MM TAX CLUB

The Preface to the Economic Survey 2025–26, tabled in Parliament by Union Finance Minister Smt. Nirmala Sitharaman, sets the tone for how India must navigate an increasingly uncertain global and domestic economic landscape. At its core, the Survey calls for a fundamental shift in the way the State thinks and acts—from cautious regulation to entrepreneurial policy-making under uncertainty.

From Control to Capability: The Entrepreneurial State

The Survey argues that today’s challenges cannot be met with slow, risk-averse governance. Instead, India needs a State that can act before full certainty emerges, structure risk rather than avoid it, experiment boldly, learn fast, and correct course without paralysis.

Importantly, this is not presented as a theoretical idea. The Survey highlights how India has already begun moving in this direction—through mission-mode initiatives in semiconductors and green hydrogen, reforms in public procurement to support first-of-its-kind domestic innovation, and state-level deregulation compacts that replace inspection-based controls with trust-based compliance. These, the Survey notes, are early signs of a State transitioning from compliance-driven governance to capability-driven governance.

Strong at Home, Uncertain Abroad

Despite facing consecutive global shocks since the Covid-19 period, India’s economy has shown remarkable resilience. The Survey notes India’s strong macroeconomic performance, even as global conditions deteriorated following geopolitical realignments and tariff actions, including those imposed by the United States in April 2025.

Reflecting this momentum, the Survey projects real GDP growth of over 7% in FY 2025–26, with another year of growth expected at or near the same level. Yet, it flags a key paradox: India’s strongest macroeconomic performance in decades is unfolding in a global system that no longer reliably rewards such success with capital inflows, currency stability, or strategic insulation.

A World in Flux: Three Possible Global Scenarios

The Economic Survey outlines three plausible global scenarios for 2026:

1. Managed Disorder – A less coordinated, more risk-averse global economy where integration continues, but trust erodes and non-linear shocks become more common.

2. Disorderly Multi-Polar Breakdown – Intensifying strategic rivalries, coercive trade practices, sanctions, realigned supply chains, and greater financial contagion across borders.

3. Systemic Shock Cascade – A lower-probability but high-impact scenario where financial, technological, and geopolitical stresses amplify each other, potentially exceeding the severity of the 2008 global financial crisis.

Across all scenarios, India is relatively better placed due to its large domestic market, strong foreign exchange reserves, less financialised growth model, and strategic autonomy. However, the Survey cautions that insulation is not guaranteed. Disruptions to capital flows and pressure on the rupee may become a persistent feature, not a temporary shock.

Running a Marathon and Sprinting at the Same Time

In response to these risks, the Survey delivers one of its most striking metaphors:

“India must run a marathon and sprint simultaneously, or run a marathon as if it were a sprint.”

This means India must pursue long-term growth while simultaneously building buffers against short-term shocks. Rising incomes will inevitably increase imports, regardless of indigenisation efforts. Hence, India must generate sufficient foreign currency earnings, diversify supply chains, strengthen payment systems, and build strategic reserves.

The recommended stance for 2026 is described as strategic sobriety, not defensive pessimism—prioritising resilience, redundancy, and liquidity while continuing to push for growth.

The Real Challenge: Process Reforms

While policy reforms matter, the Survey stresses that process reforms matter even more. It is the daily interaction between the government and citizens—rules, incentives, and administrative reflexes—that ultimately determines whether reforms succeed.

Encouragingly, the Survey highlights state-level deregulation and smart regulation initiatives over the past year as strong evidence that the State machinery can reinvent itself—shifting from regulation and control to facilitation and enabling.

State, Society, and Deregulation for Viksit Bharat

The Survey brings together three critical elements—state capacity, society, and deregulation—in the pursuit of Viksit Bharat and greater global influence. In a democracy, the State remains the primary agent of development, but it must upskill, reskill, and mentally prepare to operate on unfamiliar and often hostile terrain, where old rules no longer apply and new ones are still evolving.

The possibility of overlapping global crises also presents India with a rare opportunity to help shape the emerging global order. Doing so will require the most agile, flexible, and purposeful governance since Independence.

Choosing Resilience Over Quick Fixes

The Survey concludes on a realistic yet hopeful note. In a world reshaped by geopolitical realignments, India stands to gain immensely if it chooses resilience over short-term fixes, innovation over complacency, and delayed gratification over immediate relief.

Staying the course toward Viksit Bharat, the Survey argues, is not just an option—it is unavoidable.

A Reconfigured Economic Survey

This year’s Economic Survey departs from tradition in both structure and scope. It features 17 rearranged chapters, organised based on the depth and time-relevance of national priorities rather than precedent. The Survey is also longer than usual, reflecting the breadth of issues covered.

Additionally, it includes special essays on three medium-to-long-term themes:

• The evolution of Artificial Intelligence

• The challenge of quality of life in Indian cities

• The role of state capacity, the private sector, and households in achieving strategic resilience and indispensability