GLOBAL ECONOMIC ENVIRONMENT

● Disruptive upheaval: tariffs by USA on imports from its trading partners.

● Reciprocal tarffs initially increased fears of slower global growth and high inflation but the
effects were short-lived due to
reason for global stability:

○ Lower effective US tariff rate after Trade Agreements

○ Front-loading of spending by US households ahead of tariffs
○ Implementation delays allowing firms to postpone price hikes
● Outcome: Global economic activity has remained relatively stable.
● For the year 2025 IMF Projections show:

Growth Inflation
Advanced Ec&onomies 1.7 2.5
EMDE 4.4 5.2
Global 3.3 4.1
Economics Survey 2025-26
● Aggregates mask fragilities:
○ United States
■ Growth remains strong largely driven by AI-related investments in equipment, software etc.
(nearly half of GDP growth in recent quarters). Mitigating the tariff impact.
■ Inflation accompanied growth - persistently above 2%, with rising unemployment rate.
○ Europe
■ Inflation is easing towards ECB’s target but growth is uneven.
○ China
■ Faces deflationary pressure due to stress in real estate
■ Weak domestic demand
■ Merchandise exports continue to support Growth
○ Japan
■ Moderate economic growth
■ Inflation exceeds BOJ’s 2% target.
○ Global
■ Divergent trajectories of Central Bank Rates across economies, impacting capital flows - as
fund houses chase yields
Economics Survey 2025-26
 ○ Elevated long term
borrowing costs reflecting
investor concerns over
governments’ ability to repay
debt. (due to uncertainty)

○ US 30 year bonds reached a

peak of 5.15% on May 25.
○ Japan saw yields exceed
record highs since 1999.
● Elevated global economic
uncertainty due to geopolitical
fragmentation of relationships
along with macroeconomic
developments has led to
deterioration of FDI flows.

Economics Survey 2025-26

○ As per UNCTAD’s World Investment Report, FDI flows in 2024, barring those in certain conduit
economies, declined by 11 per cent YoY
○ Capital flows increasingly concentrated around the AI supply chain.
○ FDI fell in most developed countries except the US where it rose by ~20%. (if AI is removed then fdi in us has went down by 1%.)

○ In 2024, four of the top ten greenfield projects were in semiconductors, three in the US,
alongside rapid expansion of data centres driven by digital demand and industrial policy.

Economics Survey 2025-26

Economics Survey 2025-26
● Fiscal policies remain expansionary amidst weak growth and inflation
○ Projected primary deficits for 2025 well above pre-pandemic levels except in Brazil and
India. primary deficit = F.D-interest payment

Economics Survey 2025-26

EMERGENCE OF ECONOMIC STATECRAFT (BOX I.1)
● Geopolitics strongly shapes economic outcomes today, leading to emergence of ‘Economic
Statecraft’. 1) US is Using tariff to achieve international relation objectives.

2) china is using rare earth minerals and permanent magnate to achieve global dominance.

● Economic Statecraft: deliberate use of economic means to achieve strategic ends of foreign
policy, national security - distinct from economic policy which uses fiscal, monetary and trade
instruments to achieve domestic economic goals.
● Economic statecraft is not new - historical precedents include ancient embargoes like Megarian
Decree imposed by Athens in Ancient Greece and Roman Empire’s grain provisioning system.
● Arthashastra integrates economics with state power.
● Globalisation once seen as stabilising, now viewed as a source of risk, prompting trade wars,
export controls and competition over critical minerals and technologies.

Economics Survey 2025-26

● Modern resurgence is driven by:
○ Ultra-nationalism - rooted in claims of cultural superiority and anti-immigration stance,
impacting labour mobility
○ Scepticism towards free trade and multilateralism- perception of large concentrated trade
balance
○ Absence of global rules on competition, investment and subsidies
○ Aftermath of COVID-19 pandemic - companies looking to make supply chains resilient
● Governments are responding through:
○ Friend shoring, near shoring
○ Active state support for strategic sectors such as semiconductors, AI, renewables, EVs and
critical minerals
outsourcing production to a friendly country

outsourcing production to a neighbor country.

