New Delhi: Union Finance Minister Nirmala Sitharaman tabled the Economic Survey 2025-26 in Parliament on Thursday, projecting a strong 7.4 per cent real GDP growth and 7.3 per cent GVA growth for FY26. The document reaffirms India’s status as the world’s fastest-growing major economy for the fourth consecutive year, backed by low inflation, robust consumption, recovering manufacturing, and impressive fiscal consolidation. Yet beneath the optimistic headline numbers lies a more nuanced picture: a growth trajectory nearing its estimated potential of around 7 per cent, a projected moderation to 6.8–7.2 per cent in FY27, and persistent vulnerabilities from an increasingly fragile global environment.
The survey opens with a candid assessment of the external landscape — “global growth holding up better than expected but risks elevated” due to geopolitical tensions, trade fragmentation, and financial vulnerabilities. Against this backdrop, India’s performance stands out, but the document implicitly acknowledges that the tailwinds supporting recent gains may not last. Private final consumption expenditure grew 7.0 per cent in FY26, reaching 61.5 per cent of GDP (matching the post-pandemic high), driven by rural agricultural strength and urban tax relief. Gross fixed capital formation rose 7.8 per cent, supported by sustained public capex and a tentative private-sector revival. Services remain the dominant engine, with GVA in the sector expected to grow 9.1 per cent for the full year.
Critically, however, the survey’s own numbers suggest the economy may be approaching capacity limits. Potential growth is pegged at around 7 per cent, and the FY27 projection already signals a slowdown. This raises questions about the durability of the current momentum, particularly if global demand weakens or commodity prices rebound.
Fiscal Discipline Delivers Credibility, but State-Level Pressures Mount
On the fiscal front, the government’s prudent management has paid dividends. Centre’s revenue receipts strengthened to 9.2 per cent of GDP in FY25 (provisional), non-corporate taxes surged, and the direct tax base expanded significantly (income tax returns rose from 6.9 crore in FY22 to 9.2 crore in FY25). Three sovereign rating upgrades in 2025 — from Morningstar DBRS, S&P, and R&I — reflect growing confidence in India’s macroeconomic framework. General government debt-to-GDP has fallen by 7.1 percentage points since 2020 despite high public investment.
Yet the consolidation is not uniform. State fiscal deficits have edged up to 3.2 per cent of GDP in FY25, and combined state finances show emerging strains. Central capex remains a key driver (effective capex at 4 per cent of GDP in FY25), but the survey’s emphasis on incentivising states through schemes like SASCI highlights underlying asymmetries in fiscal capacity across levels of government.
Banking Sector Healthy, but Broader Financial Inclusion Gains Are Uneven
Banking asset quality has improved markedly, with gross NPAs at a multi-decadal low of 2.2 per cent and net NPAs at 0.5 per cent in September 2025. Credit growth accelerated to 14.5 per cent y-o-y by December 2025. Financial inclusion milestones are impressive: 55.02 crore PMJDY accounts, over 31 crore unorganised workers registered on e-Shram (54 per cent women), and unique investors crossing 12 crore (25 per cent women).
These gains, however, coexist with questions about job quality and depth of inclusion. Much of the employment growth remains in informal and gig sectors, and while schemes like PMMY and Stand-Up India have disbursed large volumes, their long-term impact on sustainable entrepreneurship and productivity remains under scrutiny.
External Resilience Strong, but Trade Imbalances Persist
India’s external sector story is one of diversification and resilience. Services exports hit a record USD 387.6 billion in FY25 (up 13.6 per cent), remittances reached USD 135.4 billion, and forex reserves stood at USD 701.4 billion (covering 11 months of imports and 94 per cent of external debt) as of mid-January 2026. Merchandise export share in global trade nearly doubled to 1.8 per cent between 2005 and 2024.
Still, the merchandise trade deficit remains large, and India’s overall global export share remains modest. The survey’s own data shows non-petroleum, non-gems exports now dominate merchandise outflows, but vulnerability to global demand shocks persists. The current account deficit stayed moderate at 1.3 per cent of GDP in Q2 FY26, but this stability relies heavily on invisibles (services and remittances) rather than a structural narrowing of the goods deficit.
Inflation Tamed — Perhaps Too Much?
Headline inflation averaged a record-low 1.7 per cent during April–December 2025, one of the sharpest declines among major EMDEs. The moderation stems largely from benign food and fuel prices. While this has boosted real purchasing power, it also raises the risk of demand-side weakness if food inflation rebounds or global energy prices spike.
Sectoral Bright Spots with Structural Challenges
Agriculture and allied sectors performed strongly, with foodgrain output estimated at 3,577.3 lakh tonnes in AY 2024–25 and horticulture surpassing foodgrains. Manufacturing GVA accelerated (7.72 per cent in Q1, 9.13 per cent in Q2 FY26), aided by PLI schemes that attracted over ₹2 lakh crore in investment and created 12.6 lakh jobs.
Infrastructure expansion has been dramatic — highways, railways, airports, renewable energy capacity, and power sector turnaround (DISCOMs posting positive PAT for the first time). Yet the survey’s focus on supply-side reforms and “disciplined Swadeshi” — a three-tiered strategy to build strategic resilience without blanket protectionism — signals recognition that import dependence in critical areas remains a vulnerability.
Social Progress Impressive, but Inequality and Job Quality Remain Concerns
Poverty (MPI) declined sharply from 55.3 per cent in 2005–06 to 11.28 per cent in 2022–23, maternal and child mortality reductions outpaced global averages, and education indicators improved (GER at 90.9 per cent primary, 78.7 per cent secondary). The survey also highlights AI diffusion, urban connectivity (Namo Bharat), and skill ecosystem upgrades.
However, employment data — 56.2 crore employed in Q2 FY26, with incremental additions — do not fully address the quality of jobs, wage growth, or urban-rural disparities. The informal sector still dominates, and multidimensional poverty, while falling, remains significant under revised World Bank thresholds.
Bottom Line
The Economic Survey 2025-26 presents a good narrative of structural transformation, fiscal credibility, and sectoral resilience. Yet the document is careful not to overstate the outlook: global risks are rising, growth is approaching its potential ceiling, and several gains (low inflation, remittances, services exports) are vulnerable to external shocks. Whether India can convert recent momentum into sustained, broad-based prosperity will depend on how effectively it manages these risks and deepens domestic capabilities in the years ahead.