Economic Survey 2025-26: India’s Monetary and Financial System Remains Resilient Amid Global Headwinds

The Economic Survey 2025-26 furnished by the Ministry of Finance, highlights the resilience of India's monetary and financial system in light of increased global geopolitical and economic uncertainty throughout 2025. The Economic Survey credits this resiliency to prudent monetary management by central banks, robust liquidity conditions, and future-oriented regulatory reforms.

According to the Economic Survey 2025-26, India has maintained a balance between its monetary policy goals with macroeconomic objectives and its broader social goals. This has been done by emphasizing price stability and financial system strength while also enabling inclusive economic growth. The Reserve Bank of India's (RBI) approach has allowed it to manage its policies in an agile manner, using data-driven techniques, to provide sufficient liquidity to the banking system through measures like interest rate changes, modification of cash reserve ratios (CRR) and open market operations.

All these actions helped support the financial systems ability to meet the needs for productive credit by supporting the flow of credit to priority areas, and growth sectors while not compromising on maintaining overall financial stability.

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Monetary Policy

The Economic Survey showcases that the RBI has been implementing a careful approach to monetary policy that is focused at balancing between controlling inflation and providing support to economic growth. In a scenario where inflationary pressures have begun to ease, the Monetary Policy Committee has decided to reduce the repo rate while also implementing liquidity augmenting measures in line with this policy.

Increased availability of funds in the banking system was generated through infusing liquidity via reduced CRR and through conducting open market operations (OMOs). These actions have resulted in improving monetary transmission, whereby changes in policy rates are now being increasingly reflected in scheduled commercial banks' lending and deposit rates. Hence, the ability of banks to provide credit has been enhanced, particularly when lending to productive sectors of the economy.

Liquidity in Banking Services and Financial Intermediaries

The survey indicates the current liquidity situation across the financial services sector is stable, benefiting from high levels of M3 compared to prior periods. CRR reductions have provided long-term sources of liquidity, while OMO activity has continued to produce remaining liquidity positions within the liquidity adjustment facility (LAF).

This ability to effectively manage liquidity has resulted in a stable environment for the provision of financial intermediation. Banks and non-bank financial institutions remain able to support the financing requirements of the real economy. According to the survey, such resiliency will be critical in maintaining investment activity and economic growth during periods of global uncertainty. Sustained liquidity conditions affect:

• Working capital cycles and advance tax planning
• Treasury operations and cash-flow based tax provisioning
• Financing choices between debt, equity, and hybrid instruments

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Regulatory Changes and Strengthening of Institutions

The survey contains one of the primary opportunities for change through the implementation of a new regulatory framework developed by the RBI through May 2025, with an emphasis on improving the quality and predictability of financial regulation. This framework instills a regulated process that will be transparent, consultative and impact-oriented; an approach that represents a move away from reactive to proactive regulation.

Creation of a regulatory review cell will allow regulatory agencies to periodically review existing regulations. This focus on regulatory consistency will allow professionals in the areas of financial and tax advisory to view the regulatory environment as one based on clarity, transparency, consultation with stakeholders, and reduced uncertainty regarding regulatory compliance.

Although this framework only applies to the financial sector, it is consistent with many of the overall trends in governance regarding economic regulation, such as taxation. For tax practitioners, this represents several advantages:

• More predictability in regulation, which facilitates both compliance and litigation risk assessment;
• Improved alignment between regulatory intent and how regulation is carried out practically;
• Less uncertainty due to frequent and/or sudden changes in the rules.

Takeaways

Although the Survey does not announce tax measures, its assessment has clear downstream relevance:

• The availability of liquidity and credit for extended periods of time could impact how much money corporations have available for cash flow, future investments, and how much they set aside for taxes.
• The enhanced transparency of monetary transmission in addition to regulatory predictability will help enable more reliable financial reporting as well as tax compliance planning.
• A resilient financial system will help support macroeconomic stability and reduce long-term tax structuring risks including cross-border transactions.

The Economic Survey reinforces that macro-financial stability is not merely an economic objective but a foundational enabler of tax certainty and compliance efficiency. The Survey confidence in tax systems, through demonstrating how enduring monetary policy and institutional reform have assisted in insulating the Indian economy against global challenges. This is an important assessment for tax and financial professionals working to navigate their ever-changing regulatory environment.

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