Charting India’s Developmental Path: Economic Survey 2025–26

• 03 Feb 2026

Source: ES 

Why in News?  

The Economic Survey 2025–26 outlines India’s medium- to long-term economic strategy amid global fragmentation, supply-chain realignments, technological disruption, and climate stress. It introduces a new policy vocabulary focused on strategic sobriety, institutional quality, and long-term capability building, aligned with the goal of Viksit Bharat @2047.

How Does the Economic Survey 2025–26 Chart India’s Developmental Path Amid Global Uncertainty? 

Macroeconomic Strategy 

• Strategic Sobriety: The Survey advises a policy stance of "strategic sobriety rather than defensive pessimism" to handle global volatility.
• Strategic Resilience vs. Strategic Indispensability: Moving beyond just absorbing shocks (resilience) to becoming a "source of reliability, capability, and value for others" (indispensability).
• Running a Marathon and Sprint: A metaphor used to describe India's need to prioritise long-term growth (marathon) while managing short-term shocks (sprint) simultaneously.
• Buffer and Redundancy: Emphasising the creation of resource buffers and supply chain redundancy as strategic assets in a fragmented world.
• Institutional Quality: Defined as a key component of national power alongside productive force and strategic concentration.
• Fiscal Credibility: Achieved through a deliberate shift toward capital formation and human capital rather than just deficit reduction.

State Capacity and Governance

• From 'Ruler's Raj' to 'Citizen's Raj': A shift in governance philosophy where the state moves from a controller to an enabler, empowering citizens.
• The Entrepreneurial State: Moving the state from "compliance to capability" and from "low-value policing toward coordination, facilitation, and problem-solving".
• Regulatory Capacity: Framing deregulation not as the withdrawal of the state, but as "institutional reorientation" to reduce friction.
• Contextual Compliance: A concept explaining that civic behaviour is context-dependent; good outcomes emerge when design, incentives, and norms align (e.g., orderly conduct in Metro rail vs. disorderly conduct elsewhere).
• Trust-based Compliance: Replacing inspection-based control with trust-based systems to enhance the ease of doing business.
• Delayed Gratification: The need for the mature mind (and nation) to choose Śreya (enduring good) over Preya (fleeting comfort) to build long-term national strength.

Industry, Manufacturing, and Trade

• Strategic Indigenisation: A tiered framework to reduce external vulnerability while integrating into global value chains.
• Servicification of Manufacturing: The increasing integration of services into the manufacturing value chain, enhancing value addition.
• Friendshoring & Nearshoring: Global trends of re-routing supply chains to politically aligned or geographically closer nations.
• Product Complexity Index (PCI): A measure of the sophistication of productive know-how; India aims to shift from low/mid-complexity to high-complexity goods.
• Investment Development Path (IDP): The trajectory where a country transitions from being a net recipient to a net source of foreign direct investment.
• Orange Economy: Referring to the creative economy (media, entertainment, arts) as an emerging lever for growth.
• Intelligent Indigenisation: A nuanced approach to import substitution. Instead of a blanket ban on imports, it advocates for a "Tiered Framework"—focusing indigenisation efforts only where strategic vulnerability is high or economic feasibility is clear.
• Institutional Stress Test: Use this to describe manufacturing exports. The Survey argues that competing in global markets acts as a "stress test" for the state, exposing weaknesses in logistics, regulation, and infrastructure that sheltered sectors (like services) might hide.
• National Input Cost Reduction Strategy: A proposed strategy to treat input costs (energy, logistics, raw materials) like infrastructure. Lowering these costs is essential for competitiveness.
• China Plus One -> Strategic Diversification: Instead of just "China Plus One," use terms like "Geostrategic Globalisation" or "Friendshoring" to describe supply chain realignments.
• Dead Capital: Used in the context of urban land. Restrictive land-use regulations turn land into "dead capital" that cannot be used productively.

Technology and Artificial Intelligence

• Bottom-up AI Strategy: Unlike the West’s "frontier model" approach, India requires a bottom-up strategy focusing on distributed innovation and application-specific AI.
• AI-OS Initiative: A proposal for the sovereign to be a shareholder in AI infrastructure (like UPI/Aadhaar), treating AI as a "public good".
• Frugal AI: Developing AI solutions that are resource-efficient and adapted to local constraints.
• Data Stewardship: Balancing the openness of data flows with the need to retain economic value from domestic data within India.
• Digital Public Infrastructure (DPI): Leveraging digital platforms (like e-Shram, Udyam) to formalise the workforce and enhance productivity.
• Sovereign AI / Compute Capacity: Emphasizes the need for domestic capacity in Artificial Intelligence infrastructure.
• Physical-Digital Fusion: Integrating physical infrastructure (roads, ports) with digital layers (ULIP, GatiShakti) to improve logistics efficiency.

Agriculture and Rural Development

• Nutrient Imbalance: Referring to the distorted N:P:K ratio (currently 10.9:4.1:1 against the ideal 4:2:1) due to excessive nitrogen use, requiring a re-orientation toward soil health.
• Climate-Resilient Agriculture: Promoting crop diversification and "Per Drop More Crop " to handle water scarcity and weather shocks.
• Lab to Land: Bridging the gap between agricultural research and practical application to improve productivity.
• Social Capital: Converting community trust and networks (like SHGs) into sustainable livelihood outcomes.
• Rights-based Entitlement: The shift in rural employment schemes (like the Viksit Bharat–G RAM G Act, 2025) to reinforce legal entitlements to work.

