Economic Survey 2025–26: The Devil Is In The Details

India’s Economic Survey 2025–26, laid before Parliament yesterday, projects GDP growth of 6.8 to 7.2 per cent in FY27, keeping India among the fastest-growing major economies. However, it also comes with caveats—geopolitical tensions, trade fragmentation, rising protectionism, and rapid technological change that could upset India’s growth story by reshaping capital flows and supply chains. For India, this implies weaker external demand and unpredictable investment flows, even if domestic fundamentals remain strong. Volatility alone, the survey warns, could put downward pressure on the rupee.

AI disruption and external risks

One scenario looms particularly large: a low-probability but high-impact artificial intelligence shock—an AI-driven disruption severe enough to rival or surpass the 2008 financial crisis. The concern is not merely automation in factories, but the automation of cognitive work such as coding, data analysis, customer support and back-office functions. For India’s vast IT and BPO sector, this could translate into significant white-collar job losses unless reskilling and adaptation occur at scale. Other external risks are quieter but persistent. Trumpism, for instance, implies tighter immigration policies in advanced economies, which could reduce remittances, long a stabilising source of foreign exchange.

Fiscal populism and structural bottlenecks

At the same time, global financial tightening cycles could trigger sudden reversals in capital flows. On the home front, the survey is unusually candid about the rise in state-level fiscal populism, particularly cash-transfer schemes funded by expanding deficits. While politically popular, such measures risk increasing overall borrowing costs and weakening macroeconomic stability. The survey also acknowledges that manufacturing—where India aims to narrow the gap with China—faces structural bottlenecks. High energy prices, expensive freight and weak logistics create inverted cost structures that erode competitiveness. Without deep reforms in these areas, policy intent alone will not deliver results.

Human capital constraints

Human capital emerges as another key constraint. Skill mismatches persist across sectors, and women’s labour force participation remains low. Even public health enters the economic frame, with rising obesity levels and ‘digital addiction’ among the young flagged as long-term threats to productivity. The demographic dividend, the survey suggests, is not automatic; it must be actively engineered.

The case for an entrepreneurial state

Perhaps the most consequential idea in the document is its call for an “entrepreneurial state”. This is not an argument for a larger government, but for a more capable one—able to coordinate across ministries, update regulations quickly and remove procedural choke points. Outdated regulations and governance practices, the survey warns, risk locking India into stagnation.

Climate challenge and execution focus

Climate action illustrates the dilemma. India’s green ambitions are genuine, but financing and technology flows from advanced economies remain inadequate. Without international support, decarbonisation becomes far more difficult to sustain, both politically and financially. Ultimately, the survey sketches an India that is strong but not invulnerable, ambitious but constrained, and poised yet unfinished. The underlying message is clear: future growth will no longer be driven primarily by momentum or narrative, but by disciplined fiscal management, credible regulation, steady reform and relentless attention to execution.

Published on: Saturday, January 31, 2026, 08:17 AM IST