This is important as Indian bonds are now part of global indices and investor decisions get impacted on this score. The clear signal is to be more mindful of deficits and borrowings.
The voluminous Economic Survey is an omnibus on the state of the economy and cogently covers all aspects and suggests the way forward. So, what are the main messages?
The first is that the Indian economy is on a strong path and the potential growth rate is now 7% in the medium term. This comes notwithstanding the external pressures which have been countered to an extent by the strong growth of 7.4% in FY26.
For FY27 growth has been placed at 6.8-7.2% which will probably be used when drafting the budgetary numbers.
Second is a paradox placed by the CEA in this document. The strong growth witnessed has :collided” with the global system which has been typified by not just tariffs but different monetary policy regimes.
This has put stress on capital inflows thus resulting in volatility in the currency with the rupee going down relative to the dollar. This is again an anomaly as the forex reserves have risen and the import cover is high in the double digits.
Fiscal Debt Targets
Third, on the fiscal side, the Survey buttresses the need to move towards the 50% debt to GDP mark which means that the upcoming budget will definitely target a lower deficit ratio for FY27 relative to FY26 as this is the only way of lowering the debt ratio.
Fourth, on the fiscal health of states, there have been some concerns raised on revenue deficits increasing because of indiscreet expenditure allocations made by various state governments. The broader issue raised is the pressure put on bond yields.
This is important as Indian bonds are now part of global indices and investor decisions get impacted on this score. The clear signal is to be more mindful of deficits and borrowings.
Fifth, with little space to cut outlays on salaries or pensions, the discretionary item of subsidies has been highlighted in the Survey which is what the government should focus on rationalizing. It will be interesting to see if the Budget does prune these numbers for FY27.
Embracing Artificial Intelligence
Sixth, unlike the 2024-25 Survey when there was some caution shown on AI, this time the merits have been spelt out. The inevitability of this phenomenon has brought about the change in stance and the advantages of being a late starter have been highlighted so that various sectors can build their strategies.
Seventh, the Survey has highlighted the critical role played by services in the economy and focuses on reskilling especially in the IT sector. While skill development has been emphasized even in the past in general terms, this is probably the first time that the IT sector has been brought to the forefront.
Eight, the PLI scheme has been acknowledged as a success in manufacturing. But now, the Survey talks of building scale to move away from an ideology of import substitution to becoming part of global value chains.
Ninth, the importance of FDI has been focused on and a recommendation also made on providing incentives as is done in other countries is suggested.
Last, which probably is very relevant, is that the domestic market is the biggest asset for the economy and it is in this context that the reforms should be viewed which have given a thrust to both consumption and investment.
The Survey hence provides a very good balance sheet of the economy where the strengths are highlighted as well as the areas which need to be worked on and hence needs to be commended.
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