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India's Economic Survey 2025–26: A Clear-Eyed Look at Growth in Uncertain Times
India finds itself at a fascinating crossroads. Domestically, the economy is firing on multiple cylinders—robust growth, inflation well-contained, a healthy banking sector, and improving fiscal management paint an encouraging picture. Yet beyond its borders, the global landscape grows increasingly turbulent, marked by rising protectionism and fragmenting international cooperation.
The central question confronting policymakers and business leaders alike: Can India maintain its economic momentum when the external environment is becoming progressively more challenging to navigate?
Upgraded Growth Potential: From 6.5% to 7%
Economists have significantly revised upward their estimates of India's sustainable growth trajectory. Just three years ago, consensus held that 6.5% annual expansion was the realistic ceiling for long-term growth. Today, that assessment has shifted to 7%—a seemingly modest adjustment that represents substantial additional economic output over time.
This upgraded outlook reflects tangible improvements across multiple dimensions. The government's sustained infrastructure investment programme has delivered new highways, modernised airports, and enhanced logistics networks that reduce business costs and expand market access. Simultaneously, state-level reforms have streamlined regulatory processes, making it considerably easier for small and medium enterprises to establish and operate businesses. Perhaps most encouragingly, private sector investment—sluggish for years—is finally showing signs of revival.
The shift from 6.5% to 7% might appear incremental, but compounded over decades, it represents transformational economic expansion and poverty reduction.
Real-Time Economic Monitoring Through Nowcasting
Electricity Consumption
Real-time power demand data reveals industrial activity and consumer behaviour patterns as they unfold.
Vehicle Sales
Automobile purchases serve as leading indicators for consumer confidence and credit availability.
Digital Payments
UPI and digital transaction volumes provide instantaneous insight into economic activity across sectors.
India has substantially enhanced its capacity to monitor economic health in real-time through sophisticated "nowcasting" techniques. Rather than waiting for quarterly GDP reports that describe what happened months ago, policymakers can now analyse current data streams—electricity consumption patterns, vehicle sales figures, digital payment volumes—to understand economic conditions as they develop. This improved visibility enables more timely and responsive policy interventions.
Fiscal Performance: A Tale of Two Governments
Central Government: Disciplined and Delivering
The Union Government has exceeded its fiscal targets, containing the budget deficit to 4.8% of GDP this year—better than the promised 4.9%. This achievement is particularly noteworthy given the government simultaneously maintained record capital expenditure on infrastructure projects that will generate returns for decades. New highways connecting remote regions, railway modernisation, and port expansions represent investments in India's productive capacity, not merely current consumption.
Looking ahead, the government has committed to further fiscal consolidation, targeting a deficit of 4.4% of GDP in the coming year. This trajectory demonstrates serious commitment to macroeconomic stability—crucial for maintaining investor confidence and keeping borrowing costs manageable.
State Governments: A Concerning Divergence
Warning Signs
Many state governments are exhibiting worrying fiscal patterns that could undermine national economic stability if left unchecked.
  • Persistent deficits as expenditure consistently exceeds revenue
  • Growing reliance on direct cash transfer schemes that create recurring obligations
  • Infrastructure spending being squeezed to accommodate welfare programmes
  • Rising debt burdens that limit future fiscal flexibility
This matters profoundly because international credit rating agencies and investors assess India's fiscal health by examining consolidated government finances—central plus state. Deteriorating state finances can raise borrowing costs for the entire country, affecting businesses and households nationwide.
The Cost of Capital: Understanding India's Interest Rate Reality
One of the Survey's most penetrating insights addresses a question that affects every business and borrower in India: Why do interest rates remain elevated compared to developed economies, even when inflation is controlled?
The answer lies deeper than monetary policy. India runs a persistent current account deficit—it spends more in international transactions than it earns. This necessitates borrowing from abroad, and foreign lenders demand a risk premium. Countries that consistently generate current account surpluses—Germany, Japan, China—enjoy structurally lower borrowing costs because they're net lenders to the world, not borrowers.
