Model Answer

Introduction

The Economic Survey 2025–26 marks a conceptual shift in India’s economic thinking by arguing that macro-stability alone is no longer sufficient to secure sustained growth in an increasingly fragmented and uncertain global economy. While India has achieved relative success in managing inflation, fiscal consolidation, and financial stability, the Survey contends that long-term growth and stability hinge on strengthening manufacturing competitiveness and external sector resilience, rather than relying excessively on short-term macroeconomic levers.

Why Manufacturing Competitiveness is Central The Survey emphasises that manufacturing-led growth is not merely an economic preference but a strategic necessity.

1. First, manufacturing exports play a crucial role in anchoring the external sector. Countries with stable currencies and lower external vulnerability are typically those with strong manufacturing bases. India’s persistent Current Account Deficit (CAD), despite robust services exports, underscores the limitations of a services-led growth model in ensuring currency stability.

2. Second, manufacturing growth builds state and institutional capacity. Unlike services, manufacturing forces reforms in land, labour, logistics, power, and regulatory systems, thereby strengthening governance capability and long-term productivity.

3. Third, a competitive manufacturing sector reduces India’s structural cost of capital. The Survey argues that India’s high cost of capital arises not primarily from domestic monetary policy, but from dependence on foreign savings and associated risk premia. A stronger export base can ease this constraint by generating stable foreign exchange earnings.

Importance of External Resilience

The Survey situates India’s growth strategy within a global context of “managed disorder”, characterised by geopolitical fragmentation, supply-chain disruptions, and volatile capital flows. In such an environment, external resilience becomes essential. By moving from import substitution to strategic resilience and eventually strategic indispensability, India can reduce vulnerability to external shocks while integrating selectively into global value chains. Trade agreements such as the India–EU FTA are viewed as instruments not merely for market access but for embedding India into advanced manufacturing and technology ecosystems.

Role and Limits of Short-term Macroeconomic Management

Short-term macroeconomic management—through fiscal prudence, inflation targeting, and banking sector stability—remains necessary but insufficient.

The Survey acknowledges that India has largely succeeded in:

• Containing core inflation
• Cleaning up bank balance sheets
• Maintaining fiscal consolidation

However, these tools are defensive in nature. They stabilise the economy but do not automatically generate durable growth or external strength. Over-reliance on interest rate adjustments or fiscal stimulus cannot resolve structural constraints such as weak manufacturing depth or external dependence.

Critical Assessment

While the Survey’s emphasis is well-founded, certain caveats remain. Services exports continue to be a major growth driver and source of foreign exchange, and premature neglect of macroeconomic management could undermine social welfare and inclusion. Moreover, manufacturing-led growth must be complemented by skilling, environmental sustainability, and regional balance to avoid uneven development.

Conclusion

Overall, the Economic Survey 2025–26 rightly argues that India’s growth challenge has shifted from stabilisation to structural transformation. In a volatile global order, short-term macroeconomic management can no longer substitute for building manufacturing competitiveness and external resilience. The optimal path forward lies in combining macroeconomic discipline with deep structural reforms, enabling India not just to grow faster, but to grow stronger and more resilient.