Other BriefingsIndia Economic Survey 2025-26: What Global Investors Need to Know
The Economic Survey 2025-26 underscores India’s resilience, with growth embedded in strong domestic demand, stable macroeconomic fundamentals, and continued reform momentum despite global uncertainty. Foreign investors and firms must make a note of structural reforms, services-led expansion, and emerging sectors as key drivers shaping India’s medium-term growth outlook and investment opportunities.
The Economic Survey 2025-26, tabled in Parliament on January 29, 2026, ahead of the Union Budget 2026-27 announcement on February 1, 2026, provides a comprehensive assessment of India’s economic performance and policy priorities. Prepared by the Economic Division of the Department of Economic Affairs, the comprehensive survey report underscores India’s resilience amid global uncertainty and sets out a roadmap with clear implications for businesses and investors.
Macro overview: Economic growth anchored in domestic strength
Domestic demand as the primary growth engine
The economic survey identifies domestic demand as the core driver of economic growth in FY 2025-26. Private consumption emerged as the strongest pillar, with Final Private Consumption Expenditure (PFCE) rising to 61.5 percent of gross domestic product (GDP), the highest level since FY 2011-12. This consumption-led growth model continues to provide insulation against global volatility.
Growth outlook, inflation, and external buffers
- GDP growth for FY 2026-27 is projected at 6.8 percent-7.2 percent, marginally lower than the estimated 7.4 percent growth in FY 2025-26, reflecting caution amid global headwinds.
- Inflation averaged 1.7 percent during April-December 2025, supporting macroeconomic stability.
- Foreign exchange reserves rose to US$701.4 billion, strengthening India’s external resilience.
Business takeaway: Consumer-facing sectors, retail, services, and discretionary spending categories are likely to remain key growth opportunities, supported by stable household demand. A stable inflation environment and strong external buffers improve predictability for long-term investment and capital allocation decisions.
Global risks, currency dynamics, and capital flows
The economic survey highlights a fragile global outlook for 2026, shaped by ongoing geopolitical tensions, uneven economic recovery, and volatile capital flows. Additionally, the Indian rupee faced pressure in 2025 due to reduced foreign capital inflows, though the survey notes that currency movements do not fully reflect India’s underlying economic fundamentals.
Business takeaway: Companies should plan for currency volatility but take comfort in India’s strong buffers, liquidity position, and policy focus on resilience rather than short-term exchange rate management.
Trade strategy and manufacturing competitiveness
FTAs and cost competitiveness
Free trade agreements (FTAs), particularly with the European Union (EU), are positioned as strategic tools to strengthen manufacturing competitiveness, export resilience, and strategic capacity. However, the report cautions that trade gains depend on improving domestic cost efficiency.
Key reform priorities include:
- Correcting inverted duty structures
- Reducing logistics costs
- Improving supply-chain efficiency
Business takeaway: Manufacturers and exporters that align early with cost optimization, compliance readiness, and global quality standards will be best placed to benefit from expanding trade linkages.
CLICK HERE: India-EU FTA Concluded: ‘Mother of All Deals’ Set to Reshape Global Trade
Reform momentum and institutional capacity
Structural reforms, including goods and services tax (GST)-related adjustments, are credited with helping the economy absorb global shocks. FY 2026-27 is expected to be a transition year as businesses and institutions adjust to these changes. The economic report also stresses the need to deepen institutional capacity, especially given India’s expanding geopolitical and economic footprint.
Business takeaway: Policy continuity remains strong, but companies should prepare for adjustment costs as reforms move from design to execution.
GST 2.0: Simplification with growth impact
GST rate rationalization
GST 2.0, introduced in September 2025, envisages:
- 5 percent merit rate for essential goods
- 18 percent standard rate for most goods and services
- Up to 40 percent de-merit rate (including cess) for luxury and sin goods
Expected economic impact
- Consumption boost through simplified compliance and reduced distortions
- Manufacturing and trade competitiveness via correction of inverted duty structures
- Structural efficiency gains through improved working capital and faster refunds
Business takeaway: GST 2.0 strengthens the case for formalization, scale, and supply-chain efficiency, particularly for micro-small and medium enterprises (MSMEs) and manufacturers.
