. The Survey does not give any direct clue to this number. However, they do observe that CPI inflation would be higher than the 1.7% inflation seen during April-December 2025-26.
CPI inflation projection for 2026-27 is 4% which is the monetary policy committee target. WPI inflation is also likely to increase to at least 2% from an average level of zero during the first nine months of FY26. IPD-based inflation is the weighted average of these two inflation rates with a relatively higher weight for CPI inflation.
Together, this may lead to an IPD-based inflation of 3.2% and a nominal GDP growth of close to 10%. This is likely to be the underlying nominal growth for 2026-27. We may also consider that there would be a revision of the CPI inflation series and the base year would be changed to 2024.
Among other factors, this change may involve giving higher weights to non-food items in the CPI basket which have experienced a relatively lower inflation as compared to food items, especially vegetables, in recent years. Considering these factors together, the likely budget assumption of a nominal GDP growth of 10% appears reasonable.
Prospects of fiscal consolidation
The other key issue is about the prospects of fiscal consolidation. The 2025-26 budget had announced a change in the strategy of fiscal consolidation by saying that for the next five years the GoI is going to focus on an annual reduction in
the debt-GDP ratio without committing to any particular glide path for fiscal deficit.
The Survey emphasises this changed strategy and asserts that up to 2030-31, that is, the last year of the recommendation of the 16 th Finance Commission, the GoI may focus on bringing the debt-GDP ratio down to 50% from the present estimated level of 56%.
After that, the GoI may bring in the FRBM targets of debt and fiscal deficit consistent with sustainability. The sustainability targets may, however, be revised from the FRBM 2018 Act of 40% and 3% for GoI’s debt and fiscal deficit to GDP ratio to 50% and/or 3%.
Ongoing global uncertainties
The Survey examines one major economic and fiscal risk for the Indian economy at length. This relates to the ongoing global uncertainties.
It argues in favour of India’s international trade strategy based on extensive bilateral trade and investment agreements which will attract foreign investment and technology for co-development and co-production in India thereby supporting India’s Atma Nirbhar strategy.
The union budget is likely to indicate a tangible strategic shift in favour of compliance-based improvements in taxation, ease of doing business and incentivising private investments especially in the advanced technology sectors.
A higher prioritization for defence capital expenditure and for building sharable public infrastructure for advanced technology sectors such as AI, space and robotics is also on cards. On the whole, the GoI’s budget is likely to lay a solid foundation for India’s medium-term growth.
(The author is Chief Policy Advisor at EY India)
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.