New Delhi: Union Finance Minister Nirmala Sitharaman tabled the Economic Survey 2025-26 in the Lok Sabha Thursday. Unlike its release each year just a day before the annual budget, the document was made available two days prior as Sitharaman prepares to present her 9th consecutive budget on 1 February.
The 739-page report predicts a year of strong growth and resilience for the Indian economy, which the government and the Reserve Bank of India (RBI) have referred to as a ‘rare goldilocks period’.
While 2025 was a year which saw a continued decline in inflation figures, the Economic Survey says the inflation rate, headline and core—excluding precious metals—are projected to remain higher in FY27 than in FY26. It, however, adds that this wasn’t a reason for concern.
“The trajectory of core inflation will need to be closely monitored in the context of monetary policy easing and potential upward pressures from global base metal prices,” the pre-Budget survey said.
Chief Economic Adviser V. Anantha Nageswaran said the document predicted headline inflation to be around 1.7 percent for at least the initial nine months of the year, primarily due to deflation in the food price index.
The core inflation figure (including gold and silver) is pegged at 2.9 percent for FY 2026-27, he added.
At 1.8 percentage points in FY 2025-26, India recorded one of the sharpest declines in headline inflation among Emerging Market and Developing Economies (EMDEs).
Mitali Nikore, economist & founder of Nikore Associates, told ThePrint, “India’s headline inflation has declined impressively from 5-6 percent in Q3 2024 to 1.7 percent currently, driven primarily by food disinflation. The Economic Survey aptly terms this ‘Taming Inflation’, achieved through improved logistics and supply chain management—particularly for volatile commodities like tomatoes, onions, and potatoes that previously fueled price surges.”
“This moderation creates crucial policy space: the RBI gains room for potential rate cuts to stimulate growth while maintaining price stability. However, the Survey rightly questions our measurement framework. Food carries disproportionate weight in headline inflation, while urban costs like rent remain underrepresented. Rebalancing this composition would yield more accurate inflation assessment,” Nikore added.
A key reason for this relatively benign outlook is the performance of the farm sector. Below-normal temperatures through much of 2025, combined with above-normal monsoon, boosted reservoir levels and supported robust kharif production. This also strengthened rabi sowing and improved overall foodgrain stocks. As a result, food inflation, which often drives headline volatility in India, is expected to stay moderate in the months ahead.
The report highlighted that the average retail inflation measured by Consumer Price Index (CPI) has been on a downward trajectory since the last four years.
Over the course of 2025, food inflation witnessed a steady decline, and has been in deflationary territory since June 2025. In the present CPI series, October 2025 saw the biggest monthly decline of (-)5.02 percent. The rapid and prolonged drop in vegetable prices, which stayed sharply negative for the majority of the year, together with a steady decline in pulse inflation over almost nine months, were the main causes of the dramatic moderation.
Although the fall was only slight, spice prices also experienced deflation for an 18-month period. Cereal inflation decreased throughout the course of the year, from 6.2 percent in January 2025 to just (-)0.4 percent in December 2025.
Edible oils, however, stood out from the list. Through 2025, edible oils witnessed a high inflation trajectory, settling at 6.8 percent in December, compared to 15 percent in March.
On the non-food side, the Economic Survey notes several cross-currents. The pass-through of GST rate rationalisation is expected to ease cost pressures in some commodities. However, currency depreciation poses a risk through imported inflation.
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Rural-Urban Inflation
Rural inflation remained higher than urban inflation throughout the majority of FY2023 and FY2024. Rural inflation is more sensitive to changes in food prices because of the disparity in consumption weights between rural and urban baskets, especially the higher proportion of food items in rural consumption. The rural-urban divide grew during the period of high inflation in FY2023 and mid-FY2024, which also coincided with pressure on food prices. Inflation decreased in both sectors in 2025 as food prices decreased, with rural inflation settling lower than urban inflation.
In all states, rural inflation has been more erratic than urban inflation due to the higher volatility of food costs.
Core inflation in rural and urban areas declined gradually through 2023 and early 2024, then stabilised within a tight range. Rural core inflation is slightly higher than urban core inflation, but the gap is small and constant.
Except Kerala and Lakshadweep, where retail inflation exceeded the upper tolerance band of 6 percent, the state-level incidence of inflation in 2025–2026 (April–December) followed the national trend, with an overall decrease in inflation. Average inflation in the remaining states stayed either below or within the Reserve Bank of India’s tolerance range of 2–6 percent.
Manipur recorded an inflation rate of -0.15 in 2025-26 (April to December), the lowest among states. It recorded a sharp decline from its previous 6.5 percent in 2024-25.
Similarly, Assam, Bihar, Odisha, Madhya Pradesh, Rajasthan and Telangana, among others, also recorded steep declines in inflation numbers.
Both the RBI and the International Monetary Fund (IMF) anticipate a gradual firming up of headline inflation, but still within the formal target band of 4 per cent, with a tolerance of two percentage points on either side.
The RBI has, in fact, lowered its near-term projections for FY26 inflation, citing strong agricultural output, while the IMF sees inflation rising modestly in FY27.
Some commodity segments may still see price strength. Base metals such as copper could remain elevated due to demand from green technologies and data centre expansion, along with supply constraints. Precious metals, particularly gold and silver, may also stay firm as investors seek safe havens in an uncertain global environment. Even so, the Economic Survey concludes that while both headline and core inflation, excluding precious metals, may edge higher in FY27 compared to FY26, the overall trajectory is unlikely to pose a serious macroeconomic concern.
“Ultimately, sustained infrastructure investment has delivered tangible results, positioning India favorably for calibrated monetary policy interventions,” said Nikore.
(Edited by Amrtansh Arora)
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