Economics Survey 2025-26

● Economic statecraft operates through ‘carrots’ and ‘sticks’ using tools across trade, capital
and fiscal policy. Recent examples:
○ US export controls on advanced semi-conductors and critical technology.
○ China’s export restrictions on rare earths and dual-use items alongside blacklisting of foreign
firms
○ EU’s CBAM which taxes carbon-intensive imports
○ Fiscal policy has also become strategic - economies balancing defence, social and green
spending amidst debt constraints
● Way Forward for India:
○ India must pursue strategic indispensability - embedding itself in global value chains in ways
that are hard to substitute.
○ Strengthening domestic capabilities, maintaining macro stability and shaping global rules in
areas like Digital Public Infrastructure, India can turn integration into influence and
insurance rather than vulnerability.
(Establishing a strategical independence instead of being a ally of country like US or china)

Economics Survey 2025-26

TRENDS IN THE DOMESTIC ECONOMY
GROWTH AND INCOME
ADVANCED ESTIMATES
● India continues on a strong growth trajectory. As per first advance estimates of MoSPI, real GDP
is projected to grow at 7.4% and GVA at 7.3%, exceeding earlier projections.
● India retains the fastest growing major economy tag for the fourth consecutive year.
● Growth is demand driven, led by consumption and rising capital formation.
● On the supply side, services remain the main driver, supported by trade, transport and financial
and professional services.

Economics Survey 2025-26

Reason for Low Mining and quarrying
1) environmental issue
2) heavy mansoon made it hard to conduct the process
3) reduced global demand

Economics Survey 2025-26

Economics Survey 2025-26
DEMAND SIDE: DOMESTIC DRIVERS
CONSUMPTION
● Share of final private
consumption expenditure (PFCE)
in GDP expected at 61.5 per cent
in FY26, highest since FY12.
● Reflects a supportive
macroeconomic environment
marked by low inflation, stable
employment, and rising real
incomes.
● Broad-based consumption
growth: Rural demand backed by
strong agricultural performance,
improvement in urban
consumption due to tax
rationalization.

Economics Survey 2025-26

● High frequency indicators including automobile and tractor sales and air passenger traffic - point to
continued robust demand.
● NABARD Rural Economic Conditions and Sentiments Survey 2025: ~80% of rural households
reported increased consumption during last year with consumption share of income rising to 67% -
highest on record.
● Strength reflects GST rate rationalisation, softer inflation and improved real purchasing power of
rural households

Economics Survey 2025-26

EXPORTS
● Share expected to be 21.6% in FY26.
● Services exports have continued to provide a stable anchor for growth, partially offsetting the
greater volatility in goods exports, amid tariff related uncertainties.

Economics Survey 2025-26

INVESTMENTS
● The share of GFCF is estimated at 30% of GDP, with H1 GFCF growth at 7.6%.
● Momentum was driven by sustained public capex and a revival in private investment, keeping
the GFCF share at 30.5% in H1, well above pre-pandemic levels.
● Rising non-food bank credit, capacity utilisation above trend, and strong capital goods
indicators, including IIP capital goods and robust capital goods imports.

Economics Survey 2025-26

● Export momentum is expected to strengthen, supported by
advancing bilateral trade talks with the United States, trade
agreements with other major economies, and ongoing export
market diversification.

SUPPLY SIDE DRIVERS

● FY26 GVA driven by industry and services, aided by sustained
capex, higher capacity utilisation and steady services demand.

