forbesindia15d ago
According to the Economic Survey 2025-26, India leveraged the global window of “fragile stability” to overhaul its domestic economy through key reforms, including GST rationalisation, accelerated deregulation and streamlined compliance requirements.The Indian economy faced several external pressures in 2025, as escalating global trade uncertainty and punitive tariffs strained manufacturers and exporters while eroding business confidence across multiple sectors. However, the Survey notes that FY27 is expected to be a “year of adjustment” with firms and households adapting to the new policy landscape as domestic demand and investment gather momentum. While the medium-term global outlook remains subdued, with downside risks predominating, global growth is expected to stay modest and inflation trending downwards.The Survey however cautions that should the AI boom fail to deliver anticipated productivity gains, it could burst inflated asset prices and lead to financial instability across markets. While protracted trade wars threaten to stifle global investment and dampen growth, the impact on India is expected to manifest as manageable external uncertainty rather than immediate macroeconomic distress. Slower growth among key trading partners, tariff-induced trade disruptions, and volatile capital flows could, however, periodically weigh on exports and investor sentiment. Moreover, ongoing trade negotiations with the US could help reduce external uncertainty if successful.As the Survey lauds India’s robust domestic fundamentals, here are the key takeaways:Also Read: India has late-mover advantage in AI, should use it: Economic SurveyGDP growthThe Economic Survey projects real GDP growth for FY27 in the range of 6.8 to 7.2 percent. The outlook represents steady growth amid global turbulence—a scenario requiring “caution but not pessimism”. With domestic drivers playing the dominant role and macroeconomic stability well-anchored, risks around growth remain broadly balanced. India’s ability to maintain this trajectory will depend on continuing reform momentum while navigating an uncertain international environment.InflationThe Survey notes that India’s inflation rate is expected to be higher in FY27 compared to FY26, but that is “unlikely to be a concern”. Even as inflation outlook appears “favourable”, risks from currency fluctuations, potential surges in base metal prices, and broader global uncertainties could disrupt the benign inflation trajectory, warranting ongoing monitoring and adaptive policy responses. The upcoming rebasing of the inflation index will also require careful interpretation of price dynamics going forward.India saw one of the steepest inflation declines among major emerging markets and developing economies, with headline inflation falling by approximately 1.8 percentage points. While CPI has cooled significantly, dropping to 1.7 percent in 2025-26, fuelled by a slump in food prices specifically vegetables, pulses and spices, core inflation appeared “sticky” largely due to high gold and silver prices.Also Read: Indian carmakers finding a second engine of growth abroad: Economic SurveyHowever, the Survey notes a clear “rural-urban divide” in inflation as it remains more volatile in rural areas because food makes up a larger portion of their spending. Despite this, most states have successfully brought inflation back within the Reserve Bank of India’s tolerance band.AI Economic CouncilThe Economic Survey calls for an AI Economic Council to manage automation risks. This body would be tasked with the urgent responsibility of calibrating the pace of AI adoption. Rather than allowing unchecked automation, the Council would work with the private sector to develop a decade-long roadmap. The Council will operate on five core principles of human primacy, labour market sensitivity, strategic sequencing (in line with institutional readiness and skill pipelines), co-evolution with human capital and ethical safeguards.The Survey also advocates for a pragmatic “India-first” AI strategy that prioritises domestic economic realities over the capital-intensive models favoured by advanced economies. For a labour-abundant economy like India, the primary risk of AI is the potential for labour substitution, particularly in low-value-added service segments. Uncalibrated deployment could displace workforces faster than the economy can reabsorb them.Also Read: Economic survey: India’s external sector defies global storms, remains stableExternal SectorThe Economic Survey 2025-26 makes a strong case for India’s external sector stability despite US tariffs, highlighting total exports of $825.3 billion in FY25. While merchandise exports grew modestly at 2.4 percent, services surged 6.5 percent, keeping the current account deficit at 0.8 percent of GDP.However, the Survey also acknowledges challenges—$3.9 billion in portfolio outflows, a $6.4 billion balance of payments deficit, and 6.5 percent rupee depreciation. It also emphasises robust fundamentals: 16.1 percent FDI growth, forex reserves covering 11 months of imports, and new trade agreements with the UK, Oman and New Zealand demonstrating diversification efforts that position India to weather global headwinds.Fiscal OutlookIn an era of global fiscal strain, the Economic Survey highlights India’s “calibration” strategy: Pairing aggressive deficit reduction with sustained public investment. The government’s medium-term goal of converging toward 50±1 percent debt-to-GDP provides the policy anchor.The Survey says that reforms like GST 2.0 and personal income tax simplification aim to broaden the tax base and slash compliance costs. Supported by advanced digital administration, these measures will enhance transparency, improve expenditure efficiency and ensure a steady glide path toward debt reduction and long-term macroeconomic stability.However, the Survey also warns of a growing “fiscal trade-off” at the state level. The rapid expansion of unconditional cash transfers risks creating “expenditure rigidity”, potentially crowding out essential investments in human capital and infrastructure. This could also impact sovereign borrowing costs.LabourIndia’s labour market is undergoing a structural transformation, driven by regulatory overhaul, social protection and targeted skilling. The most significant milestone is the official implementation of the four new Labour Codes, which consolidate 29 outdated laws to enhance flexibility and simplify compliance. Notably, for the first time, gig and platform workers are being recognised, with new provisions for registration and social security—a major step toward formalising the modern workforce.Read Forbes India's complete Budget 2026-27 coverage here