Urbanisation and Infrastructure

• Agglomeration Economies: The benefits of clustering (reduced interaction costs, knowledge spillovers) that underpin the logic of urbanisation.
• Polycentric Growth: Developing multiple centres of activity (like new townships around RRTS stations) to relieve pressure on core cities.
• Transit-Oriented Development (TOD): Integrated planning of land use and transport to create high-density, mixed-use zones around transit hubs.
• Endowment Effect: The concept that citizens feel responsibility for assets they feel they "own"; lacking in public spaces due to poor service delivery.
• Financialization of Infrastructure: Using instruments like InvITs and REITs to monetise assets and finance new projects.
• 8-80 Philosophy: A principle for urban design—streets should be safe and accessible for everyone from an 8-year-old to an 80-year-old.

Environment and Climate Change

• Greenium: The yield advantage (lower interest cost) of green bonds over comparable conventional bonds.
• Mission LiFE: Lifestyle for Environment; emphasising behavioural changes and citizen participation in climate action.
• Adaptation-led Development: Shifting focus from just mitigation (emissions reduction) to adaptation (resilience against risks like heatwaves and floods).
• Dispatchable Power: The need to maintain reliable power sources (like thermal/nuclear) to back up intermittent renewables.
• Circular Economy: Moving from "take-make-dispose" to recycling and resource recovery (e.g., waste-to-energy).

Social Sector (Health & Education)

• Double Burden: Facing both communicable diseases and the rising burden of non-communicable diseases (NCDs) like obesity.
• Demographic Dividend: The economic potential of a large working-age population, which depends on skilling and health.
• Pink Tax: The extra cost women pay for safer mobility or specific products, acting as a barrier to labour force participation.
• Ultra-Processed Foods (UPF): A key driver of the obesity epidemic requiring regulatory and behavioural interventions.
• Foundational Literacy and Numeracy (FLN): The primary focus of educational reforms to ensure future employability.
• Bridging the Power Gap: India has a "Power Gap" (the difference between its resources and its influence). Bridging this requires converting economic size into strategic influence.
• Delayed Gratification: A cultural/behavioral attribute necessary for nation-building. The Survey argues that looking for shortcuts (in sports, infrastructure, or policy) undermines long-term capability.
• Psychological Safety in Governance: Creating an environment where bureaucrats are not punished for honest errors, encouraging decision-making under uncertainty.

Finance and Banking

• Financialisation: The growing dominance of financial markets and instruments in the economy, which India has largely avoided to its benefit.
• Crowding Out: The risk of government borrowing or spending reducing the availability of resources for the private sector.
• Evergreening: Strategies to keep bad loans from turning non-performing, which regulatory reforms aim to prevent.
• Credible Consolidation: Describes the government's fiscal path—reducing deficits while maintaining high capital expenditure (Capex).
• QE Infinity Trap: A concept warning that prolonged monetary easing (Quantitative Easing) by developed nations creates dependency, distorts asset prices, and traps economies in low growth.
• Refining the Regulatory Touch: A keyword for the financial sector, advocating for regulation that balances stability with innovation.
• NUDGE (Non-intrusive Usage of Data to Guide and Enable): A data-driven, behaviorally informed approach designed to boost voluntary tax compliance.

Conclusion 

The Economic Survey 2025–26 marks a shift from a survivalist to a possibility-oriented vision, embracing strategic sobriety to build strategic indispensability. Through physical–digital fusion, frugal AI, and a transition from Ruler’s Raj to Citizen’s Raj, it positions India on the path to Viksit Bharat by 2047. 

Drishti Mains Question:

The Economic Survey 2025–26 advocates a shift from strategic resilience to strategic indispensability. Examine the implications of this shift for India’s global economic positioning.

 

Frequently Asked Questions (FAQs) 

1. What is meant by Strategic Sobriety in the Economic Survey 2025–26? 
It refers to a calm, realistic policy approach that acknowledges global uncertainty without overreacting to external shocks. 

2. How does the Survey define Strategic Indispensability? 
It is India’s transition from merely absorbing shocks to becoming a reliable source of global capability, value, and stability.

3. What is Intelligent Indigenisation? 
A selective, tiered import substitution strategy focusing on strategic vulnerability while remaining integrated with global value chains.

4. What is the AI-OS initiative proposed in the Survey? 
It envisages AI infrastructure as a public good, similar to UPI and Aadhaar, supported by sovereign compute capacity. 

5. Why does the Survey warn against the QE Infinity Trap? 
Prolonged monetary easing can distort asset prices, create dependency, and lock economies into low-growth trajectories.

UPSC Civil Services Examination, Previous Year Questions (PYQs) 

Mains

Q. Do you agree that the Indian economy has recently experienced a V- shapes recovery? Give reasons in support of your answer.(2021) 

Q. Among several factors for India’s potential growth, savings rate is the most effective one. Do you agree? What are the other factors available for growth potential?(2017) 

Q. “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate?(2017)