Economic Survey 2025-26 | India’s Potential Growth Raised to 7%

The Finance Minister Smt. Nirmala Sitharaman presented the Economic Survey 2025-26 in Parliament on January 29, 2026. The Survey reviews the performance of the Indian economy in the backdrop of a challenging global environment marked by geopolitical tensions, trade fragmentation and financial market volatility. It notes that despite these headwinds, India remains one of the fastest-growing major economies, supported by strong macroeconomic fundamentals, policy reforms, and sustained public investment.

The Survey provides a comprehensive assessment of developments in growth, inflation, fiscal position, monetary conditions, the external sector, and financial stability, along with a detailed review of sectoral performance across agriculture, industry, and services. It also analyses emerging issues such as manufacturing competitiveness, cost of capital, export performance, climate transition, employment and skill development, and the role of technology, including artificial intelligence, in shaping the economy.

The Economic Survey 2025-26 underlines the need to strengthen domestic growth drivers while building resilience against external shocks. It emphasises the importance of improving state capacity, enhancing productivity, promoting competitive manufacturing and exports, and maintaining policy credibility to sustain growth over the medium term.

The Survey serves as an important reference document for policymakers, businesses, and other stakeholders to understand the economy’s current position and future direction. The following are the key points related to direct taxes:

1. India’s potential growth rate has been revised upward to 7%, indicating a stronger medium-term growth outlook supported by reforms and infrastructure investment.
2. The Survey underscores the Government’s continued commitment to fiscal consolidation, with the fiscal deficit for FY25 contained at 4.8% of GDP and a target of 4.4% for FY26.
3. Direct tax collections continue to show strong buoyancy, reflecting improved compliance, formalisation of the economy and widening of the tax base.
4. Greater emphasis has been placed on tax certainty, stability and predictability as key factors for improving investor confidence and capital formation.
5. Manufacturing and exports are identified as strategic priorities, with tax and policy frameworks expected to play a supportive role in enhancing competitiveness.
6. The Survey reiterates the importance of rationalising subsidies and improving the quality of public expenditure to create fiscal space for growth-oriented spending.
7. High cost of capital and structural current account deficit are flagged as macro challenges, reinforcing the need for policy and tax reforms that support investment and savings.
8. Nudge-based interventions have enhanced tax collection efficiency by shifting the focus from post-facto enforcement to preventive, technology-enabled compliance, thereby reducing litigation and compliance costs while improving voluntary tax compliance.
9. As of November 2025, major direct taxes accounted for nearly 53 per cent of Budget Estimates, down from 56.6 per cent in the corresponding period of the previous year, while personal income tax and corporate tax recorded year-on-year growth despite tax concessions.
10. The improvement in tax collections was supported by tax base expansion, with income-tax returns filed increasing from 6.9 crore in FY22 to 9.2 crore in FY25, reflecting improved compliance, technology-driven administration, and rising incomes.

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