The Economic Survey 2026 has underscored the urgent need to correct inverted duty structures, strengthen logistics infrastructure, lower logistics costs, and reduce regulatory expenses to enhance India’s export competitiveness—an essential factor in maintaining currency stability amid growing global fragmentation.
The Survey noted that India’s external sector is entering a period of heightened geopolitical and economic uncertainty with strengthened buffers, diversified trade linkages, and improving resilience. However, it cautioned that policy efforts must now focus on leveraging these strengths to sustain external stability while supporting a high-growth trajectory in a world where global integration is increasingly driven by strategic considerations rather than purely economic ones.
Over the medium to long term, the Survey emphasised the importance of policies that bolster manufacturing competitiveness, innovation, productivity, and quality, along with initiatives to mobilise domestic savings.
Highlighting the link between exports and currency stability, the Survey observed that countries with sustained success in manufacturing exports have historically maintained “hard currency” status, characterised by strength and stability. Achieving this, it said, requires a coordinated push to reduce manufacturing costs and improve export competitiveness. Key measures include correcting inverted duties—where taxes on inputs exceed those on finished goods—improving logistics infrastructure, lowering logistics costs, and reducing regulatory burdens.
Echoing these concerns, the Commerce Department, in its recommendations for the FY27 Union Budget, has strongly advocated further correction of the inverted duty structure to ease cost pressures on domestic manufacturers.
The Survey also supported a calibrated approach to selective import substitution, stressing that such measures should not be unlimited but firmly grounded in productivity gains, export competitiveness, and measurable outcomes.
With import demand expected to rise alongside economic growth and deeper global integration, the Survey highlighted the importance of stable and high-quality financing for external sustainability. “The composition of capital inflows is key,” it noted, adding that foreign direct investment (FDI) remains the most stable source of funding, supporting balance of payments stability, productivity, technology transfer, and export growth. Sustaining FDI inflows in an increasingly competitive global capital market will require improvements in the investment climate, deeper integration into global value chains, and better policy coordination across levels of government.
On trade performance, the Survey pointed out that despite the impact of US tariffs, India’s merchandise exports grew by 2.4 per cent during April–December 2025, while services exports rose by a stronger 6.5 per cent. Merchandise imports during the same period increased by 5.9 per cent.
The rise in the merchandise trade deficit has been largely offset by a growing surplus in services trade and robust remittance inflows. As a result, India’s current account deficit remained moderate at 0.8 per cent of GDP in the first half of FY26, reflecting a relatively stable external position, the Survey concluded.