Economics Survey 2025-26

AGRICULTURE
● Agriculture played a stabilising role, supported by favourable monsoons and allied activities.
● Agriculture and allied activities are estimated to grow 3.1% in FY26 (4.6% in FY25)
● Agricultural reflecting structural constraints rather than weather disruptions
○ Crop growth—over half of agri GVA—remains volatile with limited productivity gains
○ allied activities (livestock, fisheries) show stable 5–6% growth, increasingly shaping overall
outcomes.
● Rabi sowing is strong,
rise in wheat and gram
acreage.
1) lack of institutional reform
2) Greater dependence on monsoon
3) major Deepdene on cash crops and
less crop diversification.
4) less technological advancement

Economics Survey 2025-26

INDUSTRY
● Concerns over industry’s declining GVA share largely reflect relative price effects and higher
intermediate consumption, not a fall in activity.
● In real terms manufacturing’s share has remained steady at around 17-18%, while Gross Value of
Output at ~38% is comparable to services.
● FY26, Industry expected to grow at 6.2% led by manufacturing at 8.4% led by resilient demand
and capacity utilisation.

Economics Survey 2025-26

● Utilities grew modestly (2.4%), mining contracted (-1.8%) due to excess rainfall, while
construction expanded 7.4%, supported by public capex and infrastructure momentum.
● Q3 FY26 high-frequency indicators (PMI, IIP, e-way bills; steel and cement) signal continued
strengthening, with outlook buoyed by GST rationalisation and firm demand.

SERVICES
● Stabilising component of GVA, estimated to grow at 9.1% in FY26 (vs 7.2% in FY25).
● Share in GDP rose to 53.6% in H1 FY26, surpassing pre-pandemic period.
● Most sub-sectors grew above 9%, with only trade–hospitality–transport–communication still
marginally below pre-pandemic norms.
● Momentum expected to continue on resilient domestic demand and steady exports,
corroborated by Q3 high frequency indicators like services PMI, port cargo, rail freights etc.

Economics Survey 2025-26

STRENGTHENING INDIA’S NATIONAL STATISTICAL SYSTEM (BOX I.3)
● Sound public policy requires timely, credible, and granular data, prompting the Ministry of
Statistics and Programme Implementation to comprehensively strengthen India’s National
Statistical System.
● Reforms span new surveys (ASISSE for incorporated services; AIDIS and SAS for assets, debt and
farm households; a planned Household Income Survey)
● higher-frequency and sub-state data (quarterly ASUSE, monthly/quarterly PLFS with
district-level estimates)
● modernised, digital surveys (Computer-Assisted Personal Interviewing CAPI with cloud based
eSIGMA, enabling faster releases)
● A major milestone is rebasing national accounts to 2022–23 (Feb 2026) with methodological
upgrades, better informal-sector coverage, GST and administrative data use, and Supply and
Use Tables (SUT) based reconciliation
● IIP will also be rebased to 2022–23 (May 2026), and CPI to 2024 (Feb 2026) using updated
consumption patterns.
● Digital-first dissemination via portals (eSankhyiki, Microdata Portal) and apps expands access,
while data harmonisation and AI-readiness are advanced through common standards (National
Metadata Structure - NMDS 2.0, Statistical Quality Assessment Framework - SQAF).
Economics Survey 2025-26
DOMESTIC MACROECONOMIC
FUNDAMENTALS
INFLATION
● Demand-led growth has coincided with a sharp easing of inflation, boosting real purchasing power
and consumption.
● In FY26 (Apr–Dec), headline CPI fell to 1.7%, led by food disinflation—notably vegetables and
pulses—on favourable farm conditions, supply interventions, and base effects.
● Core inflation remained sticky mainly due to precious metals; excluding these, underlying
pressures are soft, suggesting limited demand overheating.
● Outlook remains benign, aided by supply conditions and GST rationalisation, though core inflation
warrants monitoring amid monetary easing and possible global base metal price pressures.

