The Economic Survey, unlike the Union Budget which will be presented on Sunday, is not a binding document for the government. It is best read and understood as a glimpse into the overall philosophy which guides economic policy making of which the budget is just a part. And it is also the document that projects real growth; the budget usually doesn’t, although it does give a nominal growth projection. On that front, the Economic Survey 2025-26 has only good news: a 6.8-7.2% GDP growth in 2026-27, and an upward revision in India’s potential growth in the medium term from 6.5% to 7%.
Directionally, the economic survey calls for waking up and smelling the coffee rather than either patting oneself on the back or being unnecessary alarmist. The survey’s overall direction is best described by its clarion call for “strategic sobriety and not defensive pessimism” in a world which is expected to stay turbulent under the best assumptions in the foreseeable future.
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That the survey has put a ship full of containers (read exports) on its cover while reviewing a year which saw India’s largest export market (US) impose 50% tariffs on it is a clear declaration of intent that the way forward will not be inward looking. That it explicitly states that “stability, prudence, and democratic legitimacy (on part of the state) remain indispensable, but they are no longer sufficient on their own”, and describes the year 2025 as marking a paradox where “India’s strongest macroeconomic performance in decades collided with a global system that no longer rewards macroeconomic success with currency stability, capital inflows, or strategic insulation”, is a clear admission that policies which were desirable and good for India’s economic aspirations in the past are not going to be enough in the future.
Juxtaposed with Prime Minister Narendra Modi’s comments on Thursday, about India being on the “reforms express”, this suggests that the underlying theme of Union Budget 2026-27 could be radical reforms of the sort required to make India a developed nation (Viksit Bharat) by 2047. Indeed, almost every section of the economic survey ends with a note on what needs to be done in that area towards achieving this objective. Separate chapters on building institutional capacity, tapping AI, and building competitive cities emphasize the importance of these.
A strong economy…
The reason for this larger pivot is not adverse developments in the domestic economy. In fact, the survey consistently and comprehensively underlines what it sees as a structural and not merely a cyclical strengthening of the Indian economy over the past few years. It has made an upward revision of India’s potential growth from 6.5% to 7%. It has projected a real GDP growth rate of 6.8%-7.2% for 2026-27, where the outlook is “one of steady growth amid global uncertainty, requiring caution, but not pessimism”. “Growth is good; the outlook remains favourable; inflation is contained; rainfall and agricultural prospects are supportive; external liabilities are low; banks are healthy; liquidity conditions are comfortable; credit growth is respectable; corporate balance sheets are strong; and the overall flow of funds to the commercial sector is robust. Policy dynamism and purposeful, governance reinforce this backdrop” Chief Economic Advisor (CEA) V Anantha Nageswaran writes in his preface to the survey underlining the inherent strengths of the domestic economy.
The survey also highlights the reforms undertaken in the last year, which, it is not shy to admit, were catalysed by the “surprise” of the US imposing additional tariffs on Indian rather than the belief even within the government of India being “one of the early winners in the new tariff regime of the United States”. Among the key reforms it has flagged are things such as rationalisation of GST rates, implementation of labour codes, raising of FDI limits in sectors such as insurance and opening up of the nuclear power sector to foreign players.
To be sure, the survey gives anything but a sense of complacency on the reform front. “India’s most consequential constraint today is no longer the absence of policy intent, ideas, or resources, but the incentive structures within institutions that shape how decisions are taken under uncertainty”, it says, while asking for a radical change in how policy is made and implemented to create, what it has described as an entrepreneurial state. “Political leadership must set direction and articulate priorities. Bureaucracies must discover pathways, solve problems, and adapt instruments. Institutions must absorb error without collapsing into either paralysis or permissiveness” rather than a situation where “politicians drift into populism while bureaucracies drift into insularity, the survey describes as the ideal policy making apparatus.
… but in an increasingly turbulent world
Where the survey clearly hands out a ‘’brace for impact “ warning is the external economic and geopolitical environment. Here the CEA only sees things as being as bad as they are (Scenario I), becoming worse (Scenario II) or mutating into a proverbial economic Armageddon of sorts (Scenario III). The third is just about half less likely (10-20% probability) than the first two (40-45% probability). Scenario I, the best-case assumption, has been described as “business as in 2025“ but “one that becomes increasingly less secure and more fragile” thanks to episodic financial stress, trade frictions and geopolitical tensions falling short of a systemic collapse but adding to volatility where the world will have to live with “managed disorder” rather than stability.
Scenario II is the fear generated by the first crossing a threshold where “disorderly multipolar breakdown rises materially…policy becomes more nationalised, and countries face sharper trade-offs between autonomy, growth, and stability”. Clearly the Survey has Donald Trump following up on all his tariff threats on social media.
The worst-case scenario draws on the “possibility that financial stress events are transmitted across borders with fewer buffers in place…involving the risk of a systemic shock cascade in which financial, technological, and geopolitical stresses amplify one another rather than unfolding independently”. In simple language, this envisages the perfect storm of geopolitical tensions, growing fiscal stress in advanced economies and what increasingly looks like a huge bubble in AI related technologies. If this happens, the “macroeconomic consequences could be worse than those of the 2008 global financial crisis” the CEA warns.
The CEA’s preface also seeks to nudge policy towards choosing the path of enduring good rather than fleeting comfort, evoking comments attributed to Yama, the god of death in the Katha Upnishad, an ancient Hindu scripture. “Against today’s global churn, India must choose to build resilience, innovate relentlessly, and stay the course toward Viksit Bharat, rather than seek quick fixes to visible, short-term pressures.” All eyes will now be on the budget to see how this larger philosophy is translated into action.
