Economic Survey Explained: Why India’s Growth Can Hold Steady Despite Global Uncertainty

The Economic Survey of India, tabled in Parliament on Thursday, presents an optimistic assessment of the economy’s trajectory.

It estimates India’s potential growth at around 7 per cent and projects GDP growth of 6.8–7.2 per cent in FY27, reflecting medium-term strength anchored in structural reforms and macroeconomic stability.

While acknowledging that the global economic environment remains fragile, the Survey notes that India’s growth has held up better than expected when compared with many peer economies.

Strong domestic fundamentals, sustained reforms, and relative insulation from global shocks have helped maintain a positive outlook, even as external risks remain elevated.

The Survey identifies external stability as a key strength of the Indian economy, helping shield it from global volatility.

However, it cautions that global shocks often operate with a lag, underscoring the need for continued policy vigilance despite near-term resilience.

Domestic demand remains the primary engine of growth, with robust consumption, particularly in urban areas, supporting economic activity.

The Survey highlights that tax rationalisation measures undertaken in recent years have boosted urban consumption, adding further momentum to demand-led growth.

India’s medium-term growth trajectory, the Survey says, is underpinned by structural reforms and sustained macroeconomic stability.

These reforms have strengthened economic fundamentals and enhanced the economy’s ability to absorb external shocks, reinforcing long-term resilience.

The Survey points to a structural improvement in the Centre’s fiscal position, noting a shift in how government borrowing is used.

Fresh borrowings are increasingly deployed to service past interest obligations rather than finance current expenditure, signalling a correction in fiscal quality.

India’s fiscal deficit has narrowed sharply, from 9.2 per cent of GDP in FY21 to 4.8 per cent in FY25, with a further reduction to 4.4 per cent budgeted for FY26.

Revenue deficits have also declined to their lowest level since FY09, enabling higher capital expenditure and more productive government spending.

The Survey underscores the importance of credible targets combined with policy flexibility.

Rather than rigid annual deficit goals, the government adopted a medium-term glide path, first outlined in the Union Budget FY22, aiming for a fiscal deficit below 4.5 per cent of GDP by FY26, ensuring capital expenditure is not compromised during uncertain periods.

On the revenue side, the Survey notes a post-pandemic improvement driven by higher gross tax collections, which rose from an average of 10.8 per cent of GDP pre-pandemic to around 11.5 per cent post-pandemic.

It also observes shifts in the composition and sources of tax revenue within this broader stability.

The Survey warns that global trade policy is increasingly shaped by security and political considerations, rather than multilateral rules or efficiency.

It notes that recent U.S. tariff actions on Indian exports came as a surprise, particularly when India was expected to be an early beneficiary of the new U.S. tariff regime, triggering market volatility and downward revisions to growth forecasts.

Despite external shocks, the Survey stresses that growth remains strong, inflation is contained, banks are healthy, and corporate balance sheets are robust.

However, it flags a paradox: India’s strongest macroeconomic performance in decades is unfolding amid a global system that no longer consistently rewards such success with currency stability or capital inflows

The Survey cautions that emerging markets remain vulnerable as global trade growth is expected to slow sharply in 2026.

For India, risks are likely to emerge through intermittent pressure on exports, capital flows, and the rupee, which has underperformed despite strong fundamentals. An undervalued currency, however, has helped cushion the impact of higher U.S. tariffs.

The Survey concludes that the key risk lies not in any single external shock, but in prolonged global fragmentation, with fragility and uncertainty becoming structural features of the global system.

“The outlook,” it notes, “is one of steady growth amid global uncertainty, requiring caution, but not pessimism.”