The Path to Lower Interest Rates
Achieving sustainably lower capital costs requires transforming India into an export powerhouse, particularly in manufacturing. Only by consistently earning more foreign exchange than the country spends can India reduce its dependence on foreign capital and command better borrowing terms.
This isn't merely about corporate finance—lower interest rates would stimulate housing investment, make infrastructure projects more viable, and enable more Indians to start businesses. The stakes extend far beyond balance sheets.
Export Realities: Why Manufacturing Matters More Than Services
The Current Export Composition
India's export performance reveals an imbalanced picture. Services exports—information technology, business process outsourcing, consulting—have grown robustly. Combined with remittances from Indians working abroad, these flows help finance the current account deficit. Yet merchandise exports—physical goods—have grown at just 6.4% annually over the past five years, compared to 9.4% growth in total exports.
9.4%
Total Export Growth
Overall expansion including goods and services
6.4%
Merchandise Growth
Physical goods exports lagging significantly
Why Manufacturing Creates Strategic Advantage
The Survey makes a crucial historical observation: throughout modern economic history, countries with strong, stable currencies have invariably been manufacturing powerhouses. Germany, Japan, South Korea—all built their economic strength on manufacturing excellence, not services alone.
Manufacturing creates deeper economic benefits than services: it generates extensive supply chains, drives technology adoption, creates blue-collar employment at scale, and establishes the industrial ecosystem that reinforces national productive capacity. Services exports, while valuable, don't create the same structural economic strength or strategic resilience.
The EU Free Trade Agreement: A Potential Game-Changer
The recently concluded Free Trade Agreement with the European Union represents potentially transformative market access. Europe's massive consumer market opens to Indian manufacturers, particularly in labour-intensive sectors where India possesses genuine competitive advantages.
Beyond tariff reductions, the agreement facilitates India's integration into global value chains—enabling Indian firms to supply components and finished goods to European manufacturers while accessing European technology and management practices. If properly leveraged, this agreement could catalyse the manufacturing acceleration India needs.
Inflation Control: Structural Improvements Showing Results
Price stability has improved notably, with core inflation—the underlying price trend excluding volatile food and energy—remaining subdued. This reflects genuine structural improvements in the economy rather than merely cyclical factors.
Better infrastructure means agricultural products reach urban markets faster with less spoilage. Improved supply chain efficiency reduces costs throughout the economy. Expanded productive capacity allows the economy to meet rising demand without triggering price pressures. These are the building blocks of durable price stability, not temporary statistical flukes.
Agricultural Policy: From Price Support to Productivity Enhancement
Rethinking Agricultural Strategy
Indian agricultural policy is undergoing a fundamental philosophical shift—quiet but potentially revolutionary in its implications for rural prosperity and food security.
The Traditional Approach
  • Minimum support prices to guarantee farmer incomes
  • Government procurement of select crops
  • Often encouraged wrong crops in wrong locations
  • Created market distortions and environmental stress
The Emerging Paradigm
  • Focus on raising productivity through technology and extension services
  • Encouraging crop diversification aligned with soil and climate
  • Improving market linkages so farmers capture value naturally
  • Direct income support decoupled from production decisions
This approach aims to raise rural incomes sustainably without creating inflationary pressures, environmental degradation, or market distortions. The transition will be gradual and politically challenging, but the direction represents sound economic thinking aligned with farmer welfare and national food security.
Manufacturing as National Strategy: Beyond Economics
Strategic Imperative, Not Just Growth Driver
The Survey frames manufacturing development as transcending purely economic considerations—it's fundamentally about national security and strategic autonomy in an increasingly weaponised global economy.
Recent years have demonstrated how supply chains can be leveraged as geopolitical tools. Access to semiconductors, rare earth elements, pharmaceutical ingredients, and other critical inputs can be restricted to extract political concessions. For India to safeguard its interests and maintain strategic independence, it requires robust domestic manufacturing capabilities across critical sectors.
