Article 3: Economic Survey 2025–26
Why in News: The Economic Survey 2025–26, tabled in Parliament, flags weak private investment appetite, external pressures on the rupee, and calls for a calibrated Swadeshi strategy amid global economic fragmentation.
Key Details
- The Survey describes Swadeshi as “inevitable and necessary” due to export controls, technology denial, and carbon border mechanisms.
- It highlights low corporate risk appetite, weak R&D intensity, and short investment horizons in India Inc.
- The rupee’s weakness is attributed mainly to external capital flow volatility, not weak domestic fundamentals.
- India’s policy stance must balance manufacturing strength, global integration, and economic sovereignty.
End of Naïve Globalisation & Changing World Order
- Fragmented Global Trade: The Survey notes that global trade is increasingly shaped by sanctions, export controls, and strategic tariffs, marking a shift from rule-based multilateralism to interest-driven geopolitics.
- Technology Denial Regimes: Advanced economies are restricting access to critical technologies such as semiconductors, AI hardware, and green technologies, affecting late-industrialisers like India.
- Carbon Border Adjustment Mechanisms (CBAM): Measures like the EU’s CBAM increase compliance costs for exporters, signalling that market access is no longer frictionless.
- Policy Implication for India: In this environment, economic resilience depends not just on openness, but on domestic capability-building and supply chain security.
Swadeshi: Strategic Necessity, Not Isolation
- Defensive Dimension: Swadeshi ensures continuity of production during global shocks, such as pandemics, wars, or financial crises, by reducing excessive import dependence.
- Offensive Dimension: It enables India to build enduring national capabilities in manufacturing, technology, and skills, strengthening economic sovereignty.
- Learning from Past Mistakes: The Survey cautions against inward-looking protectionism, noting that earlier import substitution policies led to inefficiency and complacency.
- Balanced Approach: Import substitution is justified only where production is cost-feasible and previously constrained by regulatory or coordination failures.
India Inc and the Investment Appetite Problem
- Low Long-Term Risk Absorption: Indian corporates show reluctance to invest in long-gestation, high-risk sectors like frontier manufacturing and deep technology.
- Governance Constraints: Family control, succession-oriented management, weak managerial labour markets, and limited patient capital reduce strategic risk-taking.
- Low R&D Intensity: Compared to global peers, Indian firms spend significantly less on research and innovation, limiting global competitiveness.
- State as Risk Absorber: Frequent bailouts, regulatory forbearance, and tariff protection have encouraged firms to externalise risk to the state, reducing pressure for productivity gains.
Corporate Sector as Nation-Building Partner
- Global Historical Evidence: Post-war America, Germany, Japan, and East Asia saw firms invest ahead of immediate returns and treat technology and skills as civic duties.
- Trusteeship Model: The Survey emphasises that durable national transformation occurs when business leaders see themselves as trustees of a developmental project, not mere profit-maximisers.
- State Capacity and Private Behaviour: A corporate sector demanding discretion weakens state capacity, while one demanding rules and predictability strengthens institutions.
- Indian Context: Private sector behaviour directly shapes whether India evolves into a rule-based high-capacity state or a discretion-driven economy.
Manufacturing, Trade & PLI Performance
- PLI Export-Import Trends: Between FY21–25, exports from PLI sectors grew at 10.6% annually, while imports rose faster at 12.6%, indicating scaling up but incomplete import substitution.
- Sectoral Variations: Electronics and IT hardware showed strong export growth but also rising imports, reflecting capacity expansion rather than deindustrialisation.
- Manufacturing and Currency Stability: The Survey underlines that manufacturing-led export growth is essential for improving the current account and exchange rate credibility.
- Services as Complement: Services exports and remittances support the balance of payments but cannot substitute manufacturing in ensuring currency strength.
Rupee Dynamics and External Vulnerabilities
- External Capital Dependence: India runs a goods trade deficit that is not fully offset by services surplus, making it dependent on foreign capital inflows.
- Capital Flow Volatility: Sustained FPI outflows and geopolitical uncertainty have led the rupee to “punch below its weight” despite strong growth and controlled inflation.
- Geopolitical Spillovers: US tariffs, global liquidity tightening, and safe-haven flows to gold have increased currency pressure.
- Policy Insight: Currency strength ultimately reflects industrial depth, export resilience, and investor confidence, not just forex intervention.
Strategic Sobriety for 2026 and Beyond
- Three Global Scenarios: The Survey outlines risks ranging from managed disorder to disorderly multipolar breakdown and low-probability systemic shock cascades.
- Common Risk Channel: Across scenarios, India faces the threat of disrupted capital flows and liquidity tightening, impacting growth and currency stability.
- Policy Focus Areas: Supply stability, resource buffers, diversified trade routes, and payment systems are critical.
- Credibility as Strategic Asset: Predictable policy, administrative discipline, and institutional credibility are no longer virtues but economic necessities.
Conclusion
The Economic Survey 2025–26 signals a decisive shift in India’s economic thinking—from passive global integration to strategic engagement with the world. Swadeshi must be pursued not as protectionism but as capability-building, complemented by corporate culture reform, manufacturing-led exports, and policy credibility. India’s growth ambition of sustaining 7% expansion hinges on aligning the state and private sector in a shared nation-building compact amid an uncertain global order.
EXPECTED QUESTION FOR UPSC CSE
Prelims MCQ
Q. The Economic Survey 2025–26 describes Swadeshi primarily as:
(a) A return to import substitution
(b) A response to fiscal constraints
(c) A strategic tool amid global fragmentation
(d) A substitute for trade agreements
Answer: (c)