The Economic Survey 2025–26 presents a detailed assessment of India’s economic performance and the structural priorities required for sustaining growth in a rapidly changing global environment. The Survey notes that India enters the second half of the 2020s with relatively strong macroeconomic fundamentals despite a period marked by global geopolitical tensions, trade disruptions, supply-chain re-alignments and technological transformation. High growth, stable inflation, resilient financial institutions and comfortable foreign exchange reserves have helped the economy navigate repeated global shocks.
At the same time, the Survey emphasises that the development challenge for India has evolved. Macroeconomic stabilisation is no longer the primary constraint. Instead, the central question is whether India can build productive capabilities, strengthen institutions and embed itself more deeply into global economic systems particularly global value chains (GVCs). The Survey, therefore, highlights the need for ‘strategic sobriety’ while simultaneously ‘running the sprint and marathon together’, balancing immediate economic management with long-term structural reforms.
Macroeconomic Performance and Growth Outlook
India’s macroeconomic performance in recent years has been marked by steady growth and improved stability. Real Gross Domestic Product (GDP) growth is estimated at 7.4 per cent in 2025–26, higher than the 6.5 per cent growth recorded in 2024–25.
Looking ahead, the Survey projects real GDP growth in the range of 6.8–7.2 per cent for 2026–27, while estimating India’s medium-term growth potential at about 7 per cent, reflecting an upward revision from 6.5 per cent potential growth rate estimated three years earlier. This reflects improvements in capital formation, productivity gains, and digitalisation.
Domestic demand continues to be the principal driver of economic expansion. The share of private final consumption expenditure (PFCE) increased to 61.5 per cent of GDP in 2025–26 marking the highest level since 2011–12. Stronger household balance sheets, improved corporate profitability, rising real wages, and a healthier banking system have contributed to the rise in consumption.
Inflation trends indicate improved macroeconomic stability. Retail inflation declined significantly from 4.6 per cent in 2024–25 to around 1.7 per cent during April–December 2025–26 largely driven by lower prices of food items, such as vegetables, pulses, and spices due to favourable weather conditions, improved supply management, and higher agricultural production. Core inflation has remained stable, suggesting anchored inflation expectations and effective monetary policy transmission.
Fiscal indicators have also improved. The central government aims to contain the fiscal deficit to below 4.5 per cent of GDP in line with the fiscal consolidation roadmap, while sustaining high levels of capital expenditure. Revenue receipts increased from 8.5 per cent of GDP during 2016–20 to about 9.1 per cent during 2022–25 supported by tax buoyancy, GST stabilisation and improved compliance. At the same time, effective capital expenditure, including grants for capital assets, increased from an average of 2.7 per cent of GDP to about 4 per cent of GDP in 2024–25, enhancing infrastructure and long-term growth potential.
Sectoral Growth Trends
Sectoral data presented in the survey shows that India’s economic growth has been supported by improvements across agriculture, industry, and services, although their contributions vary.
The agriculture and allied sector have demonstrated steady expansion over the past decade. Between 2015–16 and 2024–25, the sector recorded an average growth of 4.5 per cent. In 2024–25, agriculture sector grew by 4.6 per cent. Allied activities have performed particularly well, with the livestock sector growing at about 7.1 per cent and fisheries sector recorded an even higher growth of about 8.8 per cent. Crop production grew at a comparatively moderate rate of around 3.5 per cent, reflecting structural challenges related to productivity, land fragmentation, and climate variability.
The industrial sector has also shown strengthening trends. Industry recorded growth of about 8 per cent during the first half of 2025–26, compared with around 6 per cent in the previous year. Manufacturing activity rebounded strongly, rising from 2.2 per cent growth in the second quarter of 2024–25 to around 9 per cent in the second quarter of 2025–26. The survey noted that medium- and high-technology industries now account for about 46 per cent of total manufacturing value added, indicating gradual movement towards more advanced production structures. However, it cautions that manufacturing competitiveness remains constrained by high input costs (energy, logistics, capital) and the need for deeper integration into global value chains.