ALSO READ: GST Reforms in India: How Foreign Companies Can Prepare
Technology, AI, and India’s long-term vision
Artificial intelligence (AI) is identified as a strategic priority with implications for productivity, competitiveness, and future growth. The survey reiterates that a stable and credible currency is a natural outcome of strong fundamentals and is central to achieving India’s long-term economic ambitions.
Business takeaway: AI-led transformation, digital infrastructure, and high-skill services represent priority investment themes over the medium term.
Services sector: The backbone of growth
The services sector, contributing over half of GDP, remains India’s principal growth engine. Services exports growth accelerated from 7-8 percent pre-pandemic to around 14 percent in recent years, while the sector expanded 9.1 percent in FY 2025-26, driving overall growth.
Key services sub-sectors
- IT and digital services, supported by Global Capability Centres (GCCs)
- Professional and consulting services
- Financial, real estate, and business services
- Tourism and travel, with medical and wellness tourism gaining traction
India’s rising global position
India is now the seventh-largest exporter of services, with strength in IT, finance, professional services, and digital platforms cushioning the economy during global trade slowdowns.
Investment trends favoring services
The survey report notes that over 80 percent of foreign direct investment (FDI) inflows in recent years have been directed toward services, including IT, professional services, finance, energy, and communications.
Business takeaway: India’s services-led model continues to offer scale, resilience, and export opportunities, particularly in knowledge- and technology-intensive segments. Global investors are increasingly backing India’s services ecosystem, reinforcing its role as a knowledge-driven economy.
Emerging growth frontiers in services
The economic survey highlights several high-potential segments shaping the next phase of growth:
- Media, entertainment, and live events (orange economy)
- Space services and commercial satellite launches
- Data centers and digital infrastructure
- Ocean-based services and blue economy tourism
India’s economic survey 2025-26: Leveraging orange economy as growth capital
The survey signals a strong push to unlock India's orange economy, beginning with regulatory simplification for live events. A key proposal is to replace 10-15 approvals with a single-window clearance system.
Why it matters
The orange economy, covering art, music, entertainment, culture, and intellectual property, is highly services intensive. Live concerts, in particular, generate spillovers across hospitality, travel, logistics, advertising, security, and media.
Opportunities and constraints
While demand is rising due to a young population and digital platforms, challenges remain:
- Limited large-scale venues
- Restrictions on payments to foreign artists
- Heavy regulatory burden
Policy direction
Proposals include:
- Opening heritage sites for live events
- Easing visa and foreign exchange norms
- Implementing single-window clearances
Business takeaway: Media, tourism, and urban services players stand to benefit as policy bottlenecks ease and live entertainment scales.
Foreign investment and global value chains
Global geopolitical shifts and industrial policies are rerouting supply chains. India’s strong growth, macro stability, large domestic market, and deepening digital and manufacturing base position it well to attract long-term FDI.
Strategic momentum is building in prime segments such as digital infrastructure, semiconductors, data centers, and advanced manufacturing.
Business takeaway: India presents a timely opportunity to integrate into reconfigured global value chains and move up the value-addition ladder.
Employment and regional disparities
Services account for nearly 62 percent of urban employment and remain the largest source of formal job creation. However, growth remains uneven across states, with Karnataka, Maharashtra, Tamil Nadu, and Telangana leading, while other regions remain dependent on lower-value services.
Business takeaway: Talent concentration remains urban and sector-specific, reinforcing the importance of location strategy and workforce planning.
Conclusion
The Economic Survey 2025-26 strikes a cautiously optimistic note. While global risks persist, India’s strong domestic demand, services-led growth, reform momentum, and external buffers provide a durable foundation for medium-term expansion.
For businesses and investors, the message is clear: prudence without pessimism, reform-driven opportunity, and sustained structural growth.
This article first appeared on India Briefing, our sister platform.
