Survey predicts upbeat India, troubled world

Survey predicts upbeat India, troubled world

The Economic Survey 2025-26 that was tabled in Parliament puts FY27 growth range at 6.8%-7.2%

For FY26, it raises the medium-term domestic growth outlook for the country from 6.5% to 7%

Outlook for global economy relatively grim, and this could pose risks to India, the survey adds

The Economic Survey 2025-26 on Thursday painted a relatively rosy picture of India’s domestic growth outlook, raising the country’s medium-term forecast to 7% from the earlier estimate of 6.5%.

However, it simultaneously outlined a relatively grim outlook for the global economy, estimating a 10%-20% chance of a crisis worse than the global financial crisis of 2008 unfolding in 2026.

Even its best-case scenario is a continuation of conditions as they were in 2025, but “increasingly less secure and more fragile”.

The Survey, authored by Chief Economic Adviser V. Anantha Nageswaran and tabled in Parliament by Union Finance Minister Nirmala Sitharaman, went on to say that each of its three probabilistic scenarios for the globe could pose risks to India.

Growth upgrade

For India, the key drivers of a higher medium-term growth outlook are the growth of capital, improved labour participation, and greater efficiency in the deployment of these two factors of production.

For the current financial year 2025-26, the Survey highlighted the government’s estimate of 7.4% growth, adding that its ‘nowcast’ estimate for growth in Q3 (October-December 2025) stood at 7%. For 2026-27, the Survey estimates a growth rate range of 6.8%-7.2%.

The Survey noted that, in the 2022-23 edition, it had estimated India’s medium-term growth to be 6.5%, which could rise to 7%-8% only if sustained reforms were conducted.

“Over the past three years, reform momentum has strengthened across several areas relevant for medium-term growth,” it said. “Manufacturing-oriented initiatives, such as the production-linked incentive schemes, FDI liberalisation, and logistics reforms, have supported capacity creation.”

These measures, it added, were further bolstered by sustained public investment in physical and digital infrastructure, the simplification of tax laws, measures targeted at the MSMEs that have sought to ease credit constraints.

“These reforms have coincided with stronger corporate and financial sector balance sheets, rising formalisation of employment, and continued improvements in tax administration,” the Survey added. “Together, these developments make a persuasive case that India’s potential growth has risen to around 7% over the medium term.”

The Survey outlined three scenarios for the world that could unfold in 2026. The worst of these, the macroeconomic consequences of which “could be worse than those of the 2008 global financial crisis”, was assigned a probability of 10%-20%.

Under the worst-case scenario, systemic financial, technological, and geopolitical stresses would amplify each other rather than taking place independently.

A key emerging risk, the Survey said, was the level of highly-leveraged investments in artificial investment (AI).

It said these investments have exposed business models that are dependent on “optimistic” execution timelines, narrow customer concentration, and long-duration capital commitments.

“A correction in this segment would not end technological adoption, but it could tighten financial conditions, trigger risk aversion and spill over into broader capital markets,” the Survey said.

Without naming any particular countries, the Survey said that if these developments also coincided with “geopolitical escalation or trade disruption”, the result could be a sharper contraction in global liquidity, a jarring weakening of capital flows, and a “shift toward defensive economic responses across regions”.

“While this remains a lower-probability scenario, its consequences would be significantly asymmetric,” the Survey said. The macroeconomic consequences could be worse than those of the 2008 global financial crisis, it said.

The Survey gave its best-case scenario a 40%-45% chance of occurring. Under this scenario, conditions from 2025 would persist in 2026, albeit in a more fragile state.

In its third scenario, also assigned a probability of 40%-45%, the Survey said the probability of a “disorderly multipolar breakdown” rose significantly. “Under this outcome, strategic rivalry intensifies, the Russia-Ukraine conflict remains unresolved in a destabilising form, and collective security arrangements unravel,” the Survey predicted.

Risks to India

The Survey said that in all three scenarios, India was relatively better off than most other countries but added that it still faced risks.

“The three scenarios pose a common risk for India: disruption of capital flows and the consequent impact on the rupee,” the Survey said. “Only the degree and the duration will vary.”

It added that this impact might not be confined to a year, and could be more enduring.

“In response, India needs to generate sufficient investor interest and export earnings in foreign currency to cover its rising import bill, as, regardless of the success of indigenisation efforts, rising imports will invariably accompany rising incomes,” the Survey said.