According to the National Statistical Office’s first advance estimates, India’s real GDP is expected to grow by 7.4 per cent in fiscal 2026, surpassing last year’s call of 6.3-6.8 per cent
The global economy performed better than expected because the impact of the US tariffs was softened by exemptions, frontloading of shipments to the US, diversification to other markets and growth in services exports. India’s standout performance was also underpinned by accommodative monetary and fiscal policies, a favourable above-normal monsoon and lower crude oil prices.
That said, India saw sustained capital outflows and the rupee depreciated sharply, showing that even a small current account deficit and good macroeconomic performance do not guarantee capital flows and currency stability. Volatility is expected to course through the next fiscal as well. The advantage of frontloading will fade as the tariffs’ full impact is felt, especially in the absence of an India-US trade deal. Diversification will be more impactful only once other trade agreements are fully implemented.
The global economy is expected to grow steadily in 2026, though the outlook remains fragile. The Survey cautions that negative impacts of the current global turmoil can materialise with a delay.
The Survey projects real GDP growth in the 6.8-7.2 per cent range for FY27, slightly above Crisil’s estimate of 6.7 per cent. It has also lifted India’s potential growth rate to 7 per cent, up from the 6.5 per cent estimated three years ago. This signals confidence in domestic macroeconomic fundamentals, even as global uncertainties persist.
The next fiscal will test India’s resilience, particularly on capital flows and currency.
We assess the Survey on the current triad of relevance: Fiscal consolidation, reforms and private investment push. On the first, there are three reasons proactive steps are critical. One is that macroeconomic buffers are essential in an uncertain environment, and the fiscal buffer is the cornerstone of those safeguards. Two, the benefit of high nominal GDP growth for reducing the fiscal deficit has been waning. Nominal GDP expanded by 14.2 per cent between FY22 and FY24, which helped accelerate fiscal consolidation. However, growth slowed to 9.7 per cent in FY25, falling short of budgetary assumptions. The shortfall further widened in FY26, increasing the gap between projected and actual nominal growth. Efforts at expenditure rationalisation and tapping new sources of non-tax revenues are thus necessary to sustainably tame the deficit.
Three, the current milieu demonstrates that even when monetary policy is accommodative, inflation is low and the central government fiscally prudent, sovereign bond yields can remain elevated if fiscal discipline lapses, especially at the subnational level as witnessed in the current fiscal year.
Together, these three reasons underscore that robust and holistic fiscal consolidation is indispensable for preserving macroeconomic stability, reducing crowding out and keeping borrowing costs in check. The Survey acknowledges this.
Second, the relevance of economic reforms. The Survey has evolved into an analytics-driven document that places greater emphasis on advocacy. The latest Survey acknowledges these changes and notes that “the transformation is now based on the depth and time-relevance of national priorities”.
Last year’s Survey, too, made a case for continuing reforms, stressing that domestic levers will be crucial for India’s growth. The Budget for this fiscal had reinforced this message, with a series of deregulations and reforms. This year’s Survey, too, bats for continued reduction in compliance burden and deregulation, arguing that it shifts the administrative effort toward problem-solving, monitoring and execution.
Third, private investment: After prioritising infrastructure spending through direct budgetary support, central government capital expenditure is now normalising, making a rise in private capex essential for a sustainable investment boost. It should be noted that government and private capex are not substitutes, but complementary. The government has mainly been funding large-scale infrastructure projects, while corporates have been focusing on manufacturing and other productive pursuits.
The Survey noted that India needs to scale up private participation in building infrastructure. The Budget should continue to support capex, even if at a slower pace, aligning it with fiscal consolidation goals. It should simultaneously create an environment that encourages private investment and public-private partnership in infrastructure. To what extent will the Budget listen to the Survey? We will soon know.
The writer is chief economist, Crisil
