Economic Survey 2025-26 projects 6.8–7.2% growth in FY27, warns of external risks

Economic Survey 2025-26 projects 6.8–7.2% growth in FY27, warns of external risks.

India Ratings and Research (Ind-Ra) released its Economic Survey 2025-26 (ES 2025-26), projecting FY27 real GDP growth between 6.8% and 7.2% while flagging several external vulnerabilities. The survey indicates that improved capital accumulation, expanded labor inputs, and stronger total factor productivity growth have raised potential real GDP growth to approximately 7.0% for the medium term (FY26-FY30), up from 6.5% previously. Dr. Devendra Kumar Pant, Chief Economist and Head of Public Finance at Ind-Ra, notes that ten Indian states are expected to exceed 7% growth in FY27 according to recent state-level growth projections aligned with the survey’s assessment.

The survey emphasizes sustained state-level deregulation as a key enabler for small and medium enterprises to expand and integrate into formal value chains. Through a Cabinet Secretary-led Task Force established in January 2025, compliance reductions and deregulation efforts target land, building, labour, utilities, and broader legal reforms. These measures aim to create a more conducive environment for SMEs to contribute to medium-term economic growth.

Analysts warn that the economy operates near capacity, requiring structural changes to sustain higher growth trajectories. The survey estimates FY27 real GDP growth at 6.8% to 7.2% (Ind-Ra: 6.9%), with a 3% increase in GDP deflator growth suggesting nominal GDP growth could reach 9.8% to 10.2% (Ind-Ra: 9.7%) if the FY27 budget, presented on 1 February 2026, is approved.

Downside risks are primarily external in nature. Geopolitical tensions involving trade conflicts pose significant threats, as do geoeconomic factors such as tariff shocks. Additionally, AI-driven asset valuation corrections could trigger capital flow disruptions and cause volatility in the Indian rupee. The severity and duration of these external risks will determine the magnitude of their impact on the economy.

To maintain strong growth momentum, the survey recommends six key strategies. First, policymakers should focus on supply stability by creating resource buffers and diversifying routes and payment systems. Second, there is a need to monitor artificial intelligence developments, address quality of life challenges in Indian cities, and enhance the roles of state capacity and the private sector—including households—in achieving strategic resilience. Third, manufacturing competitiveness and export performance must be strengthened to ensure long-term currency stability. Fourth, current account management requires attention, particularly for countries with structural savings deficits that may not benefit equally from lower capital costs. Fifth, system-level institutional capacity must be strengthened, encompassing a capable state and a vibrant private sector to navigate geopolitical complexities. Finally, improvements in state capacity, society, and deregulation are essential to pursue Viksit Bharat and reinforce global influence.

Fiscal strategy highlights the importance of maintaining fiscal credibility while noting emerging risks. Unconditional cash transfers allocated to state-level fiscal choices are estimated at INR 1.7 trillion in FY26 (0.5% of GDP). Many implementing states face revenue deficits, which could compress capital expenditure space and limit infrastructure investment.

The survey underscores the need for balanced fiscal policy and warns against expanding unconditional cash transfers without addressing underlying revenue shortfalls. This constraint threatens to limit the government’s ability to fund critical development programs and infrastructure projects.