Survey flags drying up of FDI/FII flow, Re stability (Economic Survey estimates GDP to grow 6.8-7.2 per cent in 2026-27), Pg1

Key Highlights:

• The Economic Survey 2025-26 projects India's GDP to grow by 6.8-7.2% in FY27, upgrading the economy's potential growth rate to 7%.
• The Chief Economic Advisor expressed concern over the global capital strike and its impact on the rupee's stability, despite strong macroeconomic fundamentals.
• The rupee has weakened by almost 7% against the US dollar since the start of 2025, nearing 92 per dollar.
• The survey highlights the need for proactive reforms to attract more foreign investment and generate sufficient export earnings.
• The survey identifies potential global crises scenarios that could disrupt capital flows and impact the rupee.
• The survey also flagged concerns about fiscal populism and rising revenue deficits in states.

Detailed Insights:

• The Economic Survey identifies India as a victim of geopolitics, stating that the rupee's valuation does not accurately reflect India's economic fundamentals.
• India depends on foreign capital flows to maintain a healthy balance of payments, and a drier flow impacts rupee stability.
• The survey suggests India is operating below its full strategic potential, citing data from the Lowy Institute's Power Gap Index.
• The survey emphasizes the need for liquidity and external capital buffers to mitigate the negative effects of global political and economic turmoil.
• Capital flight, including with the advent of US stablecoins, is identified as a risk to watch out for.
• The survey suggests creating a task force to engage top global companies and promote India's advantages to boost FDI.
• Manufacturing competitiveness and exports are crucial for maintaining long-term currency stability.
• The survey notes concerns about fiscal populism, the crowding out of capital expenditure, and the rise of revenue deficits in states.

Key Concepts Involved:

• Fiscal Populism: Government policies that prioritize short-term benefits through increased spending or tax cuts, potentially at the expense of long-term fiscal stability.
• Foreign Direct Investment (FDI): An investment made by a firm or individual in one country into business interests located in another country.
• Current Account Deficit: The shortfall when a country's total imports of goods, services, and transfers are greater than its total exports.