The U.S.–India Trade Reset Is Really a Bet on Geoeconomic Alignment

The United States and India have agreed on a framework for an Interim Trade Agreement aimed at establishing reciprocal and mutually beneficial market access. Beyond its immediate provisions, the framework reaffirms both governments’ commitment to the broader U.S.–India Bilateral Trade Agreement negotiations launched in February 2026 by President Donald J. Trump and Prime Minister Narendra Modi. Crucially, the Interim Agreement is positioned not as an end in itself, but as a stepping stone toward deeper economic integration—one that expands market access while embedding trade policy within a wider agenda of supply-chain resilience and strategic economic cooperation.

When the United States and India released their Joint Statement in February 2026, it was framed—predictably—as a breakthrough on trade. Tariffs would fall, market access would expand, and bilateral commerce would grow. Yet to read the agreement merely as a trade deal is to miss its deeper significance. This is not just about exports and imports. It is about where India intends to locate itself in an increasingly fragmented global economy.

At a moment when global trade is being reshaped by geopolitics rather than efficiency alone, the U.S.–India Interim Agreement represents a deliberate choice. India is wagering that closer economic alignment with the United States—across supply chains, technology, energy, and standards—will accelerate growth and resilience, even if it constrains policy autonomy and imposes uneven domestic adjustment costs.

A framework shaped by strategy, not just commerce

The headline elements of the agreement are substantial. India has committed to reducing or eliminating tariffs on a wide range of U.S. industrial and agricultural products. In return, the United States has offered conditional and phased tariff relief on key Indian exports, including generic pharmaceuticals, gems and diamonds, and aircraft parts. India has also signaled its intention to purchase $500 billion worth of U.S. energy, aircraft, technology products, and other goods over the next five years.

But the more consequential provisions sit beneath the tariff schedules. The agreement places heavy emphasis on non-tariff barriers, rules of origin, standards alignment, conformity assessment, and digital trade rules. It also explicitly links trade policy to economic security, supply-chain resilience, export controls, and investment screening. This is trade policy redesigned for a world of strategic rivalry.

In that sense, the Joint Statement formalizes a shift already underway. The U.S.–India relationship is moving from episodic trade bargaining toward sustained economic alignment—one that mirrors broader U.S. efforts to build “trusted partner” supply chains outside China.

Manufacturing gains—with a compliance premium

For India’s manufacturing exporters, the agreement creates real opportunities. Sectors such as pharmaceuticals, gems and jewelry, aircraft components, and select machinery stand to benefit from improved access to the U.S. market. Tariff relief and preferential treatment could reinforce India’s position as a reliable supplier in high-value, regulation-sensitive industries.

Yet these gains come with a price. The agreement’s insistence on rules of origin, standards harmonization, and regulatory compliance raises fixed costs. Large, capitalized firms are well positioned to absorb these requirements. Smaller manufacturers and MSMEs are not. The result is likely to be a familiar pattern: export growth driven by scale, formalization, and consolidation.

This is not necessarily a flaw. Indeed, it aligns with India’s long-standing ambition to move up the manufacturing value chain. But it does mark a departure from low-cost, lightly regulated export strategies. Growth under this framework will be more compliance-intensive—and more selective.

Agriculture: the quiet adjustment sector

If manufacturing captures the upside, agriculture bears much of the adjustment burden. India’s tariff concessions on U.S. food and agricultural products—from soybean oil to tree nuts and spirits—will intensify competition in politically sensitive markets. For small farmers and domestic producers, the short-term pressures are real.

Proponents argue that exposure to global competition and standards can catalyze productivity improvements, modernize supply chains, and strengthen food processing exports over time. That may be true. But the transition will be uneven, and the distributional effects cannot be ignored. Agriculture, once again, risks becoming the sector that absorbs the costs of India’s strategic ambitions.

The political economy implications are clear. Without credible adjustment support, agricultural liberalization—however modest in macroeconomic terms—can undermine domestic consensus for deeper integration.

Energy security over price efficiency

The $500 billion import commitment is perhaps the most striking element of the agreement. By committing to large-scale purchases of U.S. energy, aircraft, and capital goods, India is prioritizing strategic resilience over narrow price considerations.

From a geoeconomic perspective, the logic is clear. Energy imports from the United States diversify supply sources and reduce exposure to geopolitical shocks in the Middle East or sanctions-related uncertainty elsewhere. The trade-off, however, is a potentially higher import bill and greater pressure on the current account.

India’s choice reflects a broader shift in global economic thinking. In an era of strategic competition, resilience commands a premium. The agreement signals that India is willing to pay it.

