The Economic Survey says India became ‘a victim of geopolitics and a strategic power gap’ as 2025 saw massive economic upheaval after US President Donald Trump’s tariff diplomacy amid geopolitical tensions around the Russia-Ukraine war and West Asia crisis.
While the Indian economy has been the best-performing major economy, receiving praise from the International Monetary Fund (IMF) and the World Bank for being the “bright spot” of a rather gloomy global economy, the decline of rupee has been a concern and subject of debate. The Economic Survey 2026, presented in the Lok Sabha on Thursday by Union Finance Minister Nirmala Sitharaman, explains the apparent contradiction of two aspects of the Indian economy.
The Economic Survey says India became “a victim of geopolitics and a strategic power gap” as 2025 saw massive economic upheaval after US President Donald Trump’s tariff diplomacy amid geopolitical tensions around the Russia-Ukraine war and West Asia crisis.
“The Indian rupee underperformed in 2025. India runs a trade deficit in goods. Its net trade surplus in services and remittances is not enough to offset it. India depends on foreign capital flows to maintain a healthy balance of payments. When they run drier, rupee stability becomes a casualty,” the Economic Survey says.
It presents a positive outlook of the Indian economy, saying, “Growth is good; the outlook remains favourable; inflation is contained; rainfall and agricultural prospects are supportive; external liabilities are low; banks are healthy; liquidity conditions are comfortable; credit growth is respectable; corporate balance sheets are strong; and the overall flow of funds to the commercial sector is robust.”
“Policy dynamism and purposeful governance reinforce this backdrop. The rupee’s valuation does not accurately reflect India’s stellar economic fundamentals,” writes Chief Economic Adviser V Anantha Nageswaran in the preface of the Economic Survey.
“In other words, the rupee, therefore, is punching below its weight. Of course, it does not hurt to have an undervalued rupee in these times, as it offsets to some extent the impact of higher American tariffs on Indian goods, and there is no threat of higher inflation from higher-priced crude oil imports now,” he says.
The Economic Survey argues that the current skepticism among some investors is misplaced, given the fundamentals of the Indian economy are strong and domestic demand has been robust.
It says, “Investor reluctance to commit to India warrants examination. The Australia-based Lowy Institute’s Power Gap Index suggests that India is operating below its full strategic potential. India’s power gap score is -4.0, the lowest in Asia, excluding Russia and North Korea.”
“India has its work cut out. It is a country of 145 crore people aspiring to become a richer country within a generation, within a democratic framework. India’s size and democracy preclude the possibility of templates worthy of emulation,” it says.
The Economic Survey factors in the challenges that India faces against the backdrop of geopolitical turbulence that does not seem to settle down soon. “With the global dominant power rethinking its economic and other commitments and priorities, throwing global trade into a welter of uncertainty and global frictions mounting and faultlines widening, India’s economic ambitions are confronting powerful global headwinds,” the Survey says.
“Those same forces can be turned into tailwinds if the State, the private sector, and households are willing to align, adapt, and commit to the scale of effort that the moment demands. The task will be neither simple nor comfortable — but it is unavoidable,” the Economic Survey argues.
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