Economic Survey 2025-26 Tabled in Parliament
Why focus: Core GS3 Economy document — highly tested for macro-indicators, FY26 GDP targets, and consumption trends. Sets up Assertion-Reason.
In News
What Happened
Why It Matters
Background
History & Context
What Changed
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GDP Growth & Potential: Real GDP growth for FY26 is estimated at 7.4% (up from 6.5% in FY25), and the Survey officially revised India's medium-term potential growth rate upward to 7.0%.
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Inflation Paradigm: Retail inflation (CPI) saw a dramatic decline to a historic low of 1.7% between April-December FY26, vastly improving consumers' real purchasing power.
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Consumption Surge: Private Final Consumption Expenditure (PFCE) reached 61.5% of GDP, recording its highest share since 2011-12, driven by healthier household balance sheets.
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Fiscal Consolidation: The Centre contained the FY25 fiscal deficit at 4.8% of GDP (better than budgeted), setting an ambitious target of 4.4% for FY26 without compromising capital expenditure.
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Agricultural Shift: The Survey formally recognized a major structural shift in agriculture, noting that horticulture production (362.08 MT) has now sustainably surpassed traditional foodgrain production.
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External Buffers: Foreign Exchange reserves breached a historic milestone, reaching USD 701.4 billion (covering 11 months of imports and 94% of external debt).
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Poverty Reduction: Highlighting NITI Aayog's Multidimensional Poverty Index (MPI), the Survey reported a sharp decline in poverty from 55.3% in 2005-06 to 11.28% in 2022-23.
What Did NOT Change
Despite robust macroeconomic indicators, India's external vulnerability to volatile capital flows and currency pressures remained a persistent risk, with the Rupee underperforming in 2025. Furthermore, the Survey highlighted that structural challenges in state-level finances have not improved, explicitly warning that populist unconditional cash transfers by states continue to crowd out productive infrastructure capital expenditure.
Prelims Angle
NCERT Connection
Common Misconceptions
✗ The policy recommendations made in the Economic Survey are legally binding on the Union Budget.
✓ The Survey serves strictly as an advisory and analytical review document; the Government is not obligated to implement its policy recommendations in the ensuing Union Budget.
Because it is tabled exactly one day before the Budget by the same Finance Minister, leading citizens to assume it acts as a legal blueprint.
✗ The Economic Survey is drafted by the Reserve Bank of India (RBI) or the Finance Commission.
✓ It is prepared by the Economic Division of the Department of Economic Affairs (DEA) within the Ministry of Finance, under the supervision of the Chief Economic Adviser (CEA).
The RBI releases similar macroeconomic forecasts and manages inflation targeting, blurring the lines of authorship for laypersons.
✗ A decrease in Private Final Consumption Expenditure (PFCE) is always good because it means citizens are saving more money.
✓ In a developing macroeconomic framework like India's, a high or rising PFCE (like the 61.5% highlighted in the Survey) is highly positive as it indicates robust domestic demand, which drives corporate revenue, investment, and GDP growth.
People confuse personal household frugality (saving money in a bank) with macroeconomic consumption dynamics, where spending is the engine of economic expansion.
Practice Questions
Q1
How Many CorrectConsider the following statements regarding the Economic Survey 2025-26: 1. It reported that Private Final Consumption Expenditure (PFCE) fell to its lowest level since 2011-12 due to inflationary pressures. 2. It described the macroeconomic situation as a 'Goldilocks' moment characterized by high GDP growth and historic low retail inflation. 3. It noted a structural agricultural shift where horticulture production has surpassed total foodgrain production. How many of the statements given above are correct?
Q2
Match the FollowingMatch List I (Macroeconomic Indicator in Economic Survey 2025-26) with List II (Reported Value/Observation): List I: A. Real GDP Growth (FY26 Est.) B. Retail Inflation (Apr-Dec FY26) C. Foreign Exchange Reserves D. Medium-term potential growth rate List II: 1. ~ USD 701.4 Billion 2. 7.4% 3. 7.0% 4. 1.7% Select the correct answer using the code given below:
Q3
Assertion & ReasonAssertion (A): The Economic Survey 2025-26 explicitly warned against the rapid expansion of unconditional cash transfers by state governments. Reason (R): In revenue-deficit states, excessive expenditure on unconditional cash transfers crowds out productive capital expenditure, thereby risking fiscal sustainability. Select the correct answer: