ES 2025-26 shifts India from resilience to indispensability via macro strength, entrepreneurial state, GVCs, and geoeconomic strategy—despite implementation gaps
The Economic Survey 2025-26 (ES) is tabled at a time when the ongoing polycrisis has been further aggravated with greater geopolitical fragmentation, trade weaponisation, and a perceptible retreat of hyper-globalisation. There is no doubt that India stands as a bright star against this backdrop of global gloom. The Survey, over the years, has evolved from presenting a fiscal arithmetic report card to articulating a strategic pathway for development and progress, ideating the tracks to navigate the myriad impedimental forces. This year’s ES is no exception; rather, it stands out even more–it has articulated a new doctrinal framework for India’s ascent. This is evident in the big leap in the development narrative: from a defensive "resilience" paradigm to an aggressive and ambitious "indispensability" paradigm. In a fractured world, economic security is the bedrock of strategic autonomy.
The ES makes it clear that this shift is made possible by the macroeconomic fortitude of the Indian economy. The Survey projects a real GDP growth of 7.4 percent for FY26 and estimates a potential growth rate shift to 7 percent in the medium term—the highest among all major economies. This is underpinned by a fiscal consolidation with the fiscal deficit target of 4.4 percent of GDP by FY26. The sharp moderation in retail inflation to 1.7 percent, driven largely by food price deflation, eventually presents the economy in an enviable position—high growth, low inflation!
The New Strategic Doctrine of Indispensability, presented in Chapter 16, talks of a tiered framework moving India from ‘Import Substitution to Strategic Resilience’ and finally to ‘Strategic Indispensability’. Of course, this cannot happen unless Indian products and services get integrated into Global Value Chains (GVCs) in a manner that makes its economy a critical, non-substitutable node in the global economy.
ES realises that the very animal spirit of entrepreneurship needs to be evoked, and the State has to play a role in that. The very reductionist mode of Crowding in private investment by reducing governmental roles is not enough. Rather, “State Capacity” needs to be substantially augmented through administrative reform, as that acts as the binding constraint on growth, rather than resources. It advocates for an "Entrepreneurial State" that can take calculated risks, structure uncertainty, and distinguish between bona fide errors and malfeasance to reduce bureaucratic risk aversion.
The Survey projects a real GDP growth of 7.4 percent for FY26 and estimates a potential growth rate shift to 7 percent in the medium term—the highest among all major economies.
In this context, deregulation can emerge as a growth driver. The document highlights the need for implementing over 630 reforms across states and the reduction of frictions through the Task Force on Compliance Reduction and Deregulation. Importantly, ES redefines deregulation not as the withdrawal of the state, but as the strengthening of state capacity to focus on outcomes rather than processes.
The ES articulates the AI Strategy as ‘a bottom-up approach’, rather than pursuing the resource-heavy “frontier model” race of the West. This can be enabled by an AI Economic Council with a focus on “frugal AI,” application-specific small models, and digital public goods. This can also allay the risks of job loss associated with rapid technology adoption.
In the manufacturing domain, one interesting aspect to note is the ES’s perspective on cost-competitiveness via input cost reduction, which it perceives as a necessary but insufficient condition. Given this, the ES argues for a push into Advanced Manufacturing to enforce systemic discipline and quality standards, citing the successes of the PLI schemes in electronics and pharmaceuticals.
However, so far, the biggest post-liberalisation growth force of the economy has been services—the stability anchor—that contributes over 50 percent of Gross Value Added (GVA). The ES envisages the next phase of growth of this sector to be driven by the structural shift towards high-value exports in the forms of GCCs, professional consulting, and the "servicification of manufacturing".
The ES locates India’s trade resilience within a volatile global trade policy environment, noting that record export performance and the stabilising role of services provide only a near-term buffer.
On the agricultural front, the ES extends the agricultural narrative from food security to income security. Long-term resilience and farmer welfare will depend on crop diversification from the traditional resource-intensive crops promoted under the Green Revolution toward pulses and oilseeds. This will require correction of ecologically distorting subsidy structures that favour water-intensive crops—and renewed policy attention to Smart Tribal Farming and the revival of village commons. On this note, the ES locates India’s trade resilience within a volatile global trade policy environment, noting that record export performance and the stabilising role of services provide only a near-term buffer. A credible transition toward “hard currency” status ultimately rests on deepening manufacturing capabilities and securing sustained surpluses in merchandise exports.
The Survey advances a systemic reframing of India’s development trajectory by treating urbanisation as economic infrastructure rather than as a mere question of habitation. Persistent governance deficits in urban local bodies have impaired the realisation of agglomeration economies, thereby creating a clear case for empowering mayors while aligning greater fiscal autonomy with stronger accountability.
The best part of the story arises here. The ES recognised the mitigation-heavy narrative of the Global North and places adaptation at the core of India’s climate action. Given the tremendous adaptation financing gap, it highlights the need for innovative financing. However, there should have been an acknowledgement that even human capital investment is tantamount to climate financing. What is interesting this time is the novel addition of the epidemic of ‘Digital Addiction’ and rising obesity among youth as future economic constraints. It links screen time and ultra-processed foods to cognitive atrophy and reduced workforce productivity, calling for regulatory interventions like age-gating and warning labels.
The most striking conceptual innovation in this Survey is the transition from ‘Atmanirbharta’ as a defensive posture to ‘Strategic Indispensability’ as an offensive geopolitical tool. By advocating for deep integration into GVCs for critical sectors (Tier I and II industries), the Survey aligns economic policy with India's foreign policy ambitions. The mature realism lies in acknowledging that influence in the Indo-Pacific century will not come from autarky, but from being the factory to the world that cannot be bypassed.
The critique of the international financial architecture’s inability to price climate risk for developing nations is sharp and necessary. However, the reliance on domestic financing for adaptation poses a fiscal challenge that the Survey acknowledges but does not fully resolve, pointing to a continued need for MDB reform.
Some questions remain to be answered. First, the Survey’s admitted obsession with state capacity in Part II is important and timely. However, the political economy challenge remains: creating "safe spaces" for bureaucratic decision-making in a raucous democracy with active investigative agencies is easier said than done. Second, while talking of urbanisation as economic infrastructure, the Survey paints a concerning picture of the financial frailty of Indian cities. With Own Source Revenue (OSR) covering less than 40 percent of expenditure in large cities, the vision of cities as engines of growth is constrained by their fiscal dependence on the States and the Centre. The call for municipal bonds and property tax reforms is economically sound but politically sensitive. Without a constitutional revitalisation of the 74th Amendment, cities may remain administratively stunted despite their economic weight. Third, while discussing manufacturing, the Survey underplays the evolving complexity of high-value services (digital platforms, design, finance, health, and knowledge-intensive exports) that increasingly exhibit similar institutional and regulatory demands. Fourthly, while diagnosing state-level fiscal populism as a sovereign risk, there has been scant attention towards the policy toolkit for realigning state incentives beyond exhortation and transparency.
There is no doubt that the ES 2025-26 has evolved as both a macroeconomic report and a strategic manifesto that sets the agenda for the future development pathway. Its core contribution is the repositioning of growth, manufacturing, climate transition, and deregulation within a single institutional and geoeconomic framework. Its principal limitation lies in operational depth, which is perceptible from the distance between its high-order institutional vision and the concrete policy instruments needed to implement it across India’s complex federal, regulatory and administrative landscape.
Nilanjan Ghosh is Vice President - Development Studies at the Observer Research Foundation.
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Dr Nilanjan Ghosh heads Development Studies at the Observer Research Foundation (ORF) and serves as the operational and executive head of ORF’s Kolkata Centre. He ...
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