More Stories

Informist, Thursday, Jan. 29, 2026

 

NEW DELHI – Growth patterns that rely disproportionately on domestic demand and credit-enabled consumption do not materially strengthen the formation of surpluses that reduce the cost of capital in an economy, the Economic Survey for 2025-26 (Apr-Mar) said. Instead, the creation of a domestic savings pool from productivity gains in industry and higher exports will do more to bring down India's long-term interest rates, according to the document tabled in Parliament by Finance Minister Nirmala Sitharaman Thursday. 

 

"The durable route to a lower cost of capital is therefore inseparable from a growth pattern anchored in higher productivity, enhanced manufacturing competitiveness, sustained export growth, and the gradual transition from structural savings deficit to structural savings strength," the Survey said. "Financial deepening can support and accelerate this transition, but it cannot substitute for it."

 

The Survey, authored by a team led by Chief Economic Adviser to the government, V. Anantha Nageswaran, backed a series of real economy reforms that would reduce the risk premium associated with the economy's firms. These policies would support firm-level scale and deregulation, improve logistics, infrastrcture and trade facilitation, deepen technological capabilities and research and development. Ultimately, these would enable India's sustained participation in global supply chains that would strengthen productivity and margins in manufacturing.

 

Financial sector reforms can reduce intermediation costs and improve capital allocation but are most effective in an environment where domestic savings are increasing and reliance on external capital is limited by export-led growth. In a setting where domestic savings are short, consumption-led growth sustains a weaker currency and rollover-risk premium, which, in turn, fails to attract foreign investment, the Survey said. 

 

India's high cost of capital is widely seen as a constraint on private investment and long-term growth, averaging 7.61?tween 1995 and 2025. Long-run interest rates are influenced more by the current account balance improving, with the impact more than double the gains from a similar increase in financial market depth or GDP growth, the Survey said. The government's first advance estimate of India's GDP growth in 2025-26 (Apr-Mar) pegs private consumption to make up 56.3% of the economy, with only 33.8% coming from gross fixed capital formation, a proxy for investment. 

 

"Greater reliance on foreign capital can bridge temporary gaps but, when persistent, tends to elevate risk premia and narrow policy space—outcomes that are already reflected in the pricing of capital in CAD (current account deficit) economies," the Survey said.  End

 

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.