Economic Survey revises medium-term growth potential to 7%

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• India's medium-term growth potential revised up to around 7 percent
• Economic Survey cites reforms, strong fundamentals, and improved indicators
• MSME formalisation and tax reforms seen boosting growth and fiscal stability

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India’s medium-term growth potential has strengthened to around 7 percent from 6.5 percent earlier, reflecting the cumulative impact of sustained policy reforms, strong macroeconomic fundamentals and improved growth momentum across key indicators, according to the Economic Survey 2025–26.

“Together, the developments make a persuasive case that India’s potential growth has risen to around 7 per cent over the medium term,” the survey said, adding the economy is “positioned on a path of steady expansion amid global uncertainty”.

Finance Minister Nirmala Sitharaman tabled the Economic Survey in Parliament on January 29.

According to the survey, the upward revision in potential growth reflects calibrated improvements across capital accumulation, labour input and trend total factor productivity (TFP). “When combined, these calibrated improvements in capital accumulation, labour input and trend TFP generate an upward shift in potential GDP growth from 6.5 per cent to around 7 per cent over the medium term,” it said.

The assessment, it added, reflects “the compounding effect of sustained reforms interacting with strong macro-financial fundamentals”. The balance of risks around growth remains “broadly even”, leading to an outlook of “steady growth amid global uncertainty, requiring caution, but not pessimism”.

The Survey noted that while global uncertainties remain elevated, domestic growth drivers are expected to continue supporting economic activity. “With macroeconomic stability in place and ongoing reform efforts, the economy appears well-positioned to sustain growth in the near term,” it said, outlining an outlook for FY27 shaped primarily by domestic strengths alongside evolving external conditions.

High-frequency indicators signal stronger momentum

The Survey said the revised growth assessment is buttressed by higher growth trends observed in high-frequency indicators in recent years. Growth in e-way bill generation, purchasing managers’ index (PMI) indicators and non-food bank credit has “remained persistently above their respective pre-pandemic averages, rather than reverting to previous growth trends”.

“This performance suggests a more robust underlying pace of economic activity and an improved growth momentum,” the Survey said, pointing to a strengthening of the economy’s medium-term trajectory.

MSMEs and formalisation

Sustained deregulation efforts at the state level are also playing a key role. The Survey said these initiatives are “enabling small and medium enterprises to expand and integrate more effectively into formal value chains, elevating the economy’s medium-term growth potential”.

In parallel, direct and indirect tax reforms are expected to strengthen revenue flows over the medium term. This, the Survey said, would “directly reduce incremental borrowing requirements and, in turn, the interest burden as fiscal consolidation progresses”.

Impact of Reforms

Over the past three years, reform momentum has strengthened across several areas critical for medium-term growth. Manufacturing-oriented initiatives such as Production-Linked Incentive (PLI) schemes, foreign direct investment liberalisation and logistics reforms have supported capacity creation.

The Survey also pointed to tax simplification and the setting up of high-level committees for regulatory reforms, including those involving state governments, as signalling a shift towards greater regulatory clarity and certainty.

Impact of Labour market reforms in medium term

As economic activity normalises, labour market reforms have also begun to take effect. The survey said labour law consolidation, reduced regulatory compliance and state-level reforms have “begun to lower frictions in the labour market”.

Sustained investments in education, skilling and the apprenticeship ecosystem are strengthening workforce quality and employability. “Taken together, these factors are likely to support a stabilisation of labour input growth over the medium term, at a level higher than pre-pandemic period,” the survey said.