We must acknowledge the breadth and candid presentation of the state of the economy presented in the Economic Survey 2025-26. It introduces two interesting phrases that summarise the challenges facing India and the Indian monetary and fiscal authorities.
The first phrase is ‘strategic sobriety’. The Survey reflects the core challenge facing India in a changing global order where there is resistance from existing heavyweight economies to accommodate the aspirations of rising economies that have achieved a scale that cannot be ignored. However, India, on the cusp of becoming the world’s third largest economy, also faces several internal and external challenges. The external challenges come from a continually disrupted world with ever-increasing geopolitical conflicts.
An over-leveraged technology sector also poses challenges for the monetary authorities. The risk of contagion in the financial sector in the event of the high investments in AI not leading to efficiency returns on investment is making them nervous. Further, India’s manufacturing sector has not been able to keep pace with its growth ambitions owing to upstream protectionism impacting micro, small, and medium enterprises (MSME) competitiveness.
In this continually disrupted world, India cannot lean excessively on any strategic imperative or alignment. Instead, it must demonstrate strategic sobriety and dovetail into a strategy summarised by the second interesting phrase in the survey — ‘running the sprint and marathon’ at the same time.
This applies more to the government from a policy and fiscal perspective. The expression is an honest assessment of the Centre’s achievements while also pointing out the policy course corrections that had to be undertaken owing to the emerging situation. An example the Survey cites in this context is the removal of widespread quality control orders on inputs that impacted MSMEs negatively. Such agile learning and policymaking by the Centre has been termed as an ‘entrepreneurial state’.
Some of the achievements that provide resilience to the Indian economy, include:
n stronger growth in services exports and remittances that stabilise the external account while cautioning that this would not give us long-term resilience without stronger manufacturing exports, and
n agriculture, employing a majority of the workforce, exhibiting stable performance driven by allied sectors.
The Survey outlines that India cannot achieve its Viksit Bharat ambition without the Sabka Saath aur Sabka Vishwas philosophy being ingrained amongst its citizens, private businesses, and central and state governments. Some of the key recommendations in the Survey include: n innovation push for manufacturing with larger scales of operations, MSME strengthening, and competitive input costs by reducing protection of upstream manufacturing
n balancing growth and green transition through proper sequencing of actions, unlocking climate finance, and building institutional capacity
n stronger focus on skilling, apprenticeships, and labour reforms to align the workforce to the future of work
n expansion of compute capacity, safety frameworks, talent pipelines, and innovation ecosystems for harnessing the benefits from emerging tech
n empowering city governance, sustainable mobility, modern planning, and stronger municipal-level capacity to harness cities as engines of growth.
The Survey highlights the risk to exchange rates from negative capital flows and manufacturing not shifting gears to be able to provide the strategic leverage India currently lacks. It calls for interventions to be made towards shifting from import substitution to strategic indispensability through cost reduction and advanced manufacturing. It also raises the issue of the high cost of capital that makes businesses less competitive owing to higher deficits, especially at the state level. The potential GDP growth rate has been increased to 7% in the Survey, with the range being pegged as 6.8-7.2% for FY27. In summary, India’s macroeconomic fundamentals remain strong despite global volatility, with growth supported by resilient domestic demand, a healthy finance sector, and prudent monetary and fiscal policies.
We can continue to expect India to realise strong growth by navigating the economic headwinds as an ‘entrepreneurial state’! We now look forward to the Union Budget, and it will be interesting to see whether the finance minister has picked up hints from this Survey on the need to bring down debt significantly, remove protection for upstream industries for the benefit of MSMEs through significant reforms in customs duties, and introduce incentives for states to be fiscally prudent.
The writer is Partner and Leader Economic Advisory, PwC India
