New Delhi: The Economic Survey for FY2026-27 has called for a reorientation in how government watchdogs operate. Civil servants, it said, must be given the space to act entrepreneurially and adapt intelligently.
Honest officials, it said, must be protected from “vexatious prosecution”.
It added that in a world of compounding shocks and geopolitical strain, if the country has to prosper, it will have to ensure that rules, incentives and administrative reflexes serve national resilience.
Tabled in Parliament Thursday, the Economic Survey pointed that India’s most “consequential constraint” today is no longer the absence of policy intent, ideas, or resources, but the incentive structures within institutions that shape how decisions are taken during a period of uncertainty.
“This core constraint manifests across multiple domains: bureaucratic risk aversion, organisational design, regulatory practice, private sector behaviour, and citizen expectations,” the document stated.
It added that the opportunity before India is considerable. “Few countries possess India’s scale, diversity, institutional depth, and democratic legitimacy. If these assets are combined with a bureaucracy that is capable of acting entrepreneurially (disciplined, reversible, and learning-oriented), the state can move beyond being a regulator of economic activity to a catalyst for structural transformation,” the document said.
It went on to say that in a world defined by uncertainty, it is not the “most controlling states that will succeed, but those that learn fastest, adapt most intelligently, and retain the confidence to correct course.”
Also Read: Economic Survey 2025-26: The top 10 takeaways for India
‘Test, revise & sometimes abandon’
Elaborating on how policies concerning industrial strategy, financial regulation, technology governance, or social policy must be “tested, revised and sometimes abandoned”, the Economic Survey said “Indian institutions treat visible correction as evidence of incompetence rather than maturity”.
“Institutional forgiveness does not mean leniency, nor does it imply the abdication of accountability. It is not a tolerance of corruption or negligence. On the contrary, forgiveness becomes meaningful only when it is paired with a clear distinction between good-faith error and malfeasance. High-capacity states draw this distinction sharply,” it added.
It went on to say, “Historically, the states that escaped this trap did so by building institutional memory rather than institutional blame.”
The Economic Survey further highlighted how in India, good-faith decisions are subjected to retrospective scrutiny through audits, vigilance processes, and judicial review, often without adequate recognition of the uncertainty under which they were taken.
It said that legal and institutional frameworks must codify protection for good-faith decision-making and clearly separate error from corruption.
“Incentive systems must reward problem-solving and capacity-building rather than mere procedural compliance, and rotation policies must allow for continuity when learning is cumulative. Accountability mechanisms must shift away from hindsight-driven punishment towards context-aware review, while visibly penalising inertia where damage is clear,” it said.
Giving the example of post-war Japan, the Economic Survey said that policy failures in industrial targeting were common, sometimes costly.
“What mattered was not the failure itself, but whether it generated insight that informed subsequent action. The same official could preside over an unsuccessful sectoral bet and still advance, provided the reasoning was sound and the learning explicit. Career trajectories were shaped by judgment under uncertainty, not by the absence of error,” it said.
A precursor to the annual Union Budget, the document called for reorientation of the approach of agencies like the Comptroller & Auditor General (CAG) and of vigilance bodies. This reorientation, it said, will have to be appropriately balanced with changes in laws relating to the prosecution of public servants.
The Economic Survey said that for India to have the entrepreneurial state it sorely needs, honest officials must be protected from vexatious prosecution.
“Where a complex regulatory or economic decision is being alleged to be ill-motivated but without clear evidence of quid pro quo, the answer is difficult. The law will need to weigh this without making economic decision-making risk-averse,” it said.
It also highlighted how there is a relative lack of willingness and appetite among the private sector to invest efforts towards long-term risk absorption and becoming globally competitive.
Last but not the least, behaviour of citizens, often treated as a secondary or moral question, is also a primary variable in political economy, it added.
“In India, this tension is visible most sharply in the contrast between how people care for their private spaces and how they behave in the commons. Homes are often kept with great diligence, and personal hygiene and domestic order are observed with discipline and pride. Yet the ethic weakens once one steps outside the door. Streets, drains, railway tracks and vacant plots are treated as spaces without a custodian, and therefore without obligation,” the document said.
(Edited by Amrtansh Arora)
Also Read: Economic Survey 2025-26 takes global lessons seriously—and shows why Swadeshi is the way to go