Economic Survey: Fiscal Discipline, Capex Push Anchor India’s Macroeconomic Stability

A predictable and credible fiscal trajectory over recent years has helped anchor macroeconomic stability while balancing growth imperatives with fiscal sustainability.

India’s economy has emerged as a standout performer amid global economic turbulence, anchored by macroeconomic stability, fiscal discipline and sustained public investment, according to the Economic Survey 2025–26 tabled in Parliament by Union Finance and Corporate Affairs Minister Nirmala Sitharaman.

The Survey underscores that a calibrated fiscal strategy, steady reduction in fiscal and revenue deficits, resilient revenue mobilisation and a decisive shift towards capital expenditure have strengthened India’s economic fundamentals. It highlights that States are key partners in this consolidation journey, with Centre–State coordination playing a critical role in sustaining growth.

Credible fiscal path builds confidence

A predictable and credible fiscal trajectory over recent years has helped anchor macroeconomic stability while balancing growth imperatives with fiscal sustainability. The Survey notes that the Centre’s approach—clear fiscal targets combined with flexibility—has allowed fiscal policy to support growth during periods of global uncertainty rather than constrain it.

The Special Assistance to States for Capital Expenditure (SASCI) scheme has been a cornerstone of this strategy, providing interest-free, long-term loans to States for asset creation. The scheme balances reform-linked investments with State-specific priorities, helping sustain a strong national capital expenditure cycle.

Deficits narrow, quality of spending improves

Fiscal consolidation has gathered momentum:

• Fiscal deficit budgeted at 4.4% of GDP in FY26, down from 4.8% in FY25

• Revenue deficit narrowed to 0.8% of GDP in FY26, the lowest since FY09

• Revenue expenditure reduced from 13.6% of GDP in FY22 to 10.9% in FY25

• Subsidy expenditure rationalised from 1.9% of GDP in FY22 to 1.1% in FY26

This has created greater space for productive capital expenditure, even as food security support continued for about 78.9 crore beneficiaries as of October 2025.

The direct tax base has expanded significantly, with income tax return filings rising from 6.9 crore in FY22 to 9.2 crore in FY25, reflecting improved compliance, digitalisation and rising incomes.

Revenue mobilisation strengthens

Centre’s revenue receipts improved from an average 8.5% of GDP pre-pandemic to about 9.1% in FY22–FY25, driven largely by buoyant non-corporate tax collections. Technology-driven initiatives such as the Non-Intrusive Usage of Data to Guide and Enable (NUDGE) programme have played a key role in improving compliance without coercive enforcement.

GST 2.0 to boost competitiveness

GST revenues continue to show underlying strength, with the taxpayer base expanding from 60 lakh in 2017 to over 1.5 crore. Gross GST collections during April–December 2025 reached ₹17.4 lakh crore, growing 6.7% year-on-year, while e-way bill volumes surged 21% YoY, indicating robust transaction activity.

The proposed shift to a simplified two-rate GST structure (GST 2.0) is expected to reduce compliance costs, enhance formalisation, strengthen domestic manufacturing competitiveness and support household consumption.

Non-tax revenues and CPSE performance

Non-tax revenues have remained stable at around 1.4% of GDP, supported by improved performance of Central Public Sector Enterprises (CPSEs). Between FY20 and FY25, net profits per CPSE rose 174% and dividends increased 69%, reflecting better operational efficiency and capital management.

Capex momentum drives growth

Effective capital expenditure has risen from 2.7% of GDP pre-pandemic to nearly 4% of GDP in FY25, aligned with the Prime Minister’s vision of Viksit Bharat. Infrastructure sectors—roads, railways, aviation and waterways—account for over half of total capex, with strong growth in allocations for transfers to States, telecom, and housing and urban affairs.

Centre–State fiscal coordination critical

Through SASCI, the Centre has supported States in maintaining capex at around 2.4% of GDP in FY25, with cumulative allocations of ₹4.49 lakh crore over five years. While State fiscal deficits have edged up to 3.2% of GDP in FY25, the Survey cautions that sustaining growth will require tighter discipline on revenue expenditure to protect long-term investment.

Debt sustainability reinforced

India’s public debt management has bolstered fiscal credibility even as global debt levels rise. The Centre aims to bring the debt-to-GDP ratio to 50±1% by FY31. The ratio has already declined to 55.7% in FY25, down 7.1 percentage points since 2020, despite elevated public investment.

Roadmap ahead

The Survey outlines further reforms to:

• Reduce cross-subsidies

• Strengthen equity monetisation frameworks

• Deepen trust-based compliance through data nudges

• Improve spending efficiency and surplus management

Ongoing reforms in GST 2.0 and personal income tax are expected to further simplify compliance, broaden the tax base and enhance revenue efficiency.

Overall, the Economic Survey concludes that India’s fiscal model—centred on discipline, capex-led growth and Centre–State cooperation—has emerged as a key pillar of macroeconomic stability, positioning the economy to navigate global uncertainty with confidence.