Economic Survey 2026: CEA Nageswaran flags normal rupee pressure; backs manufacturing, India’s development-first AI

The Economic Survey 2025–26 establishes the foundation for the forthcoming Union Budget while capturing the current state of India’s economy. Chief Economic Adviser (CEA) V. Anantha Nageswaran, during the Survey’s press briefing, highlighted pivotal trends influencing growth, inflation, employment, agriculture, green energy initiatives, and challenges arising from digital transformation. Below are the crucial insights from his address.

Global factors drive rupee volatility

Nageswaran attributed recent rupee depreciation primarily to international market dynamics rather than domestic weaknesses. He emphasized India’s susceptibility to global risk fluctuations as an emerging economy dependent on foreign capital. While acknowledging currency pressures from tightening financial conditions worldwide, he reaffirmed India’s stable macroeconomic fundamentals.

Accelerated growth amid cooling inflation

India’s economic expansion gained momentum as inflationary pressures subsided. FY26 recorded real GDP growth of 7.4%, fueled by robust consumer demand and fixed investments. Headline inflation dropped to 1.7% (till December FY26), with core inflation also trending downward—indicating broad-based moderation in price rises.

Strengthened fiscal credibility

The government’s commitment to fiscal discipline has reinforced economic confidence, Nageswaran stated. Projections indicate the fiscal deficit narrowing to 4.4% of GDP in FY26 alongside a reduced primary deficit—creating greater fiscal flexibility for strategic public expenditure.

Sustained labor market recovery

Employment metrics demonstrate consistent progress, with unemployment declining from 6% (2017-18) to 3.2% (2023-24). Female labor force participation surged dramatically from 23.3% to 41.7% during this period, while FY26 unemployment further eased to 4.9% by December.

Agricultural shifts amid structural constraints

Livestock and fisheries sectors drove agricultural diversification, registering 6.1% and 7.2% average GVA growth respectively (FY20-FY24)—outpacing overall farm growth (4.7%) and crop output (4%). However, Nageswaran identified persistent hurdles including distorted fertilizer usage, excessive grain stockpiles, prohibitive storage costs, and underdeveloped markets for non-staple crops—all suppressing farm income growth.

Green transition hurdles and digital age risks

India’s renewable energy shift demands significant critical mineral access, enhanced logistics, and expanded storage infrastructure, the CEA cautioned. He also spotlighted artificial intelligence-related threats such as workforce skill gaps, employment displacement, energy-intensive data center operations, and dependency on foreign AI systems. Additionally, he warned of escalating digital addiction among youth and its mental health repercussions.

Rupee’s undervaluation concerns

The Survey argued that the rupee’s depreciation to 92 against the dollar underrepresents India’s economic resilience. It described the currency as “punching below its weight,” noting investor reluctance despite controlled inflation and favorable growth. While a weaker rupee partially offsets potential U.S. tariff impacts and remains non-inflationary currently, prolonged undervaluation could undermine foreign investor sentiment, especially given dependence on capital flows to counterbalance trade deficits.

Labor reforms for future workforce security

Effective implementation of the four Labor Codes is deemed essential to formalize employment and enhance protections for women and gig workers. By amalgamating 29 central statutes, the Codes extend social security, welfare schemes, and benefit portability to platform workers. The Survey advocated algorithmic transparency and equitable gig economy practices. It further stressed the necessity of early vocational training and gender-targeted skilling programs in high-growth industries to promote inclusive development.

Healthcare manufacturing ascendancy

India has emerged as a dominant force in affordable vaccine production, supplying most global DPT, BCG, and measles immunizations. The medical devices sector has achieved global competitiveness, exporting to 187 countries in FY25 while manufacturing advanced equipment like MRI systems, CT scanners, cardiac stents, and ventilators—signaling a technological leap in domestic healthcare manufacturing.

In summary, the Economic Survey portrays an economy sustaining growth amid stable inflation and employment gains, while underlining structural challenges—from agricultural modernization and green energy infrastructure to AI governance—that require strategic management for long-term resilience.

(With inputs from IANS)