Technology, data, and the shape of digital alignment

Technology cooperation sits at the heart of the new framework. Commitments to expand trade in GPUs, data-center inputs, and advanced technology products support India’s ambitions in artificial intelligence, cloud computing, and digital services. Clearer pathways toward digital trade rules also reduce uncertainty for cross-border technology firms.

Yet alignment cuts both ways. Harmonizing digital trade rules with the United States may limit India’s flexibility on data localization, platform regulation, and digital taxation. This is not a trivial concession. It reflects a strategic choice to integrate more deeply into U.S.-led technology ecosystems rather than pursue a more autonomous regulatory model.

For India’s digital economy, the payoff could be scale and speed. The constraint is sovereignty.

Embedding India in a U.S.-aligned economic bloc

Taken together, these elements reveal the agreement’s deeper purpose. India is positioning itself as a central node in U.S.-aligned supply chains—particularly in sectors where trust, security, and standards matter as much as cost.

The agreement’s language on export controls, investment screening, and responses to “non-market policies of third countries” underscores this shift. Economic policy is no longer insulated from strategic alignment. It is an instrument of it.

This raises an unavoidable question. Can India deepen economic integration with the United States while preserving the strategic autonomy that has long defined its foreign policy? The Joint Statement suggests a nuanced answer: autonomy not through distance, but through selective alignment.

Risks and unresolved questions

None of this is risk-free. Adjustment costs will be real, especially for agriculture and smaller firms. Over-reliance on a single strategic partner could reduce India’s room for maneuver in future negotiations. And compliance-heavy growth models can entrench incumbents at the expense of innovation.

The agreement’s success will therefore depend less on its text than on domestic follow-through. India will need investments in standards infrastructure, MSME upgrading, and social safety nets. Without them, the political sustainability of this geoeconomic pivot will be fragile.

A calculated bet on the future

The U.S.–India Interim Agreement is not a technocratic trade deal. It is a strategic wager. India is betting that closer alignment with the United States will deliver faster growth, greater resilience, and a stronger role in shaping global economic rules. In return, it accepts constraints on policy autonomy and uneven domestic adjustment.

Whether this bet pays off will define India’s economic trajectory for the next decade. The real test will not be export figures or tariff schedules, but whether India can translate geoeconomic alignment into broad-based, durable development.

In a world where economics and power are once again inseparable, that may be the only bet worth making.

References 

• The White House. (2026). United States–India Joint Statement. https://www.whitehouse.gov/briefings-statements/2026/02/united-states-india-joint-statement/

• Arya, N. K. (2026). India–EU Free Trade Agreement: A geo-economic turning point for India. Eurasia Review. India–EU Free Trade Agreement: A Geo-Economic Turning Point For India – OpEd – Eurasia Review  

• Arya, N. K. (2025). India–New Zealand Free Trade Agreement: A strategic masterstroke in India’s trade diplomacy. Eurasia Review. https://www.eurasiareview.com/23122025-india-new-zealand-free-trade-agreement-a-strategic-masterstroke-in-indias-trade-diplomacy-analysis/

• Jaiswal, H., & Ganesh-Kumar, A. (2025). US tariff shocks and India–US trade negotiations. IGIDR Working Paper.

• Gohil, G. D. (2025). The impact of the USA on Indian exports. IJNREFM.

• Nasrullah, M., & Rizwanullah, M. (2026). Trade flows and economic growth linkages. International Journal of Finance & Economics.

• Verma, T. (2025). Bilateral trade agreements and development outcomes. SSRN.

• Garv, M., & Verma, R. (2025). Development implications of the India–UK FTA. ResearchGate.

• Emanuele, F. et al. (2025). Trade winds of change. FAO/Agris.

• Polcumpally, A. T. (2025). AI and global economic power. Springer.

India’s Union Budget 2026–27: A Geo-Economic Blueprint for Long-Term Stability

Every year, India’s Union Budget presented on 1st February is not merely a document of income and expenditure; it also clearly reflects the government’s economic priorities, strategic thinking, and geo-economic direction. The Union Budget 2026–27 likewise places stability, structural reforms, and a long-term strategy at the center of India’s development trajectory.

Instead of introducing any major “big-bang reforms,” this year’s budget emphasizes the consolidation of previously announced policies. This indicates that the government is prioritizing long-term economic stability over short-term political gains.

Constitutional and Institutional Background of the Budget

The Indian Constitution does not use the term “Budget.” Article 112 defines it as the Annual Financial Statement, while under Article 114, through the Appropriation Bill, the government is authorized to incur expenditure from the Consolidated Fund of India.