Economics Survey 2025-26

Economics Survey 2025-26
FISCAL POLICY
● Domestic demand momentum supported by prudent fiscal strategy with strong revenue
mobilisation and calibrated spending.
● Gross tax revenues remained resilient, with direct taxes at ~53% of the annual target by
November 2025 and GST collections hitting multiple record highs, despite lower inflation.
● Tax reforms—personal income tax restructuring and GST rate rationalisation — boosted
consumption while sustaining revenues.
● The central government’s fiscal path combines consolidation with sustained public investment:
the capex share in expenditure rose from ~12.5% (FY20) to 22.6% (FY25), and effective capex
increased to ~4% of GDP from 2.6%
● Through Special Assistance to States for Capital Expenditure/Investment (SASCI), states were
incentivised to maintain capex at ~2.4% of GDP, even as revenue spending pressures rose at
the state level.
● The Centre remains on track to achieve a 4.4% fiscal deficit in FY26

Economics Survey 2025-26

● Markets have rewarded this discipline with lower sovereign yields and a sharply narrower
spread over United States bonds.
● Reflecting credibility, S&P Ratings upgraded India to BBB, while CareEdge Global assigned a
BBB+ rating. essence is that we are doing good in fiscal policy .

Economics Survey 2025-26

MONETARY POLICY AND TRANSMISSION
● Monetary policy turned accommodative, with a cumulative 125 bps cut in the policy repo rate
since February 2025.
● Supported by durable liquidity infusion through CRR cuts (₹2.5 lakh crore), OMOs (₹6.95 lakh
crore) and forex swaps (~$25 billion).
● Transmission has been effective: WALR on fresh rupee loans fell 59 bps and on outstanding
loans 69 bps (Feb–Nov 2025). The banking sector strengthened further, with gross NPAs at a
multi-decade low of 2.2%, slippages stable at 0.7%, and profitability improving.

Economics Survey 2025-26

● Firms increasingly tapped market-based and internal financing, reducing reliance on banks
● Non-bank funding flows rose 29.3% YoY (Apr–Nov 2025) alongside a robust 18.3% YoY
expansion in non-food bank credit, supporting overall investment momentum.
Economics Survey 2025-26
EXTERNAL SECTOR
● India’s total exports reached a record USD 825.3 billion in FY25 and remained resilient in FY26.
● Despite higher tariffs by the United States, merchandise exports rose 2.4% and services exports
6.5% (Apr–Dec 2025), while imports grew 5.9%.
● Wider merchandise trade deficit was offset by a higher services surplus and strong remittances
keeping the current account deficit moderate at 0.8% of GDP (H1 FY26).

Economics Survey 2025-26

● FDI inflows rose 16.1% YoY, though higher outward FDI capped net inflows; FPI flows were
weak, yielding a BOP deficit of USD 6.4 billion, financed by reserves.
● The rupee depreciated ~6.5% (Apr 2025–Jan 2026) amid uncertainty but remained orderly.
● Forex reserves sufficient to cover 11+ months of imports, near term external position is
comfortable.
● Trade diversification and new FTAs support exports, but geopolitics, migration curbs, and
economic statecraft pose medium-term risks, underscoring the need to boost competitiveness
and investment attractiveness.

Economics Survey 2025-26

EMPLOYMENT AND SOCIAL SECTOR
● Labour market has improved supported by regulatory reforms, wider social protection and
skilling initiatives.
● PLFS data shows declining unemployment and stable LFPR.

Economics Survey 2025-26

● The implementation of the Labour Codes, consolidating 29 laws into four, simplifies compliance,
enhances flexibility, extends social security—including to gig and platform workers—and
strengthens formalisation, complemented by industry-aligned skilling programmes.
● Social sector initiatives have also reduced poverty. Following the World Bank’s revised poverty
line (USD 3.00/day, PPP 2021 prices), poverty in 2022–23 is estimated at 5.3% (extreme) and
23.9% (lower-middle-income).
● Health and education indicators—life expectancy, IMR, and GER—have improved steadily,
underscoring the role of inclusive growth and sustained social investment in strengthening
long-term economic resilience.

