“So I think the playbook has changed materially in the last year and a half and from that perspective, there will be a lot of growth from domestic factors, especially consumption and investment,” Rao said.She added that while the private sector may face challenges due to global uncertainties and currency pressures, the government is expected to continue to play a leading role.
“So in that light, it will still be the government that will lead from the front, but they certainly want even sectors like defense, for example, to have a certain amount of space in which they can invest, but at some point they will expect the private sector to come on board as well,” she noted.
Rao also pointed out that while the Economic Survey is not prescriptive, it often provides important signals in areas such as foreign direct investment, investments, exports and global integration.
“It gives a very good idea of where some of the key changes need to happen on the FDI front, on the investment front and on the export front, and I assume this time there will also be some chapters on free trade agreements and global supply chains,” she said.Balancing stability and growth amid global volatility
One line from the Economic Survey that stood out was the observation that India “needs to run a marathon and a sprint at the same time” to absorb systemic shocks and manage the transmission of financial stress.
Rao interpreted this as a reference to increased global financial volatility.
“We have seen quite sharp moves in the dollar. We have seen very sharp moves in the precious metals universe. There is a lot of talk about devaluation, de-dollarization and the impact on India has been very varied,” she said, noting that despite a correction in the dollar, the rupee has remained under pressure and recently weakened to record lows.
According to Rao, the key takeaway is the importance of maintaining strong external buffers.
“You have to keep external vulnerabilities low and have enough buffers because this is in the long term… when you look back at the economy and see if it has enough buffer, that is always very important,” she said.
She added that macro stability indicators in India remain relatively strong.
“The current account is in decent health. We have seen that reserves actually remain strong, external debt is under control. So in those terms I would say the buffers are sufficient,” Rao said, while cautioning that global capital flows are often driven by factors beyond India’s control.
On the currency front, Rao said depreciation alone cannot be considered a sustainable competitive advantage.
“My view is that just currency depreciation, that kind of comparative advantage, is difficult… because some of India’s key exports also have high import dependence,” she explained, adding that cost pass-through could limit export competitiveness.
Optimistic outlook, but domestic engines take center stage
Referring to the chief economic adviser’s comments that growth is strong, inflation is under control and external liabilities are low, Rao said the survey’s optimism is rooted in a shift in growth strategy.
“There are two major drivers of growth mainly coming from… the external sector and the domestic sector. Traditionally, domestic factors have been very important to India’s game,” she said.
Over the past year and a half, Rao noted that the government’s approach has evolved from a largely supply-driven strategy to a more balanced supply-and-demand strategy.
“What used to be a completely supply-driven push… add to that it has been a push to also put more money into the hands of people, through tax rationalization,” she said.
However, she also warned that this comes with tax considerations.
“We must remember that this comes at a cost. In fact, gross tax revenue growth has been slowing for the last three to four years and part of that is also due to these tax rationalization measures,” Rao said.
The Survey’s assessment of potential growth also indicates an improvement, with estimates now closer to 7%, compared to 6 to 6.5% a few years ago.
“The research also seems to indicate that despite what is happening globally, there is enough momentum domestically for growth to rise even further,” she said.
Rao added that inflation dynamics and GDP deflators could moderate headline growth in FY27 even as revised and rebased data could change sectoral performance figures.
“So net-net, I would still maintain that there is a change in the playbook and the playbook is more focused on domestic growth,” she said.
While the upcoming budget may not include major reform announcements, Rao pointed out that meaningful policy actions are increasingly being taken outside the budget process.
“From that point of view, it will lay the groundwork for where the goals are and what small adjustments can be made to them, but there could also be a lot more action beyond the budget to get us there,” she said.
She concluded by noting that while external trade will contribute to growth, its impact is likely to be gradual, with the benefits of recent free trade agreements only expected to materialize in the coming year and beyond.
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