Update: Economic Survey 2025–26: Growth with Buffers in an Uncertain World

What is economic survey — and why it matters before the Budget?

The Economic Survey is the Government of India’s official assessment of macroeconomic conditions and medium-term policy priorities, released ahead of the Union Budget. While it does not announce policies, it frames the government’s growth, inflation and fiscal assumptions. For investors, the Survey is important as it signals policy intent and areas of continuity or caution before Budget decisions are unveiled.

Macro snapshot

The Economic Survey 2025–26 presents a constructive medium-term outlook for India, underpinned by strong domestic fundamentals, improving supply-side capacity and policy credibility. At the same time, it is candid about rising global volatility and the structural constraints facing the external sector.

1. Growth: Momentum intact; potential growth upgraded

• India’s economy has sustained strong post-pandemic momentum, with growth expected to remain above 7% in the near term.
• Importantly, the Survey revises India’s potential growth rate to ~7%, up from 6.5% earlier, reflecting gains from infrastructure expansion, logistics efficiency and structural reforms.
• Public capital expenditure, domestic demand and MSME formalisation remain key growth drivers going into FY27.

Our reading: The upgrade in potential growth is a meaningful signal that recent reforms are translating into durable capacity creation, not just cyclical recovery.

2. Inflation: Contained, with supply-side improvements

• Headline inflation volatility remains largely food-driven.
• Core inflation trends remain subdued, pointing to improving supply conditions rather than demand overheating.
• Better logistics, higher productive capacity and deregulation are easing structural bottlenecks.

Our reading: Inflation dynamics allow policymakers to prioritise growth while maintaining macro stability, barring large food or external shocks.

3. External sector: Strong buffers, but currency vulnerability persists

• India continues to benefit from healthy forex reserves, resilient services exports and remittance inflows.
• However, the Survey highlights that structural current account deficits and reliance on foreign capital leave the INR exposed during periods of global stress.
• Services exports have provided stability, but manufacturing exports remain critical for long-term currency resilience.

Our reading: External buffers are comfortable, but durable stability requires scaling up competitive manufacturing exports.

4. Fiscal policy: Credibility anchored in capex

• Fiscal consolidation remains on track, with the FY26 fiscal deficit targeted at 4.4% of GDP, improving from pandemic highs.
• The quality of spending continues to improve, with a strong emphasis on capital expenditure over revenue transfers.
• The Survey flags rising state-level revenue deficits as an emerging medium-term risk to overall fiscal discipline.

Our reading: Centre-led fiscal credibility is a macro positive; state finances warrant closer monitoring.

5. Investment, capex and execution matter more than ever

• Infrastructure expansion—airports, freight corridors, digital public infrastructure—is beginning to deliver economy-wide efficiency gains.
• The Survey places strong emphasis on deregulation, faster approvals and administrative execution.
• Manufacturing competitiveness hinges on lowering logistics costs, improving ease of doing business and MSME scale-up.

Our reading: Capex remains the most powerful growth multiplier, but execution quality will determine outcomes.

6. Global backdrop: Volatility is structural

• The Survey outlines multiple global scenarios, ranging from managed disorder to low-probability but high-impact systemic shocks.
• Geopolitics, trade fragmentation and financial volatility are expected to remain persistent features.
• India is relatively better placed than peers, but not insulated from global capital flow disruptions.

Our reading: Policy credibility and domestic buffers are now strategic assets, not just macro comforts.

7. Sectoral signals from the Economic Survey 2025–26

Sector	Survey signal	What the Survey is highlighting
Infrastructure / Capital Goods	Positive	Continued emphasis on public capex, infrastructure build-out (transport, logistics, digital infra) and its multiplier effects on growth and productivity.
Manufacturing	Constructive (medium-term)	Focus on competitiveness, scale, logistics efficiency and integration into global value chains; manufacturing exports seen as critical for external stability.
MSMEs	Policy priority	Deregulation, ease of doing business and state-level execution highlighted as key to MSME scaling and employment generation.
Services	Stable, but not sufficient alone	Services exports remain a strength, but the Survey reiterates that services alone cannot substitute for manufacturing-led export resilience.
Banking & Financials	Stable	Strong balance sheets, comfortable liquidity and improving credit flow provide macro stability; high cost of capital flagged as a structural issue.
Energy & Climate-linked sectors	Selective opportunity	Emphasis on energy transition, climate resilience and sequencing of reforms to avoid cost pressures on industry.
Urban infrastructure	Emerging focus	Urban governance, housing, transport and municipal capacity identified as binding constraints for future growth.

8. Equity markets: Signals from the Economic Survey

What the Survey flags:

• Global capital flows and geopolitical uncertainty remain structural sources of volatility, implying that equity markets may continue to experience intermittent risk-off phases.
• The Survey cautions against excessive financialisation disconnected from real economic capacity, underscoring the importance of markets channeling capital toward productive investment.
• External sector constraints, particularly reliance on foreign capital, remain an underlying macro sensitivity.

What the Survey highlights:

• Strong domestic growth momentum, improving supply-side capacity and sustained public investment provide a solid foundation for corporate earnings over the medium term.
• Policy credibility, fiscal discipline and robust financial sector health act as important stabilisers for market confidence.
• Infrastructure expansion and manufacturing competitiveness are positioned to strengthen real economy linkages over time.

Our Reading: The Economic Survey presents a balanced picture for equity markets—near-term volatility driven by global factors is a feature rather than an exception, but underlying domestic fundamentals remain supportive. From a macro perspective, the Survey reinforces resilience over exuberance, with equity market outcomes increasingly anchored in real economic progress rather than liquidity alone.

9. What to expect from the Union Budget

• The Economic Survey strongly signals continuity rather than surprise in fiscal strategy.
• The government is likely to:

• Maintain fiscal consolidation, with deficit reduction aligned to the FY26 target of ~4.4% of GDP
• Preserve a capex-led growth bias, given the Survey’s repeated emphasis on infrastructure multipliers
• Avoid broad-based populist measures that could weaken fiscal credibility

• The Survey’s caution on state-level fiscal slippage suggests the Centre may continue to:
  • Incentivise states toward capital spending
  • Discourage excessive revenue transfers that crowd out productive investment

Our reading: The Budget is unlikely to be a growth shock. Instead, it is expected to reinforce policy predictability, capex continuity and medium-term credibility.

10. 10. Portfolio implications: Macro lens

Equities

• The Survey’s emphasis on sustained public capital expenditure, manufacturing competitiveness and execution-led reforms reinforces the medium-term earnings visibility for domestically oriented sectors.
• Infrastructure, capital goods and manufacturing-linked segments are positioned to benefit from:
  • Continued capex intensity
  • Improving logistics efficiency
  • Policy stability rather than incremental stimulus
• The Survey’s caution on global volatility and capital flows suggests selectivity remains important, particularly in export-facing and globally sensitive segments.

Fixed income

• The combination of fiscal consolidation, improving expenditure quality and contained core inflation supports macro stability in the interest rate environment.
• While global factors may intermittently influence yields, the Survey’s focus on policy credibility and buffers limits downside risks from a domestic macro perspective.

Cross-asset considerations

• The Survey does not point to any regime shift in policy or macro conditions.
• Growth, inflation and fiscal signals are broadly aligned with existing medium-term assumptions rather than requiring reassessment.
• From a macro standpoint, the emphasis remains on stability and resilience over cyclical acceleration.

Our reading: The Economic Survey reinforces existing macro assumptions rather than challenging them. Portfolio positioning, therefore, is best guided by medium-term fundamentals and valuation discipline rather than near-term policy expectations.