Economic Survey 2025-26: A Calm Prelude to Strategic Budget Choices
The Economic Survey for the fiscal year 2025-26 arrives with an unusual degree of macroeconomic calm, setting a composed tone as India approaches the Union Budget presentation by Finance Minister Nirmala Sitharaman on Sunday, February 1. This document, traditionally a diagnostic of the economy, reveals that inflation is likely to remain muted in the medium term, while growth prospects remain healthy, albeit with some revisions. The prevailing stability marks a significant shift from previous crisis-driven budgets, framing the upcoming fiscal plan as one shaped by deliberate choice rather than emergency management.
Macroeconomic Stability and Revised Growth Projections
According to the Survey, India's potential growth rate has been revised upward to 7 percent, reflecting years of sustained public investment, extensive infrastructure expansion, comprehensive logistics reforms, and a thorough financial sector cleanup. High-frequency indicators consistently show firming investment momentum and resilient consumption patterns across various sectors. Core inflation remains subdued, signaling that supply-side improvements are finally anchoring prices effectively, rather than relying solely on monetary tightening measures.
Banks demonstrate remarkable stability with stronger balance sheets, and domestic demand continues to hold up robustly even as the global economy grows increasingly uncertain. This internal resilience provides a solid foundation for strategic policymaking, allowing the government to focus on long-term structural reforms rather than short-term firefighting.
Strategic Vulnerabilities in a Shifting Global Landscape
However, the Economic Survey carefully distinguishes between macroeconomic stability and strategic security, emphasizing that the global environment has undergone a profound transformation. International trade is no longer governed primarily by efficiency or multilateral rules; instead, it is increasingly shaped by geopolitics, security considerations, and fragmented supply chains. Capital flows have become more volatile, and currency markets remain unforgiving, demonstrating that even economies with strong fundamentals cannot guarantee insulation from external shocks.
India is not immune to these global shifts. Despite solid growth and contained inflation, the rupee has underperformed due to structural factors. The country continues to run a goods trade deficit and depends on foreign capital inflows to finance this imbalance. While services exports and remittances provide a valuable cushion, they do not fully offset the structural vulnerability. In a world of heightened geopolitical risk, this dependence represents a significant strategic concern that requires urgent attention.
Manufacturing as the Cornerstone of Strategic Indispensability
The Survey pushes the economic debate beyond conventional self-reliance narratives, arguing that building domestic capability, while necessary, is no longer sufficient. The larger ambition must be to make India strategically indispensable to the global economy. Manufacturing sits at the center of this argument, offering fundamental advantages that services alone cannot provide.
While services have powered India's economic rise for two decades, delivering growth, employment, and foreign exchange, manufacturing forces institutional discipline by exposing weaknesses in logistics, energy pricing, regulatory frameworks, and skill development. It ties export competitiveness directly to currency stability and state capacity in ways that services often do not. The Survey notes that countries with durable strategic influence and stable currencies have almost always built that strength on manufacturing depth.
India's own export data underscores the challenge: services exports have grown faster than merchandise exports in recent years. While this growth is creditable, the divergence explains why external vulnerability persists despite overall economic strength.
Policy Imperatives and the Entrepreneurial State
Recent trade agreements, including the concluded free trade agreement with the European Union, signal India's intent to expand market access for labor-intensive exports and integrate more closely with advanced manufacturing ecosystems. However, agreements alone do not confer competitiveness; they merely test it. The harder task remains producing at scale, with predictable costs and reliable delivery timelines.
This challenge places a premium on state capacity. The Survey's concept of an entrepreneurial state emphasizes credibility, execution capability, and regulatory discipline rather than replacing markets or commercializing governance. Mission-mode platforms in semiconductors, green hydrogen, and digital public infrastructure offer early signals of what this approach can achieve when implemented effectively.
The private sector is also called upon to rethink its role in this new paradigm. Seeking negotiated protection may offer short-term comfort, but it raises input costs and weakens downstream competitiveness. In a contested global system, corporate competitiveness becomes an integral part of national strategy, whether firms acknowledge it or not.
Budget Implications and Strategic Choices
As Budget Sunday approaches, the Survey frames a clear choice for policymakers. Stability has been earned through disciplined fiscal management, inflation is anchored, and fiscal consolidation has gained credibility. The temptation might be to prioritize visible short-term relief measures, but the harder, more consequential path involves investing further in capacity building, manufacturing competitiveness, cost of capital reduction, energy pricing reform, logistics efficiency, and skill development.
The upcoming Union Budget, therefore, transcends being merely a fiscal exercise; it serves as a powerful signal of India's strategic intent. The Economic Survey makes it clear that India is running a marathon in a world that increasingly demands sprinting capabilities. The coming Budget will reveal whether the country is prepared to pursue both objectives simultaneously—deliberately and with a firm eye on the decade ahead, balancing immediate needs with long-term strategic imperatives.
