Turning News into Notes for UPSC and Beyond – with Jaiprakash Rau (Retd IRS)
Call at 9916082261 for details
Every year, just before the Union Budget, the government releases an important document called the Economic Survey.
Think of it as India’s annual health check-up of the economy.
It reviews:
- Economic growth
- Inflation
- Fiscal deficit
- Trade and exports
- Risks and future challenges
This year’s Economic Survey is interesting because it looks positive on the surface, but carries a warning underneath.
1. How fast is India growing?
In the previous Survey, India’s growth for FY26 was expected to be 6.3–6.8%.
Despite global uncertainty, India achieved around 7% growth.
Why is this important?
- US & Europe: ~2% growth
- Developing countries average: ~4%
- Global average: ~3%
India remains the fastest-growing major economy for the 4th consecutive year.
UPSC Relevance:
Prelims: Growth rate comparisons
Mains (GS 3): India’s position in the global economy
2. What is driving this growth?
(A) Consumption – People spending more
Private consumption = 61.5% of GDP (highest since FY12)
Consumption growth in first half of FY26: 7.5%
Why are people spending more?
- Inflation fell sharply (from 6.7% in FY23 to 1.7% in FY26)
- Good agricultural performance → higher rural income
- Tax rationalisation & lower GST → more disposable income
Real incomes have increased, so demand has improved.
UPSC link:
Demand-side factors of growth
Role of inflation control
(B) Investment – Capital spending
Investment = about 30% of GDP
- Higher spending on:
- Infrastructure
- Manufacturing
- Machinery and roads
Shows improving productive capacity.
UPSC link:
Capital formation
Infrastructure-led growth
(C) Exports
Exports = 21.6% of GDP
Grew by 5.9% in first half of FY26
Key point:
Services exports (IT, finance, business services) performed better than goods.
Helped absorb global trade shocks.
UPSC link:
- Composition of India’s exports
- Importance of services sector
3. Supply-side picture (Who is producing?)
Agriculture Growth: ~3.1% Supports rural incomes
Industry: Manufacturing picking up due to higher demand
Services (Biggest driver) Growth: ~9%
Sectors like:
- Trade
- Transport
- Finance
- Professional services
India remains a services-led economy.
UPSC link:
Sectoral contribution to GDP
The Big Puzzle: If fundamentals are strong, why is the rupee weak?
Despite:
- Strong growth
- Controlled inflation
- Fiscal deficit reduced to 4.8% of GDP
- The rupee fell to an all-time low of ₹92 per dollar.
What does this show?
Strong macro fundamentals alone no longer guarantee currency stability.
UPSC link:
- Exchange rate management
- Limits of macroeconomic indicators
5. What is the real problem? (Global uncertainty)
- Trade situation
- Record exports: $825 billion
- Imports grew faster → widening trade gap
- Services exports & remittances helped balance it
- Capital flows (Main concern)
- FDI inflows increased
But:
- Foreign investors repatriated profits
- Portfolio investors withdrew $3.9 billion
Result:
- Balance of Payments deficit
- Forex reserves used
- Rupee weakened by ~6.5%
UPSC link:
Balance of Payments
FDI vs FPI
6. The “Confidence Tax”
Countries dependent on foreign capital face higher borrowing costs.
Example:
India’s 10-year bond yield: ~6.7%
Indonesia: ~6.3%
Investors demand higher returns from India because of perceived risk.
UPSC link:
Sovereign borrowing
Risk perception in global finance
7. Why is India still dependent on foreign capital?
Core reason: Export structure
Services exports generate income
But manufacturing exports are crucial for long-term stability
Even after services earnings:
Total trade deficit in FY25: $94.7 billion
Lesson from East Asia (Japan, Korea, China):
Manufacturing-led exports:
Stabilise currency
Reduce trade deficits
Lower borrowing costs
UPSC link:
Export-led growth models
East Asian development strategy
8. Why the Survey opposes protectionism
High tariffs:
- Increase costs
- Reduce competitiveness
- Protect inefficient “zombie firms”
- Instead, India is moving towards:
- Free Trade Agreements (e.g., India–EU FTA)
- More competition and efficiency
UPSC link:
Protectionism vs free trade
Trade policy reforms
9. Core Message of the Economic Survey (For Mains)
Growth is strong, but resilience is weak.
India must shift from consumption + services-led growth to manufacturing-led global integration.
Long-term stability comes from competitiveness, not protectionism.
One-line UPSC-ready conclusion:
The Economic Survey 2025–26 highlights that while India’s macroeconomic fundamentals remain strong, sustained growth and financial stability will depend on export competitiveness, manufacturing expansion, and reduced reliance on volatile foreign capital.