Innovation & Technology
Continuous improvement and adoption of cutting-edge processes, not reliance on protection
Skilled Workforce
Investment in technical education and vocational training aligned with industry needs
Efficient Logistics
World-class infrastructure and supply chain systems that reduce time and cost
MSME Scaling Support
Helping small and medium enterprises access credit, technology, and markets to grow
Avoiding Protectionist Traps
The Survey issues an important caution: India has sometimes protected upstream industries with high tariffs, inadvertently making downstream manufacturers uncompetitive internationally. For example, protecting steel producers with import barriers raises costs for automobile manufacturers, undermining their export competitiveness.
Genuine, durable competitiveness emerges from productivity, innovation, and efficiency—not from hiding behind tariff walls that ultimately weaken rather than strengthen industrial capability.
Infrastructure Investment: Building Tomorrow's Foundation
Visible Progress
The government's infrastructure programme is delivering tangible results that businesses and citizens can see and experience:
  • Highways connecting previously remote regions to markets
  • Modernised ports reducing cargo dwell time and costs
  • Digital infrastructure like UPI transforming payment systems
  • Renewable energy capacity expansion supporting both growth and climate goals
The challenge now shifts from commitment to execution—delivering projects on schedule and within budget, while attracting private capital to complement government investment. Infrastructure's economic returns materialise over decades, requiring sustained political will and professional project management.
Climate Action: Pragmatism Aligned with Development
A Carefully Sequenced Approach
The Survey articulates a pragmatic stance on climate action that balances environmental imperatives with development necessities—particularly important for a country still lifting millions from poverty.
01
Climate Adaptation First
Build resilience to climate impacts already occurring—drought-resistant crops, water management, disaster preparedness
02
Emissions Reduction Second
Reduce carbon footprint through pathways that don't undermine industrial competitiveness or energy access
03
Finance and Readiness Always
Ensure adequate financing and technical capacity before major transitions to avoid disruption
The Development-Environment Balance
Moving too rapidly on green transitions without proper preparation carries real risks: higher energy costs that make Indian industry uncompetitive globally, unreliable power supply that disrupts manufacturing, and economic slowdown that undermines the growth necessary to fund environmental investments and lift populations from poverty.
Climate action must be sequenced thoughtfully with development objectives, ensuring that environmental progress doesn't come at the expense of economic opportunity for hundreds of millions still seeking better lives.
Demographics and Employment: Making Youth Work
India's Demographic Window
India possesses a young population—potentially an enormous economic advantage. Countries that successfully harness demographic dividends experience accelerated growth as large working-age populations drive production and consumption.
But youth alone doesn't automatically translate to prosperity. Without adequate job creation, a young population becomes a source of social tension rather than economic dynamism. The quality of employment matters as much as quantity—jobs must offer decent wages, skill development, and advancement opportunities.
Requirements for Success
Thriving manufacturing: Absorbs workers at scale with middle-class wages
Services growth: Provides opportunities for educated youth
Relevant education: Training aligned with actual employer needs, not outdated curricula
The Survey also highlights growing challenges in health and education that increasingly require private sector engagement—particularly addressing lifestyle diseases and making graduates genuinely job-ready rather than merely credentialed.
The Entrepreneurial State: Rethinking Government's Role
Beyond Regulation to Mission-Driven Governance
One of the Survey's most intellectually interesting propositions is the concept of an "entrepreneurial state"—not a government that owns and operates businesses, but one that fundamentally reimagines its relationship with citizens and markets.
Mission-Oriented
Takes on ambitious challenges that require coordination beyond any single actor's capability
Capability-Building
Focuses on developing institutional capacity and expertise, not just writing regulations
Adaptive Learning
Learns from implementation, adjusts quickly, tolerates intelligent failure in pursuit of innovation
Trust-Based
Trusts citizens and businesses, reducing unnecessary compliance burdens and enabling initiative
This vision requires sophisticated coordination between government capacity, business responsibility, and active citizen participation. It represents a departure from the traditional regulatory state towards something more dynamic and collaborative.
