Economic Survey 2025-26 projects 6.8–7.2% growth in FY27, warns of external risks
The Survey strongly emphasises maintaining fiscal credibility and highlights improvements in public expenditure quality by both the union and state governments.
The survey suggests that the economy is operating near capacity, and to push growth higher, structural changes are required to boost the investment rate and further improve total factor productivity. (Image: Freepik)
India Ratings and Research (Ind-Ra) believes the Economic Survey 2025-26 (ES 2025-26) not only fairly assessed the strengths and weaknesses of the Indian economy but also suggested steps for sustaining high growth.
“The survey has estimated calibrated improvements in capital accumulation, labour inputs, and trends in total factor productivity growth have pushed the potential real GDP growth to around 7.0% for the medium term (FY26-FY30) from 6.5% earlier. Aligning with the survey’s assessment, Ind-Ra has recently released growth projections for Indian states, with 10 states expected to witness above 7% growth in FY27,” says Dr. Devendra Kumar Pant, Chief Economist and Head Public Finance, Ind-Ra.
According to the ES 2025-26, sustained state-level deregulation has enabled small and medium enterprises to expand and integrate more effectively into formal value chains, boosting the economy’s medium-term growth potential. Compliance reduction and deregulation through a Cabinet Secretary-led Task Force (January 2025) targeting land, building, labour, utilities, and overarching legal reforms is a major reform pillar in that direction.
Overall, this suggests that the economy is operating near capacity, and to push growth higher, structural changes are required to boost the investment rate and further improve total factor productivity. The survey estimated real GDP growth for FY27 to be 6.8%-7.2% (Ind-Ra: 6.9%). With a 3% increase in GDP deflator growth, the FY27 budget (to be presented on 1 February 2026) may assume nominal GDP growth for FY27 in the range of 9.8-10.2% (Ind-Ra: 9.7%).
The survey identifies downside risks as external, including geopolitics (trade conflicts), geoeconomics (tariff shocks), AI-led asset valuation correction, potentially causing i) capital flow disruptions and ii) volatile Indian rupee movements. The extent of these movements varies based on the severity and duration of external risks. The main suggestions of ES 2025-26 to maintain strong growth momentum are:
* Focus on supply stability, creating resource buffers, and diversifying routes and payment systems
* Monitor Artificial Intelligence, address quality of life in Indian cities, and enhance roles of state capacity and the private sector (including households) for strategic resilience and indispensability
* Enhance manufacturing competitiveness and exports to maintain long-term currency stability and strength
* Improve the current account – countries with structural savings deficits (i.e. current account deficits) and political incentives for fiscally accommodative policies do not easily benefit from lower capital costs
* Strengthen system-level institutional capacity, including a capable state and a private sector, to address the geopolitical situation
* Improve three crucial elements – state capacity, society, and deregulation – to pursue Viksit Bharat and global influence
Fiscal Strategy: The Survey strongly emphasises maintaining fiscal credibility and highlights improvements in public expenditure quality by both the union and state governments. However, it flags an emerging medium-term risk: the expansion of unconditional cash transfers in state-level fiscal choices. The survey estimates unconditional cash transfers of INR1.7 trillion in FY26 (0.5% of GDP), with many implementing states facing revenue deficits, potentially compressing the capex space.
