Economic Survey 2025-26 has done well to stir up a debate on state capacity: Here’s what it misses

Subscribe to enjoy similar stories. Economic Survey 2025–26 deserves credit for elevating state capacity from a background condition to a central analytical concern.

It moves the policy conversation beyond the familiar terrain of growth rates, fiscal arithmetic and sectoral incentives towards the institutional foundations that determine whether policy intent can be translated into outcomes. In an international environment marked by geopolitical fragmentation and contested trade regimes, the ability of the state to act coherently, credibly and predictably has become a binding constraint on development.

It emphasizes implementation, institutional incentives, regulatory credibility, organisational design and the ability to learn under uncertainty. Its discussion of bureaucratic risk aversion, hysteresis, retrospective scrutiny and distinction between good-faith error and malfeasance reflects a sophisticated understanding of why states fail—not because of bad policies, but because of how decisions are processed and used as punishment.

The emphasis on deregulation and compliance reduction as instruments of capacity-building is particularly valuable. Yet precisely because the survey raises the right question, it invites a sharper interrogation of how comprehensively it answers it.

A useful benchmark as the canonical definition of state capacity could be that it is the sustained ability of the state to raise resources, make and enforce credible rules and implement collective decisions through information-rich administrative systems—at scale, across territory and over time—while retaining the ability to adapt under uncertainty without losing legitimacy or control. Read against this definition, the survey offers a sophisticated