This process demonstrates that the budget is not merely an economic exercise, but also a symbol of constitutional and democratic accountability.

Philosophical Framework of Budget 2026–27

The central idea of the budget presented by the Finance Minister is youth-driven development. The government has reiterated its commitment to placing the poor, marginalized, and backward sections at the core of the development process. The budget’s approach is based on three major responsibilities:

• Rapid economic growth,

• Fulfillment of citizens’ aspirations, and

• Inclusive development (Sabka Saath, Sabka Vikas).

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Six Geo-Economic Pillars of Budget 2026–27

1. Sustainable Economic Growth and Manufacturing

In Budget 2026–27, manufacturing has been recognized as a strategic geo-economic tool and a foundation of growth. Under this, initiatives such as India Semiconductor Mission 2.0, electronic component manufacturing, textiles, bio-pharma, and aircraft manufacturing have been promoted.

Keeping in view the post–European Union trade agreement scenario, special emphasis has been placed on electronic components, aircraft manufacturing, and textile exports. Through tax reforms, customs duty concessions, and extended export timelines, efforts have been made to enhance the competitiveness of domestic manufacturing.

Following the EU–India Trade Deal, the textile sector’s access to zero-duty benefits can significantly strengthen India’s position in the global value chain.

2. MSMEs: Engine of the Domestic Economy

Micro, Small, and Medium Enterprises (MSMEs) have been regarded as the growth engine of the Indian economy. Through the ₹10,000 crore SME Growth Fund and the expansion of the Self-Reliant India Fund, MSMEs will receive capital and professional support. A compliance support ecosystem is proposed to be developed in Tier-2 and Tier-3 cities.

MSMEs are not only a source of employment generation but also a key instrument of economic decentralization.

3. Service Sector and the Orange Economy

In the service sector, education, health, tourism, AYUSH, sports, and the orange economy have been identified as major drivers of Viksit Bharat. Medical tourism, the care economy, and content creation are expected to generate extensive employment opportunities. The service sector has been considered the core driver of Viksit Bharat, with initiatives such as:

• Five hubs for medical value tourism,

• Training of caregivers and allied health professionals,

• Promotion of content creators and the design economy.

This reflects India’s transition from a purely production-oriented economy to a knowledge- and culture-based economy.

4. Infrastructure: Foundation of Growth

In Budget 2026–27, capital expenditure has been fixed at ₹12.2 lakh crore, which is more than six times the level of 2014–15.

Measures such as new Dedicated Freight Corridors, 20 new National Waterways, and the Purvodaya Scheme (East Coast Industrial Corridor) will reduce logistics costs and enhance industrial competitiveness. An urbanization policy focused on Tier-2 and Tier-3 cities will support balanced regional development.

The Purvodaya Scheme will strengthen India’s logistics capacity and strategic connectivity.

5. People-Centric Development

Self-Help Group–based Entrepreneur Markets. The budget includes provisions such as Self-Help Group Entrepreneur Marts, skill development schemes for persons with disabilities, NIMHANS-II in Eastern India, and the establishment of trauma care centers in district hospitals. These initiatives strengthen social justice, human development, and inclusive growth. 

This budget does not limit development to GDP alone, but also prioritizes social inclusion.

6. Trust-Based Governance and Ease of Doing Business

• Reduction in TCS on overseas tours, education, and medical expenses

• Simplified tax compliance

• Foreign Asset Disclosure Window

• Integrated Digital Cargo Clearance System

The objective is to create a trust-based environment for investment and business.

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Fiscal Outlook

The government has targeted limiting the fiscal deficit to 4.3% in 2026–27. A clear roadmap has been presented to bring the debt-to-GDP ratio closer to 50% in the medium term (Debt-to-GDP Ratio: 55.6%). Acceptance of the 16th Finance Commission’s recommendations and maintaining a 41% tax devolution to states strengthens cooperative federalism.

This indicates that the government is balancing fiscal prudence with a growth-oriented push.

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Conclusion: From a Geo-Economic Perspective

The Union Budget 2026–27 is not a document of short-term populist measures, but one of long-term economic stability and structural consolidation. It signals that India is moving toward Viksit Bharat @2047 through a balanced approach combining growth, fiscal discipline, and inclusive policy.

This budget advances India toward becoming:

• a global manufacturing hub,

• a service-led knowledge economy, and

• a developed nation by 2047.

