Economic Survey 2025 shows India in bright light in an increasingly darker world

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

Economic Survey 2025-2026: Follow LIVE updates on January 29, 2026

However, it has 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”.

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

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

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Growth upgrade for India

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 2025-26, the Survey estimates a growth rate range of 6.8-7.2%.

It noted that, in its 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,” the Survey said. “Manufacturing-oriented initiatives, such as the Production-Linked Incentive (PLI) 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 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.”

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Worst-case scenario for the world

The Survey outlined three scenarios for the world economy 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 this 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 further 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.”

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More likely scenarios

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” rises 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.

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Risks to India

The Survey said that, in all three scenarios, India is relatively better off than most other countries but added that it still faces 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 may 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.

Published – January 29, 2026 05:53 pm IST