Economic Survey flags the right questions

The backdrop against which the Economic Survey 2025-26 has been presented is arguably complicated. On the macroeconomic front, growth has been healthy and inflation has remained muted. Both corporate and bank balance sheets are healthy. GST rates have been rationalised, trade deals have been signed, and a slew of reforms have been announced. Yet, there are questions over household consumption, signs of a broad-based revival in the private investment cycle are few, and merchandise exports are sluggish. Another oddity alongside the strong macroeconomic performance is foreign investors pulling out of the markets and a falling rupee. The paradoxes confronting the country have been flagged by the Economic Survey.

The Survey rightly notes that the economy relies upon capital inflows to maintain a healthy balance of payments. But, “when they run drier, rupee stability becomes a casualty”. The rupee is currently hovering around 92 against the US dollar. While a weaker currency does impact export competitiveness, the Survey argues that the currency’s valuation “does not accurately reflect India’s stellar economic fundamentals”. But it influences investors. In the current global environment, when India does not seem to offer a compelling AI story, and money is also pouring into safe-haven assets (such as gold), this warrants closer attention. As the Survey puts it, “India needs to generate sufficient investor interest and export earnings in foreign currency.” Another equally critical issue highlighted by the Survey is that of “fiscal populism”. In recent years, several state governments have announced unconditional cash transfers — as per ICRA, the combined cash transfers of 11 states added up to Rs 1.5 lakh crore in 2025-26. These schemes have impacted the fiscal space available for more productive forms of expenditure. As per the Survey, committed expenditures — salaries, pensions, interest payments and subsidies — account for 62 per cent of states’ revenue receipts. The trade-offs are pretty apparent.

The Survey has projected the Indian economy to grow in the range of 6.8 to 7.2 per cent in 2026-27. This comes after the first advance estimates had pegged growth at 7.4 per cent in 2025-26. Achieving this, and sustaining growth at 7 per cent over the medium term, in an uncertain global environment, will be challenging. The Survey does provide a sense of how the Centre is looking at the economic environment. The question now is whether these issues raised find reflection in the coming Union Budget.