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भारत का केंद्रीय बजट 2026–27: भारत की भू-आर्थिक रणनीति का खाका

हर वर्ष 1 फरवरी को प्रस्तुत होने वाला भारत का केंद्रीय बजट केवल आय–व्यय का दस्तावेज़ नहीं होता, बल्कि यह सरकार की आर्थिक प्राथमिकताओं, रणनीतिक सोच और भू-आर्थिक (Geo-Economic) दिशा को भी स्पष्ट करता है। बजट 2026–27 भी इसी क्रम में भारत की विकास यात्रा में स्थिरता, संरचनात्मक सुधार और दीर्घकालिक रणनीति को केंद्र में रखता है।

इस बार के बजट में किसी बड़े “Big-Bang Reform” के बजाय पहले से घोषित नीतियों के समेकन (Consolidation) पर ज़ोर देखने को मिलता है। यह संकेत देता है कि सरकार अल्पकालिक राजनीतिक लाभ के बजाय दीर्घकालिक आर्थिक स्थिरता को प्राथमिकता दे रही है।

बजट की संवैधानिक और संस्थागत पृष्ठभूमि

भारतीय संविधान में ‘बजट’ शब्द का प्रयोग नहीं किया गया है। अनुच्छेद 112 इसे Annual Financial Statement के रूप में परिभाषित करता है, जबकि अनुच्छेद 114 के अंतर्गत विनियोग विधेयक के माध्यम से सरकार को Consolidated Fund of India से व्यय की अनुमति मिलती है।

यह प्रक्रिया दर्शाती है कि बजट केवल आर्थिक नहीं, बल्कि संवैधानिक और लोकतांत्रिक जवाबदेही का भी प्रतीक है।

बजट 2026–27 की दार्शनिक पृष्ठभूमि

वित्त मंत्री द्वारा प्रस्तुत बजट का केंद्रीय विचार युवा-शक्ति प्रेरित विकास है। सरकार ने गरीब, वंचित और पिछड़े वर्गों को विकास प्रक्रिया के केंद्र में रखने की प्रतिबद्धता दोहराई है। बजट का दृष्टिकोण तीन प्रमुख कर्तव्यों पर आधारित है—

1. तीव्र आर्थिक विकास,

2. नागरिकों की आकांक्षाओं की पूर्ति, तथा

3. समावेशी विकास (सबका साथ, सबका विकास)।

बजट 2026–27 के छह भू-आर्थिक स्तंभ

1. सतत आर्थिक विकास और मैन्युफैक्चरिंग

बजट 2026–27 में मैन्युफैक्चरिंग को Strategic Geo-Economic Tool के रूप में विकास का आधार माना गया है। इसके अंतर्गत India Semiconductor Mission 2.0, इलेक्ट्रॉनिक कंपोनेंट मैन्युफैक्चरिंग, टेक्सटाइल, बायो-फार्मा तथा एयरक्राफ्ट निर्माण को प्रोत्साहन दिया गया है।

यूरोपीय संघ के साथ व्यापार समझौते के बाद इलेक्ट्रॉनिक कंपोनेंट, एयरक्राफ्ट मैन्युफैक्चरिंग, और टेक्सटाइल निर्यात की संभावनाओं को ध्यान में रखते हुए इस क्षेत्र पर विशेष बल दिया गया है। कर सुधारों के माध्यम से कस्टम ड्यूटी में छूट और निर्यात समय-सीमा में वृद्धि से घरेलू विनिर्माण को प्रतिस्पर्धी बनाने का प्रयास किया गया है।

EU–India Trade Deal के बाद टेक्सटाइल सेक्टर को 0% ड्यूटी का लाभ मिलने से भारत की वैश्विक वैल्यू चेन में स्थिति मजबूत हो सकती है।

2. MSMEs: घरेलू अर्थव्यवस्था का इंजन

सूक्ष्म, लघु और मध्यम उद्यम (MSMEs) को भारतीय अर्थव्यवस्था का ग्रोथ इंजन माना गया है। ₹10,000 करोड़ के SME Growth Fund तथा आत्मनिर्भर भारत कोष के विस्तार से एमएसएमई को पूंजी और पेशेवर सहायता प्रदान की जाएगी। टियर-2 और टियर-3 शहरों में Compliance Support Ecosystem विकसित करने का लक्ष्य रखा गया है।

• MSMEs न केवल रोजगार सृजन बल्कि आर्थिक विकेंद्रीकरण का भी माध्यम हैं।

3. सेवा क्षेत्र और ऑरेंज इकॉनमी

सेवा क्षेत्र में शिक्षा, स्वास्थ्य, पर्यटन, आयुष, खेल और ऑरेंज इकॉनमी को विकसित भारत के प्रमुख चालक के रूप में देखा गया है। मेडिकल टूरिज्म, केयर-इकोनॉमी और कंटेंट क्रिएशन से रोजगार सृजन की व्यापक संभावनाएँ उत्पन्न होंगी। सेवा क्षेत्र को Viksit Bharat का Core Driver माना गया है:

