The Economic Survey 2025-26 argues that India’s movement from Swadeshi to strategic resilience, and ultimately to strategic indispensability, cannot be achieved through insulation from global markets alone. Instead, it will be shaped by whether India can embed its domestic capabilities into global production systems in ways that enhance reliability, learning, and external stability.
Strategic resilience, the Survey notes, rests on the State’s ability to anticipate vulnerabilities, coordinate across institutions, and respond under stress without disorder. Strategic indispensability demands more: the capacity to build capabilities that others depend upon, positioning India as a source of stability and value, rather than merely a participant in global markets.
Rethinking the State’s Role in an Uncertain World
The Survey underscores that today’s world is defined by deep uncertainty, requiring a shift towards an entrepreneurial State. This does not imply replacing markets, but enabling the State to act under uncertainty, structure risk, and learn systematically.
Importantly, the Survey cautions that no country has achieved structural transformation by making its entire bureaucracy entrepreneurial. Stability, predictability, and rule-bound functioning remain essential attributes of effective administration. Successful states instead created bounded institutional spaces zones where:
- Experimentation is encouraged
- Accountability rules are differentiated
- Learning is explicit and iterative
Such spaces allow governments to innovate without undermining administrative coherence.
Incentives, Experimentation and the Discipline of Learning
The Survey identifies institutional incentive structures as India’s overarching priority. Policies operating in uncharted terrain, industrial strategy, financial regulation, technology governance, or social policy, cannot be fully optimised in advance.
They must be tested, refined, and sometimes abandoned. For this to succeed, political leadership must consistently signal that:
- Reversible failure is acceptable
- Experimentation is necessary
- Course correction reflects competence, not weakness
Institutional forgiveness, the Survey emphasises, is meaningful only when clearly distinguished from malfeasance.
State Capacity: India’s Binding Constraint
According to the Survey, India’s most consequential constraint is no longer the absence of policy intent, ideas, or resources, but the incentive structures within institutions that shape how decisions are made under uncertainty.
In the decades ahead, India will confront decisions for which no manuals exist. Outcomes will depend less on the correctness of initial choices and more on the State’s capacity to learn, revise, and act with confidence.
In an uncertain world, the Survey cautions, it is not the most controlling states that succeed, but those that:
- Learn fastest
- Adapt most intelligently
- Retain the confidence to correct course
Governance as a Human and Institutional System
State capacity is not a single reform agenda. It is a composite outcome, shaped by:
- How decisions are taken
- How risk and failure are processed
- How administration is organised around outcomes
- How regulation is designed and enforced
- How incentives influence officials, firms, and citizens
As governance challenges grow more complex, public outcomes increasingly depend on how civil servants exercise judgment and engage with citizens. Capacity is therefore co-created, emerging from daily interactions between the State, firms, and citizens, and sustained through reciprocal responsibility.
Regulation: Designing for Capability, Not Control
The Survey describes regulation as one of the most consequential interfaces between the State and the economy. Regulatory capacity depends as much on institutional design as on intent. Key design principles highlighted include:
- Clarity in rulemaking and guidance
- Separation of functions within authority
- Regulatory boards to anchor accountability
- Proportionality and discipline in enforcement
- Due process as an operational norm
- Democratic anchoring and transparency
To strengthen regulatory talent, the Survey suggests establishing Schools of Regulatory Studies, either as standalone institutions or within existing academic frameworks.
Delays, Economic Costs and Time-Bound Governance
Delays in approvals, investigations, enforcement actions, disputes, and appeals impose real economic costs. The Survey argues for:
- Strict timelines for regulatory decisions
- Deemed approvals where authorities fail to act within prescribed periods
Such measures are essential to improving predictability, credibility, and investment confidence.
Firms and Citizens as Co-Creators of State Capacity
The private corporate sector is not merely regulated; it is a structural participant in shaping the incentive environment of the State. When firms compete on productivity, quality, and performance, they develop a direct interest in strong, predictable, and impartial institutions.
Citizens shape state capacity even more profoundly. When social norms favour responsibility, learning, respect for work, and long-term thinking, the State’s reliance on enforcement diminishes, allowing trust to substitute for coercion.
Delayed Gratification and Competing at the Global Frontier
Competing at the global frontier. whether in manufacturing, logistics, institutions, or elite sports, requires accepting near-term costs for uncertain and delayed returns. Where delayed gratification weakens, systems begin to substitute:
- Shortcuts for capability
- Visibility for depth
- Speed for learning
Such trade-offs ultimately erode competitiveness and institutional strength.
Compliance Reduction and Deregulation Initiative
The Survey highlights the Compliance Reduction and Deregulation Initiative, which has identified:
- 23 priority areas
- Across five broad sectors
- For State-level deregulation
With 36 States and Union Territories expected to act on these priorities, the initiative covers 828 actionable reforms nationwide.
Implementation Status (as of 23 January 2026)
- 630 priority areas implemented (76%)
- 79 priority areas under active implementation (10%)
What distinguishes this effort is not just its scale, but its institutional process, cross-agency coordination, iterative problem-solving with States, and real-time learning, strengthening, rather than retreating from, state capacity.
Conclusion: Capacity as the Pathway to Strategic Indispensability
The Economic Survey concludes that India has demonstrated the ability to sustain growth and macroeconomic stability even amid global turbulence. In a world where uncertainty is unavoidable, the advantage lies in managing risk better, not avoiding it.
Countries that can:
- Act before certainty emerges
- Correct course without paralysis
- Align incentives across the State, firms, and citizens
are best positioned to convert growth into influence.
State capacity, the Survey stresses, is not a marginal administrative concern. It is the foundation of strategic resilience and the pathway through which strategic indispensability becomes possible. (Source: PIB PR ID 2219918)
Economic Survey of India 2025-26 dated 29/01/2026