Economics Survey 2025-26

REFORMS AND MEDIUM-TERM GROWTH (BOX I.4)
● Reform momentum has strengthened over the past three years, supporting medium-term
growth. why india is growing faster

● Manufacturing-focused measures—including PLI schemes, FDI liberalisation, and logistics

reforms—alongside sustained public investment (effective capex at ~4% of GDP) have boosted
capacity creation.
● Tax simplification and improvements in regulatory clarity.
● MSME support—via expanded credit guarantees, wider TReDS use, and the Unified Lending
Interface (ULI)—has eased credit constraints.
● Survey performs Growth Accounting Exercise using Cobb Douglas Function.

Economics Survey 2025-26

Following insights emerge:
a. Capital Stock
■ India’s capital stock growth slowed from ~8.6% (FY03–FY12) to ~7.6% (FY13–FY20) due to
corporate and banking stress, weakened further during the pandemic, and has since
recovered.
■ Revival driven by sustained public capex and improved private investment capacity, with the
current capex push complemented by logistics, digital, and regulatory reforms that raise
capital productivity.
■ This has begun to crowd in private investment, reflected in higher capacity utilisation and
new project announcements.
■ Capital stock growth is expected to return to at least pre-COVID averages.

Economics Survey 2025-26

b. Labour Input
■ Labour input grew at ~2.3% annually in FY13–FY20, with stable participation.
■ PLFS data (since 2017–18) show rising participation—especially among women—alongside
greater formalisation and social security coverage.
■ Post-pandemic, labour input growth has been volatile, reflecting temporary disruptions
and accelerated formalisation during recovery.
■ Labour input expected to stabilise with higher growth than pre-pandemic levels due to
labour laws consolidation, lower compliance burdens, investments in education and skilling
etc.

Economics Survey 2025-26

c. Total Factor Productivity
■ TFP which captures efficiency gains, averaged ~1.9% in FY13–FY20, dipped in the immediate
post-pandemic years—mirroring patterns in other EMEs—but is expected to strengthen
with sustained reforms.
■ Public digital infrastructure (Aadhaar, UPI, GSTN) has cut transaction and compliance costs,
shortened settlement cycles, improved tax compliance, and eased firm entry/exit, raising
allocative efficiency.
■ Complementary reforms in infrastructure, logistics, insolvency, regulation, plus education,
skilling, apprenticeships, and greater formalisation support productivity gain.

Economics Survey 2025-26

d. Expanding growth frontier
■ Combined gains in capital, labour and TFP are estimated to lift potential GDP growth from
~6.5% to ~7% over the medium term, reflecting persistent reforms reinforced by strong
macro-financial fundamentals
■ Also supported by high frequency indicators.
■ Continued Centre–State coordination is essential to sustain and further raise this growth
frontier

Economics Survey 2025-26

OUTLOOK
● FY26 was marked by external shocks, with global trade uncertainty and penal tariffs straining
exporters and business confidence.
● The government used this stress to advance GST rationalisation, deregulation, and compliance
simplification.
● FY27 is expected to be an adjustment year, with firms and households adapting and domestic
demand and investment strengthening, although external uncertainty persists.
● Global medium-term outlook remains dim with modest growth, easing inflation and a tilt to
monetary easing but downside risks - like correction of AI boom, drag from prolonged trade
conflicts - dominate.
● India faces external uncertainties (slower partner growth, tariff disruptions, volatile capital
flows) and not macroeconomic stress.
● Progress on trade talks with US can reduce uncertainty, macro fundamentals are stable with low
inflation, healthy balance sheets, strong public investment, resilient consumption and improving
private investments.
● Survey projects FY27 real GDP growth at 6.8 to 7.2%, calling for caution not optimism.
Economics Survey 2025-26
Thank You
Economics Survey 2025-26