Growth with Guardrails

Finance Minister Nirmala Sitharaman presented India’s Economic Survey 2026, offering a comprehensive vision of an economy expertly balancing robust growth with significant structural transformation, amidst global uncertainties. This strategic blueprint aims to sustain momentum, address emerging risks, and fortify India’s economic foundations.

The document highlights strong macroeconomic stability and consistent growth. India is projected to achieve an impressive 7.4 per cent growth in FY26, with a strong outlook for FY27 at 6.8 per cent to 7.2 per cent, solidifying its position as one of the world’s fastest-growing major economies.

The Macro Picture: Resilient Growth Against Global Headwinds

A central message is that stability needn’t mean stagnation. While projected real GDP growth is a slight moderation from post-pandemic highs, it remains the fastest among major economies. This resilience is notable given global financial tightening and uneven trade recovery.

Inflation, at historic lows, has remained anchored, a testament to astute monetary management and effective supply-side interventions. Headline CPI inflation averaged just 1.7 per cent from April to December 2025, bolstering real purchasing power and supporting private consumption.

The fiscal narrative reinforces this stability. Fiscal consolidation continued, with the FY25 deficit narrowing to 4.8 per cent of GDP and targets set at 4.4 per cent for FY26. The Survey flags renewed attention to state-level fiscal risks, impacting sovereign borrowing costs and overall macroeconomic health.

Investment, Infrastructure and Evolving Sectoral Dynamics

Investment is identified as a primary growth driver. Gross fixed capital formation, around 30 per cent of GDP, shows growing momentum in both public and private investments. Corporate balance sheets are the healthiest in a decade, fostering increased private investment.

Capital expenditure has surged over fourfold since FY18, with infrastructure leading this transformation. Road networks, high-speed corridors, rail electrification, and expanded aviation are structural multipliers, boosting productivity, lowering logistics costs, and attracting long-term investment.

Manufacturing and services continue robust expansion. Manufacturing GVA grew over 8 per cent in H1 FY26, while the services sector maintained near-double-digit growth, showcasing their complementary roles in job creation and output.

While acknowledging successful Production Linked Incentive (PLI) schemes, the Survey stresses the urgent need to bolster the “missing middle” by streamlining compliance burdens and reforming labour laws for MSMEs. To fully leverage the “China+1” strategy, focus must shift from final assembly to localised component manufacturing, ensuring long-term competitiveness and resilience.

Agriculture, Labour and Social Advancement

The Survey adopts a long-term perspective on the rural economy. Agricultural output expanded, with notable increases in foodgrain production and horticulture. Livestock and allied activities also showed strong growth, reflecting diversified rural incomes.

It advocates transforming Indian agriculture from a cereal-centric model to a high-value system, prioritising oilseeds, pulses, and horticulture to boost farmer incomes and reduce import dependency. Agri-tech and Digital Public Infrastructure (e.g., e-NAM) are highlighted for improving market access and reducing information gaps.

Labour markets are improving, with rising employment and increased participation, particularly among women. Pension and social security coverage expanded through e-Shram, while multidimensional poverty indicators continue their downward trend, signalling advancements in human development.

However, the Survey identifies structural skill gaps in healthcare, elder care, education, and advanced manufacturing. These gaps, coupled with rapid technological changes, highlight the importance of skilling and reskilling initiatives to harness India’s demographic dividend and prevent labor mismatches.

Innovation, AI and the Green Energy Transition

India’s ascent in global innovation indices, reaching 38th place in 2025, reflects progress in research, digital infrastructure, and entrepreneurship. The Survey champions an application-led approach to Artificial Intelligence (AI), advocating practical digital innovations rooted in public digital infrastructure like Aadhaar and UPI. This pragmatic stance aligns technology with economic realities, fostering productivity without exacerbating digital divides.

Rural-urban digital connectivity has dramatically improved, with rapid expansion in broadband and 5G coverage, making digital services more accessible nationwide.

A significant portion is dedicated to Sustainable Development. India is ahead of its Paris Agreement targets, yet the document stresses that the next phase of growth must decouple from carbon emissions. This strategy centers on the National Green Hydrogen Mission, aiming to position India as a global leader in green hydrogen production and export.

Finally, the Survey identifies the critical mineral bottleneck. Demand for lithium, cobalt, and copper—essential for the electric vehicle transition—is paramount. It calls for strategic overseas mining acquisitions and increased domestic exploration to secure raw materials for a green future.

External Sector Resilience

Despite global uncertainties, including tariff disruptions and capital flow volatility, India’s external buffers remain comfortable. Foreign exchange reserves climbed above USD 700 billion, representing around 11 months of import cover and a firm cushion against external shocks. The current account deficit was managed, and exports reached record levels, supported by services and diversified merchandise segments. Remittances remain robust, cushioning external imbalances.

Trade policy discussions acknowledge external tensions impacting global trade. However, domestic demand strength and resilience have mitigated some of these pressures.

Charting India’s Next Growth Chapter: From Resilience to Renewal

The Economic Survey 2026 marks India’s transition from post-pandemic recovery to structural transformation, emphasizing that long-term momentum depends on deep institutional reforms and enhanced productivity.

A primary focus is on reducing the cost of capital by maturing corporate bond markets and rationalizing debt taxation, easing the burden on banks and providing essential funding for infrastructure and climate-related investments. Equally important are structural reforms in labour markets and regulatory frameworks to enhance productivity and improve India’s integration into global value chains.

To capitalise on its demographic dividend, India must prioritise human capital through vocational training while resolving MSME vulnerabilities like credit constraints and delayed payments. Externally, the strategy requires navigating geopolitical shifts by diversifying exports and strengthening domestic supply chains, ensuring India remains a competitive and resilient player.

Conclusion

India’s Economic Survey 2026 offers a balanced narrative of optimism and caution. It recognises the country’s macroeconomic strength while underscoring the urgency of reforms to ensure growth is durable, inclusive, and productivity-led.

The path ahead requires more than headline GDP expansion. Success will be measured by how effectively growth translates into jobs, skills, enterprise vitality, and social mobility. The Survey serves both as a progress report and a call to action — urging policymakers, businesses, and citizens to align ambition with reform, and resilience with responsibility.

As India advances along its “Amrit Kaal” journey, the challenge lies in converting economic momentum into broad-based development. If pursued with coherence and commitment, the roadmap outlined in the Survey can help shape a future defined not only by scale but by sustainability, equity and opportunity.

Views expressed are personal. John Felix Raj is the Vice Chancellor, and Sovik Mukherjee is an Assistant Professor of Economics, both at St. Xavier’s University, Kolkata