The Economic Survey 2025–26 has been released, offering a detailed assessment of India’s economic performance over the past year and the outlook ahead.
Presented ahead of the Union Budget, the Survey reviews key trends across growth, inflation, fiscal management, external trade, and financial markets, while also highlighting structural challenges and emerging global risks. Together, these insights provide a snapshot of where the Indian economy stands and the policy priorities shaping the road ahead.
Growth Momentum and Macroeconomic Stability
India’s economic performance remained resilient through 2025. According to the Survey, real India GDP growth forecast 2026 growth is expected to exceed 7%, supported by steady domestic demand, improved infrastructure, and policy reforms. The Survey has also revised India’s potential growth rate to 7.0%, up from 6.5% estimated three years ago, reflecting gains in productivity, logistics, and investment efficiency.
Inflation remained broadly contained. While food prices continued to show volatility, core inflation stayed subdued, indicating improving supply-side conditions. The banking system remained healthy, with adequate liquidity, stable asset quality, and consistent credit growth supporting economic activity.
Fiscal Consolidation and Public Investment
On the fiscal side, the Survey notes that the Union Government achieved a fiscal deficit target of 4.8% of GDP in FY25, marginally better than the budgeted 4.9%. For FY26, the fiscal deficit target FY26, has been set at 4.4%, continuing the post-pandemic consolidation from 9.2% in FY21.
The Survey underlines that fiscal credibility is increasingly anchored in higher capital expenditure and human capital investment. However, it also flags concerns around rising revenue deficits and unconditional cash transfers in some States, which may crowd out growth-enhancing spending. With Indian government bonds now part of global indices, investors are paying closer attention to general government finances, not just the Centre’s balance sheet.
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External Sector and Trade Performance
India continues to run a trade deficit in goods, partially offset by a surplus in services exports and remittances. Between 2020 and 2025, total exports grew at a CAGR of 9.4%, while merchandise exports grew at 6.4%, highlighting the heavier reliance on services.
The Survey reiterates that while services exports provide stability, manufacturing exports are essential for durable external and currency resilience. In this context, it highlights the strategic importance of India’s recently concluded free trade agreement with the European Union, which aims to expand market access for labour-intensive manufactured goods and strengthen integration with global value chains.
Cost of Capital and Investment Constraints
A structural issue emphasised in the Survey is India’s relatively high cost of capital. Beyond interest rates and banking spreads, the Survey links this to India’s persistent current account deficit, which necessitates dependence on foreign capital and results in a higher risk premium.
The Survey argues that a sustained reduction in the cost of capital will require India to evolve into a surplus-generating economy, driven by competitive exports, higher productivity, and deeper financial markets.
Capital Markets, Regulation, and SEBI’s Role
The Economic Survey also touches upon developments in India’s capital markets and the evolving regulatory framework. It highlights the proposed Securities Markets Code as a step towards simplifying and consolidating multiple capital market laws, including those governing SEBI. The Survey presents this approach as a potential template for regulatory reform, emphasising principles such as transparency, proportionality, consultation, and accountability.
SEBI’s recent initiatives are referenced in the context of strengthening market integrity, investor protection, and operational efficiency. These include measures to curb financial fraud, improve governance and disclosures, enhance onboarding processes through alternative KYC mechanisms, and ensure safer fund flows through verified payment structures. The Survey links these regulatory efforts to the growing depth and participation in capital markets, including the steady rise in demat accounts and retail investor participation.
Overall, the Survey positions capital market regulation as an important enabler of efficient capital allocation, particularly in a phase where private investment and financial intermediation are expected to play a larger role in supporting long-term growth.
Global Risks and the Outlook Ahead
The Survey outlines three possible global scenarios for 2026, ranging from fragile stability to heightened geopolitical and financial fragmentation. It assigns a 40–45% probability each to the first two scenarios, with a 10–20% probability of a severe systemic shock.
Rising global uncertainty is reflected in financial markets, with gold prices rising sharply during 2025, signalling increased risk aversion. Despite these headwinds, India is seen as relatively better placed due to strong foreign exchange reserves, a large domestic market, and lower external vulnerabilities.
India is seen as relatively better placed due to strong foreign exchange reserves, a large domestic market, and lower external vulnerabilities.
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