• मेडिकल वैल्यू टूरिज्म के लिए 5 हब

• केयर-गिवर्स और एलाइड हेल्थ प्रोफेशनल्स का प्रशिक्षण

• कंटेंट क्रिएटर्स और डिजाइन इकोनॉमी को बढ़ावा

यह दिखाता है कि भारत अब केवल उत्पादन ही नहीं, बल्कि ज्ञान और संस्कृति आधारित अर्थव्यवस्था की ओर बढ़ रहा है।

4. अवसंरचना: ग्रोथ की नींव

बजट 2026–27 में कैपिटल एक्सपेंडिचर ₹12.2 लाख करोड़ निर्धारित किया गया है, जो 2014–15 की तुलना में छह गुना से अधिक है।
नए Dedicated Freight Corridor, 20 नए राष्ट्रीय जलमार्ग, और Purvodaya Scheme (East Coast Industrial Corridor) जैसे कदम लॉजिस्टिक्स लागत घटाकर औद्योगिक प्रतिस्पर्धा को बढ़ावा देंगे। टियर-2 और टियर-3 शहरों पर केंद्रित शहरीकरण नीति संतुलित क्षेत्रीय विकास में सहायक होगी।

• पूर्वोदय योजना  यह निवेश भारत की लॉजिस्टिक्स क्षमता और रणनीतिक कनेक्टिविटी को सुदृढ़ करेगा।

5. जन-केंद्रित विकास

बजट में Self-Help Group Entrepreneur Marts, दिव्यांग कौशल योजनाएँ, पूर्वी भारत में NIMHANS-II, तथा जिला अस्पतालों में ट्रॉमा केयर केंद्रों की स्थापना जैसे प्रावधान शामिल हैं। ये पहलें सामाजिक न्याय, मानव विकास और समावेशी वृद्धि को मजबूत करती हैं। यह बजट विकास को केवल GDP तक सीमित नहीं रखता, बल्कि सामाजिक समावेशन को भी महत्व देता है।

6. विश्वास-आधारित शासन और ईज़ ऑफ़ डूइंग बिज़नेस 

• Overseas Tours, शिक्षा, दवाइयों पर TCS में कटौती

• सरल टैक्स कंप्लायंस

• Foreign Asset Disclosure Window

• Integrated Digital Cargo Clearance System

इसका उद्देश्य निवेश और व्यापार के लिए विश्वास आधारित वातावरण तैयार करना है।

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राजकोषीय दृष्टिकोण (Fiscal Outlook)

सरकार ने वित्तीय घाटे को 2026–27 में 4.3% तक सीमित रखने का लक्ष्य रखा है। ऋण-जीडीपी अनुपात को मध्यम अवधि में 50%  (Debt-to-GDP Ratio: 55.6%) के आसपास लाने की स्पष्ट रूपरेखा प्रस्तुत की गई है। 16वें वित्त आयोग की सिफारिशों को स्वीकार करते हुए राज्यों को 41% कर-हिस्सेदारी देना सहकारी संघवाद को सुदृढ़ करता है।

• यह संकेत देता है कि सरकार Fiscal Prudence और Growth Push के बीच संतुलन साध रही है।

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निष्कर्ष: Geo-Economics के नजरिए से

केंद्रीय बजट 2026–27 किसी तात्कालिक लोकलुभावन उपाय के बजाय दीर्घकालिक आर्थिक स्थिरता और संरचनात्मक सुदृढ़ीकरण का दस्तावेज है। यह बजट यह संकेत देता है कि भारत विकास, राजकोषीय अनुशासन और समावेशी नीति के संतुलन के साथ विकसित भारत @2047 की दिशा में अग्रसर है।

यह बजट भारत को:

• वैश्विक मैन्युफैक्चरिंग हब

• सेवा आधारित ज्ञान अर्थव्यवस्था

• और 2047 तक विकसित राष्ट्र  बनाने की दिशा में आगे बढ़ाता है।
  

The Economic Survey 2025–26: An Analytical Overview of India’s Macroeconomic Performance

Why This Economic Survey Matters

Every year, just before the Union Budget, the Government of India releases the Economic Survey—a document that goes beyond numbers to explain how and why the economy is moving in a particular direction. The Economic Survey 2025–26, tabled in Parliament by Finance Minister Nirmala Sitharaman, comes at a time when the global economic order is undergoing deep structural stress.  Prepared by the Economic Division of the Department of Economic Affairs under the Ministry of Finance, the Economic Survey is guided by the Chief Economic Adviser and approved by the Finance Minister. The Survey evaluates economic developments during the ongoing financial year (April 2025–March 2026), while the forthcoming Budget outlines fiscal plans for the subsequent year, 2026–27. Although its recommendations are not legally binding on the government, they play a crucial advisory role in shaping policy discourse and fiscal strategy. 