Running a Marathon Like a Sprint: The Path Forward
The Survey concludes with a vivid and instructive metaphor: India must "run a marathon like it's a sprint." This encapsulates the paradox of India's current moment—the country must maintain marathon-level endurance and discipline while executing with sprint-level intensity and urgency.
What This Means in Practice
India's strong macroeconomic fundamentals provide a cushion against external shocks—but not complete insulation. Success demands:
  • Fiscal discipline: Adhering to deficit targets even when politically difficult
  • Patient capability building: Developing institutions and skills over years
  • Persistent reform: Continuously fixing dysfunctional systems
  • Delayed gratification: Prioritising investment over immediate consumption
The Strategic Opportunity: Beyond Growth to Indispensability
If India executes well on this agenda, it can transcend being merely another emerging market growth story. In a world increasingly characterised by geopolitical rivalry, fragmenting supply chains, and strategic competition, India can position itself as strategically indispensable.
Reliable Partner
Democratic governance, rule of law, and policy predictability make India a trusted collaborator
Major Market
1.4 billion consumers with rising incomes represent a market no global business can ignore
Manufacturing Hub
Alternative to concentrated manufacturing in single countries, offering diversification and resilience
The fundamentals are strong. The strategy is articulated clearly. Now comes the most challenging part: sustained execution over years and decades, maintaining momentum even when short-term political pressures tempt compromise or deviation. The prize—a prosperous, strategically significant India—justifies the difficulty of the journey ahead.
Key Takeaways: India's Economic Outlook in Brief
For Policymakers and Business Leaders
India's economy demonstrates fundamentally sound macroeconomic foundations with growth accelerating beyond previous expectations. The Union Government is managing fiscal affairs responsibly, maintaining discipline while investing heavily in infrastructure that will support decades of expansion.
However, state government finances require urgent attention—deteriorating fiscal positions at the state level could undermine national economic stability and raise borrowing costs for everyone. The consolidated fiscal picture matters profoundly to investors and rating agencies.
Critical Success Factors
India's continued prosperity depends on successfully navigating several interconnected challenges over the coming decade.
1
Manufacturing Excellence
Transform into an export powerhouse in manufactured goods, not just services, to reduce current account deficits and lower structural borrowing costs
2
Competitive Capital Costs
Achieve sustainably lower interest rates by becoming a net earner rather than net spender in international transactions
3
Employment Generation
Create sufficient quality jobs for India's young population through manufacturing scale-up and services growth
4
Disciplined Execution
Maintain fiscal and policy discipline despite external turbulence and internal political pressures for short-term measures
Strategic Positioning for Global Relevance
If India successfully executes on these priorities, the outcome extends beyond domestic prosperity. In an increasingly fragmented and competitive global order, India can establish itself as strategically indispensable—a large, reliable market; a democratic partner sharing values with major economies; and a manufacturing alternative that diversifies concentrated supply chains.
This isn't guaranteed. It requires sustained effort, coordinated policy, and the political will to choose long-term national interest over short-term political expediency. The fundamentals provide a foundation, but translating potential into reality demands excellence in execution.
The opportunity is clear. The path is defined. The challenge lies in maintaining focus and momentum over the years and decades required to fulfill India's economic promise.
7%
Long-term Growth Potential
Upgraded from previous estimate of 6.5%, reflecting improved fundamentals
4.4%
Target Fiscal Deficit
Union Government's commitment for next year, demonstrating fiscal discipline
6.4%
Merchandise Export Growth
Physical goods exports lag total export growth, highlighting manufacturing imperative
"India must run a marathon like it's a sprint—maintaining the endurance and discipline of long-distance running while executing with the intensity and focus of a sprinter. The global environment offers no margin for complacency."
For investors, business strategists, and policymakers globally, India represents more than an emerging market opportunity—it's potentially a crucial node in reconfiguring global economic and strategic architecture for a more multipolar era. Whether that potential is realised depends on choices made and executed in the years immediately ahead.