The services sector remains the largest contributor to the Indian economy. It accounted for approximately 54 per cent of GDP in the first half of 2025–26 and recorded growth of about 9 per cent during this period, compared with 7 per cent growth in the corresponding period of 2024–25. Financial services, real estate, and professional services have been major contributors to this expansion. Services exports have also performed strongly, recording around 14 per cent growth between 2022–23 and 2024–25, driven largely by software and professional services.
These sectoral trends highlight the broad-based nature of economic growth while also underlining the importance of strengthening manufacturing competitiveness to sustain export growth.
External Sector and Capital Flow Dynamics
Despite strong domestic fundamentals, the survey highlights several challenges in the external sector. Slower growth in major trading partners, rising tariffs, protectionist tendencies, supply-chain realignments, and geopolitical tensions have increased uncertainty in global trade and investment flows.
India’s current account deficit (CAD) during the first half of 2025–26 stood at about 0.8 per cent of GDP, which is lower than the 1.3 per cent, recorded during the same period in 2024–25. The deficit in merchandise trade continues to be partly offset by strong earnings from services exports and remittances.
Foreign direct investment (FDI) inflows remained robust at around US$ 70–80 billion annually, with estimates of about US$ 81 billion in 2025, representing an increase of 13 per cent compared to 2024. However, the survey notes that FDI inflows remain below their potential despite favourable macroeconomic conditions. Additionally, portfolio investment flows have experienced fluctuations due to global uncertainty.
India’s foreign exchange reserves remain strong. As of January 2026, reserves were sufficient to cover around 10–11 months of imports and approximately 94 per cent of external outstanding debt. These buffers provide resilience against external shocks. However, the survey notes that India continues to run a merchandise trade deficit that exceeds the surplus generated by services exports and remittances, making the economy dependent on foreign capital flows.
The survey also points out that the rupee has weakened in recent times, partly due to global capital flow volatility and structural dependence on foreign savings. Since India depends on foreign savings to finance its current account deficit, disruptions in global capital flows could have a significant impact on exchange rate stability.
Employment and Labour Market Developments
India’s labour market has shown signs of improvement in recent years. According to the survey, about 56.2 crore people aged 15 years and above were employed in the second quarter of the financial year 2025–26, reflecting an increase of 8.7 lakh jobs compared to the previous quarter.
The unemployment rate declined to 3.2 per cent in 2023–24, compared with 6 per cent in 2017–18, indicating improved labour market conditions. The labour force participation rate (LFPR) has also increased steadily. Monthly data shows the LFPR rising to 56.1 per cent by December 2025, while the unemployment rate declined to 4.8 per cent.
Female participation in the workforce has increased significantly. Female labour force participation rose from 23.3 per cent in 2017–18 to about 41.7 per cent in 2023–24. Policy reforms enabling women to work in night shifts and expanding opportunities across sectors have contributed to this improvement.
However, the employment quality remains a key concern, with a large share of workers engaged in informal and self-employment activities, and highlights the need for job creation in manufacturing and high-productivity sectors.
Employment patterns vary across rural and urban areas. In the second quarter of FY26, agriculture accounted for about 42.4 per cent of total employment, while self-employment represented about 55.8 per cent of the total employment. Casual labour accounted for around 18.9 per cent. Rural employment remains heavily dependent on agriculture and self-employment, whereas urban employment is concentrated in services and regular wage jobs.
The gig economy is expanding rapidly. By FY25, India’s gig workforce had grown around 1.2 crore workers and is projected to account for about 6.7 per cent of the workforce by 2030. However, 40 per cent of gig workers earn less than Rs 15,000/- per month, highlighting concerns about income security, social protection, and regulatory gaps.
Rural Development and Social Progress
The survey emphasises that inclusive growth remains a central pillar of India’s development strategy. Significant progress has been made in reducing poverty and expanding access to basic services.
According to updated estimates based on international poverty lines, extreme poverty in India stood at about 5.3 per cent in 2022–23, while lower-middle-income poverty was estimated at 23.9 per cent. Multidimensional poverty declined significantly to around 11.3 per cent in 2022–23, marking a sharp reduction from 55.3 per cent in 2005–06.
Access to essential services has further improved considerably. Drinking water access reached about 99.6 per cent of households, while sanitation coverage expanded to achieve 100 per cent open defecation-free districts.