Trade wars, geopolitical conflicts, technology restrictions, and the weaponization of finance have reshaped global economic governance. Against this backdrop, the Survey positions India as an economy that has managed relative stability and resilience amid global turbulence.

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Evolution and Structure of the Economic Survey

India’s first Economic Survey was presented in 1950–51 and, until 1964, it was released alongside the Union Budget. Over time, its format evolved—from a single-volume document to a two-volume structure post-2010, and later reverting to a single-volume format under the leadership of the current Chief Economic Adviser. This restructuring reflects an effort to present a more integrated and policy-oriented assessment.

The Economic Survey 2025–26 is organised into sixteen thematic chapters covering the state of the economy, fiscal developments, monetary management, financial intermediation, inflation, agriculture, industry, services, external sector, environment, education, health, employment, and skill development. The front cover symbolically emphasises exports, manufacturing, and trade, signalling the Survey’s central theme: strengthening India’s position in global trade through manufacturing expansion and export competitiveness.

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Global Economic Environment and India’s Resilience

The Survey highlights significant global policy uncertainty, driven by intensifying geopolitical conflicts, the weaponisation of trade, finance, and energy, and rising protectionism—particularly in the context of renewed tariff-based trade policies. Global uncertainty, which had spiked during the 2008 financial crisis, has reached even higher levels in 2024–25 due to geopolitical tensions and strategic technology restrictions. Despite these adverse global conditions, the Survey underscores India’s relative macroeconomic resilience. Compared to major economies such as the United States, the United Kingdom, and China—which are grappling with high fiscal and primary deficits—India has maintained comparatively stable fiscal indicators. Alongside Brazil, India stands out for containing its primary deficit within manageable limits.

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Growth Outlook and Demand-Side Drivers

The Economic Survey projects India’s real GDP growth for 2026–27 in the range of 6.8% to 7.2%, while growth for the current year (2025–26) is estimated at 7.4%, exceeding earlier projections. This robust performance is largely attributed to strong private consumption and a recovery in investment activity.

From a demand-side perspective, the Survey reiterates the GDP identity—private consumption, private investment, government expenditure, and net exports—as key growth drivers. Data indicate sustained growth in private consumption since 2015–16, while investment growth, after a temporary slowdown post-2022–23, has regained momentum. On the supply side, Gross Value Added (GVA), which reflects sectoral production across agriculture, industry, and services, is estimated to grow at approximately 7.3% during 2025–26, reinforcing the broad-based nature of economic expansion.

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Fiscal Consolidation and Revenue Performance

Fiscal consolidation remains a central achievement highlighted in the Survey. Following the sharp deterioration in fiscal balances during the COVID-19 pandemic—when the fiscal deficit peaked at 9.2% of GDP in 2020–21—the government has steadily reduced the deficit to 4.4% of GDP in 2025–26. The primary deficit has been compressed to 0.8%, reflecting prudent expenditure management.

This fiscal discipline has contributed to improved sovereign credit ratings. Notably, after nearly two decades, Standard & Poor’s upgraded India’s sovereign rating from BBB– to BBB, citing sustained fiscal consolidation as a key factor. The Survey also reports a significant improvement in revenue buoyancy. The composition of tax revenues has shifted in favour of direct taxes, reducing the regressive burden of indirect taxation. The share of direct taxes in total tax revenue has increased from 52% (pre-pandemic) to 59%, while indirect taxes have declined to 41%. 

Additionally, income tax compliance has improved markedly, with the number of income tax returns rising from 6.9 crore in 2021–22 to 9.2 crore, indicating greater formalisation of the economy.

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Monetary Management and Financial Sector Health

The chapter on monetary management evaluates the effectiveness of the Reserve Bank of India’s policy transmission. The Survey finds that changes in the policy repo rate have been effectively transmitted to bank lending rates, improving monetary policy efficiency.

