New Delhi

Even as global trade faces renewed disruption from unilateral tariff actions and rising geopolitical tensions, India’s economy has demonstrated resilience, with strong domestic fundamentals helping offset external headwinds, the Economic Survey 2025–26 said.

The Survey noted that the global economic environment has become increasingly uncertain, with trade policy now being shaped more by strategic and political considerations than by multilateral rules.

“Trade policy is now shaped primarily by security and political considerations rather than efficiency or multilateral rules,” the document observed, warning that the global system has become “less coordinated, more risk-averse, and more exposed to non-linear outcomes.”

Referring to recent tariff actions by the United States, the Survey recalled that the announcement of additional penal tariffs on Indian exports came as a surprise, especially at a time when India was expected to be “one of the early winners in the new tariff regime of the United States.” These developments, it said, triggered downward revisions in growth forecasts and increased volatility in global financial markets.

Despite these headwinds, the Survey underlined that India’s growth momentum has remained intact. “Growth is good; the outlook remains favourable; inflation is contained; banks are healthy; and corporate balance sheets are strong,” it stated, attributing this resilience to policy dynamism and sustained structural reforms.

At the same time, the Survey highlighted a broader paradox confronting the economy. “The paradox of 2025 is that India’s strongest macroeconomic performance in decades has collided with a global system that no longer rewards macroeconomic success with currency stability, capital inflows, or strategic insulation,” it said.

Heightened global uncertainty driven by trade conflicts, geopolitical realignments and weakening rule-based systems has affected capital flows and investor sentiment, the Survey noted. Financial markets tend to react first, with uncertainty prompting a wait-and-see approach that delays investment and raises risk premia.

According to the Survey, emerging market and developing economies are particularly vulnerable. While global trade growth is projected to slow sharply in 2026, “trade policy uncertainty is likely to have a more pronounced impact on the trade volumes of EMDEs than on those of advanced economies.”

For India, these external risks manifest less as immediate macroeconomic stress and more as intermittent pressure on exports, capital flows and currency stability. The rupee, the Survey observed, “does not accurately reflect India’s stellar economic fundamentals” and is “punching below its weight,” partly due to global risk aversion.

However, an undervalued currency has also helped cushion the impact of higher US tariffs on Indian goods. The Survey noted that India’s export sector has shown adaptability, with diversification towards alternative markets helping sustain overall export growth even as shipments to the US moderated in some sectors.

Looking ahead, the Survey cautioned that the principal risk lies not in any single external shock but in prolonged global fragmentation. “Fragility, uncertainty and episodic shocks are increasingly structural features of the system,” it said.

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Despite these challenges, the Survey maintained an optimistic outlook, projecting steady growth supported by strong domestic demand, healthy balance sheets and continued reform momentum. “The outlook, therefore, is one of steady growth amid global uncertainty, requiring caution, but not pessimism,” it added.