Rural consumption has strengthened significantly, reaching a 17-quarter high due to higher real wages, strong agricultural output, improved infrastructure and easing inflationary pressures. At the same time, dependence on rural employment programmes has declined. Person-days generated under the employment guarantee scheme declined from 389 crore in FY21 to about 184 crores in FY26 (year-to-date), reflecting improved labour market conditions.
Community-based development programmes have played a major role in improving rural livelihoods. Self-help group initiatives have mobilised over 10 crore households and facilitated bank credit exceeding Rs 11.9 lakh crore, supporting the development of more than 4 lakh rural enterprises.
The survey also emphasises that social progress is increasingly linked to improvements in human capital, health, education and basic service delivery, rather than income above.
Artificial Intelligence and Technological Transformation
The survey identifies artificial intelligence (AI) as a transformative technology with significant implications for productivity and employment. Globally, nearly nine out of ten firms were using AI in at least one business function by 2025, highlighting the rapid diffusion of this technology.
However, frontier AI development requires enormous resources in terms of computing power, energy, data, and specialised talent. For India, replicating large-scale foundational models would require significant fiscal and infrastructure investment.
The survey, therefore, argues that India’s comparative advantage lies in application-led innovation rather than frontier model development. Small and specialised AI models could be developed for specific sectors, such as health care, agriculture, education, and disaster management. Such models are more computationally efficient and easier to deploy on local hardware.
India possesses several strengths in this domain, including a large technical talent base, diverse domestic data sets, and a strong open-source developer community. Initiatives such as language-based AI platforms are expanding digital inclusion by enabling access to services in multiple Indian languages.
Urbanisation and the Role of Cities
Urbanisation remains a crucial driver of economic growth. Cities facilitate productivity gains through agglomeration economies, labour market matching, and knowledge spillovers. Evidence cited in the survey suggests that doubling the size of a city in India could increase productivity by about 12 per cent.
Despite this potential, urbanisation in India faces significant structural constraints. More than 70 per cent of the urban population lives in Class 1 cities, leading to congestion and infrastructure stress. Urban growth has further increasingly shifted towards semi-urban areas, raising the cost of infrastructure provision.
Municipal finances remain weak. Cities generate less than 0.6 per cent of GDP in their own-source revenues, even though urban areas contribute nearly 70 per cent of national GDP.
Restrictions in land-use regulations and low floor space index norms have also limited vertical expansion of cities, contributing to urban sprawl and housing shortages.
The survey emphasises that strengthening municipal governance, reforming land regulations and improving public transport systems are essential to harness the economic potential of urbanisation.
Strategic Resilience and Institutional Capacity
A central theme of the survey is the need to move from strategic resilience towards strategic indispensability. Strategic resilience refers to the ability of an economy to absorb shocks and maintain stability, while strategic indispensability implies becoming a critical participant in global value chains.
Achieving this objective requires stronger institutional capacity. The survey argues that state capacity should be understood as the ability to design, implement, and adapt policies effectively under uncertainty. The global environment is increasingly characterised by geopolitical fragmentation, trade protectionism and financial volatility, where trade is shaped more by security considerations than efficiency. Excessive proceduralism, fragmented accountability and bureaucratic risk aversion often slow decision-making and reduce policy effectiveness.
Improving governance structures, strengthening regulatory certainty, and encouraging mission-oriented institutions are, therefore, essential for sustaining economic growth.
Conclusion
The Economic Survey 2025–26 provides a comprehensive assessment of India’s economic performance and development trajectory. The economy has demonstrated resilience through strong growth, improved macroeconomic stability and expanding domestic demand. Sectoral growth in agriculture, industry, and services has supported economic expansion, while employment indicators show improving labour market conditions.
However, global uncertainties, capital flow volatility and structural constraints continue to pose challenges. The survey emphasises that the next phase of development would require strengthening manufacturing competitiveness, enhancing technological capabilities, improving urban governance, reducing cost of capital and input inefficiencies and building institutional capacity.
By balancing short-term economic management with long-term structural reforms, India aims to sustain growth while building resilience in an increasingly uncertain global environment. The challenge ahead is not merely to grow faster but to build capabilities that ensure durable prosperity and stronger role in the global economy.
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