Banking sector health has improved significantly, with Gross Non-Performing Assets declining from over 11% in 2016–17 to 2.2%, enabling banks to expand credit, particularly to MSMEs. Pension coverage has expanded rapidly under schemes such as the Atal Pension Yojana and the National Pension System, enhancing long-term financial security. Insurance penetration has also increased, with life insurance premiums rising from ₹6.3 lakh crore (2020–21) to ₹8.9 lakh crore, and non-life insurance premiums growing from ₹2 lakh crore to ₹3.1 lakh crore, supporting the objective of “Insurance for All.”

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Capital Markets, Microcredit, and Financial Inclusion

India’s capital markets have witnessed remarkable growth, particularly in the primary market. IPO activity has surged, reflecting investor confidence and corporate expansion. Simultaneously, microcredit initiatives under the Pradhan Mantri Mudra Yojana have disbursed over ₹36 lakh crore across 55 crore loan accounts, with women accounting for nearly 69% of beneficiaries—highlighting inclusive financial deepening.

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External Sector Performance and Trade Dynamics

Despite global trade disruptions, India’s trade performance has been relatively stable. Imports increased by 5.9%, while exports grew by 2.4%, leading to a trade deficit of $28 billion. However, services exports performed strongly, creating a surplus of $151 billion, offsetting the goods trade deficit. India has signed FTAs and CEPAs with eight countries in the last five years and is negotiating several more. The current account deficit declined from 1.3% of GDP to 0.8% in 2025–26 (H1). While global trade growth has slowed due to geopolitical tensions, India’s external sector performance has remained relatively stable. Merchandise trade continues to record a deficit, which widened to USD 28 billion, but this is substantially offset by strong services exports. Forex reserves have more than doubled over the past decade, crossing $700 billion. External debt has declined to 19.2% of GDP, and import cover stands at 11 months.

Services exports grew by over 12%, generating a surplus of USD 151 billion, driven primarily by IT and software services. Consequently, the current account deficit declined from 1.3% of GDP to 0.8%, indicating improved external sustainability. The Survey also notes India’s expanding network of Free Trade Agreements and Comprehensive Economic Partnership Agreements, including recent agreements with the European Union, UAE, Australia, and the UK, alongside ongoing negotiations with the US and ASEAN partners.

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Inflation Trends and Price Stability

India recorded one of the lowest inflation rates globally during 2025–26. Headline inflation averaged 1.3%, while core inflation stood at 4.6%, influenced largely by rising precious metal prices. Food inflation turned negative due to lower prices of vegetables and pulses, aided by timely government interventions and improved supply management.

The Survey cautions that inflation may rise moderately in 2026–27 due to currency depreciation and import costs, but maintains that macroeconomic fundamentals remain strong enough to manage such pressures.

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Agriculture and Structural Support

Agricultural growth remained stable, with notable gains in livestock (6.1%) and fisheries and aquaculture (7.2%). Crop sector growth hovered around 4%, consistent with structural constraints such as limited arable land. Government initiatives—including MSP, PM-KISAN, crop insurance, irrigation, and soil health programs—continue to support farm incomes and productivity.

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Concluding Geo-Economic Insight

The Economic Survey 2025–26 presents India as an economy that is not immune to global shocks but better prepared to absorb them. Fiscal discipline, domestic demand strength, financial sector stability, and services-led external resilience form the backbone of this preparedness. The Survey underscores the importance of sustaining reforms in manufacturing, trade, digital infrastructure, and human capital to maintain long-term growth and macroeconomic stability.

In an era of fragmented globalisation, India’s challenge is clear:

to convert short-term resilience into long-term structural power through manufacturing depth, export diversification, digital leadership, and sustained institutional reform. 

India–EU Free Trade Agreement: A Geo-Economic Turning Point for India

The India–EU Free Trade Agreement is the largest and most comprehensive trade deal in India’s history, covering goods, services, investment, digital trade, and sustainability across a market of 2 billion people.

The signing of the India–European Union Free Trade Agreement (FTA) marks far more than a conventional trade arrangement. It represents a strategic recalibration of India’s position in the global economic order, at a time when supply chains are fragmenting, protectionism is rising, and geopolitical blocs are hardening.

With this agreement, India is not merely reducing tariffs—it is re-engineering its trade geography.

Why This Deal Matters in Geo-Economic Terms

The India–EU FTA connects:

• The world’s fastest-growing major economy (India)

• With the world’s largest integrated economic bloc (EU-27)

Combined Geo-Economic Scale

• ~2 billion people

• ~25% of global GDP

• ~30% of global trade

Macro Scale of the India–EU FTA

Indicator	India	European Union	Combined Impact
Population	~1.4 billion	~450 million	~2 billion
Share of Global GDP	~7%	~18%	~25%
Share of Global Trade	~3%	~27%	~30%
Member Countries	1	27	Largest FTA bloc
Negotiation Period	—	—	18–20 years

No previous Indian FTA comes close to this magnitude. Unlike earlier tariff-centric deals, this agreement covers goods, services, investment, digital trade, climate norms, and supply chains—making it a system-level economic partnership.

