Economic Survey 2025-26 sets India’s new expectations and priorities

Budget 2026-27 may reset policy choices with emphasis on reforms

By Dr. Gyan Pathak

Though Economic Surveys do not dictate exact budget numbers, it strongly influences the Union Budgets of India. If it is the case, the Economic Survey 2025-26 indicates the four keys priorities that we may see in the Union Budget 2026-27: A growth-supported fiscal stance anchored in stability; continued emphasis on structural reforms and competitiveness; balanced approach towards fiscal consolidation and social spending; and preparedness for external risks. All these four priorities are most likely to be seen in policy choices, including expenditure priorities, tax measures, and reform incentives.

The FY 2025-26 was an unusually challenging year for the economy on the external front. Heightened uncertainty in global trade and the imposition of high, penal tariffs created stress for manufacturers, particularly exporters, and affected business confidence, the Economic Survey noted. It says that the government responded by using this crisis as an opportunity to push through key measures such as GST rationalisation, faster progress on deregulation, and further simplification of compliance requirements across sectors.

On the basis of these, the Survey says, “The FY27 is therefore expected to be a year of adjustment, as firms and households adapt to these changes, with domestic demand and investment gaining strength. That said, it must be acknowledged that the external environment remains uncertain. While risks remain manageable, they reinforce the importance of maintaining adequate buffers and policy credibility.”

The growth outlook of the Economic Survey is significant indicator. It has projected India’s real GDP growth for FY 2026-27 at 6.8-7.2 per cent, which is a robust pace, though it is slightly lower than the current year. It highlights a medium-term growth potential of about 7 per cent. Union Budget is likely to have been framed around sustaining this growth momentum, with continued emphasis on investment, consumption, and structural reforms that support domestic demand and competitiveness.

The survey notes inflation is expected to stay within or the Reserve Bank of India’s target of about 4 per cent. It offers a comfortable fiscal space for growth oriented allocations. It is thereby indicating a possibility of some targeted relief measures, which may include vulnerable households or specific sectors, and also calibrated tax changes backed by stability in inflation.

One of the most important recommendation of the Economic Survey 2025-26 is the phasing out of power and rail tariffs cross-subsidies to lower logistics costs and improve competitiveness. By recommending this the Economic Survey actually goes beyond macro numbers. It indicates that the Union Budget 2025-26 may give larger budgetary support to logistic infrastructure, industrial competitiveness, and ease-of-doing-business reforms. Thus structural reform agenda is most likely to remain in focus of the budget.

The Economic Survey 2025-26 has highlighted global uncertainties and market correction risks, though it has expressed confidence in the Indian economy by saying that India’s economy remains relatively resilient. It may be an indication that the government might allocate or retain buffers for risk management, which may include fiscal space for contingencies, support for export oriented sectors or incentives to boost investment sentiment.

Fiscal consolidation will remain on the agenda of Union Budget 2026-27. Economic Survey has reiterated about the importance of maintaining disciplined fiscal management even as public investment continues. It means, while social and capital expenditure might rise, the Union Government is unlikely to abandon fiscal consolidation, suggesting careful calibration of new spending against revenue targets.

There are enough indications in the Economic Survey that the Union Budget 2026-27 may have four important themes around which it will revolve. They are: Emphasis on domestic demand; Support for investment and infrastructure; Sectoral focus; and Tax strategy and rationalisation.

Domestic consumption is highlighted in the Economic Survey as a key growth driver, which may translate into Budget measures such as tax reliefs or incentives that boost household spending.

Given the importance of capital stock and productivity in growth projections, increased or sustained capital expenditure in infrastructure, manufacturing, and services can be expected.

Though not a direct Survey forecast, expectations around sectors like healthcare, education, and social welfare are being discussed in Budget forums — often aligning with broad Survey recommendations on inclusive growth and resilience.

The Survey’s focus on medium-term potential and structural reforms suggests the Budget may consider tax rationalisation to strengthen investment and consumption — for example, adjusting tax slabs or incentives — while ensuring fiscal discipline.

The Survey noted the emerging trends in State-level debt and deficits underscoring the need for continuous calibration. It says states reliance on the centre for resource transfer, but their scale and design need to be balanced against the imperative of preserving space for growth-enhancing investments. Improved targeting, periodic review, and outcome-oriented design can help mitigate fiscal rigidities it suggested. Therefore, one can expect some fiscal discipline measures in the budget. (IPA Service)