From Stalled Negotiations to Strategic Urgency

Negotiations began in 2007 but collapsed by 2013 due to disputes over:

• Automobiles

• Alcohol

• Agriculture

• Data protection

• Intellectual property

What changed?

Three global shocks:

1. COVID-19

2. Ukraine war

3. US trade protectionism (Trump era onwards)

Together, they forced both India and the EU to diversify trade partners and reduce over-dependence on single markets—especially China and the US.

This FTA is therefore a response to global geo-economic fragmentation.

Tariff Liberalisation: The Structural Shift

Nearly 90% of tariff lines will be reduced or eliminated over 5–10 years.

This gradualism is crucial:

• Sensitive sectors are protected

• Domestic industries get time to adjust

• Long-term competitiveness improves without sudden shocks

Sectoral Geo-Economic Impacts

✈️ Aerospace: Strategic Autonomy in Aviation

Zero tariffs on aircraft, engines, and spare parts from Europe.

Geo-economic impact:

• Strengthens Airbus vs Boeing

• Lowers costs for Indian airlines

• Builds domestic MRO and aerospace manufacturing

• Reduces supplier concentration risk

This aligns directly with Make in India + strategic autonomy goals.

🚗 Automobiles: Liberalisation Without De-Industrialisation

India’s 110% import duty on European cars will fall to 10%, but under strict quotas.

Category	Vehicles	Timeline
Petrol/Diesel	160,000	5 years
Electric Vehicles	90,000	10 years

Geo-economic logic:

• Luxury imports liberalised

• The mass-market domestic industry protected

• EV ecosystem shielded during infancy

This is calibrated openness, not blind liberalisation.

🧵 Textiles & Leather: Labour-Intensive Geo-Economics

EU tariffs of 8–12% → near zero

Why this matters:

• Boosts MSMEs

• Expands women’s employment

• Counters Bangladesh & Vietnam

• Strengthens India’s position in labour-intensive global value chains

This is where trade policy meets social policy.

💊 Pharmaceuticals: Protecting India’s Global Role

India secures:

• Zero-duty access for generic drugs & APIs

• Protection of compulsory licensing rights

Despite EU pressure, India safeguards its role as the pharmacy of the Global South—a major geo-economic win.

🍷 Alcohol & Food Products: Political Trade-Offs

Tariffs on European wines and spirits fall sharply but remain quota-based.

Geo-economic compromise:

• EU gains symbolic market access

• India protects mass consumption sectors

• Hospitality and tourism benefit

Every major trade deal involves managed concessions—this is one of them.

Services, Mobility & Digital Power Services

• IT, engineering, and consultancy gain EU access

• Indian degrees and qualifications are recognised

Mobility

• Uncapped movement for Indian students and professionals

This contrasts sharply with tightening US visa regimes and positions the EU as a more predictable destination for Indian human capital.

Digital Trade

• Alignment with EU data standards

• Respect for India’s data sovereignty

• Support for cross-border digital services

This places India firmly in the rules-shaping phase of digital globalisation.

Investment & Strategic Capital Flows

Europe seeks:

• Legal certainty

• Faster dispute resolution

India delivers:

• Stronger investor protection

• Time-bound dispute mechanisms

Result: Greater European capital inflows, especially in manufacturing, green tech, and infrastructure.

Long-Term Geo-Economic Impact

• India–EU trade likely to double by 2032

• Lower logistics & transaction costs

• Deeper global value chain integration

• Reduced dependence on the US market

• Stronger bargaining power in future FTAs

India already enjoys a trade surplus with both the EU (~€25 bn) and the US (~$45 bn)—a rare position among developing economies.

Risks and Constraints

No geo-economic shift is frictionless.

Key concerns:

• Pressure on autos, dairy, and MSMEs

• Strict EU climate and labour standards

• Implementation challenges: customs, logistics, compliance

The deal’s success will depend on domestic reforms, not just external access.

Geo-Economics Bottom Line

The India–EU FTA is:

• A trade agreement on paper

• A strategic diversification tool in practice

• A geo-economic signal to the world

India is no longer reacting to global trade rules—it is actively reshaping its trade geography.

If implemented effectively, this agreement could become one of the most consequential economic decisions of post-reform India.