Economic Survey: AI-led correction may spillover across capital markets

The Economic Survey warns that an AI-led correction amid geopolitical tensions could severely impact global financial markets.

The Economic Survey of India 2025-26 flagged concerns of correction in the AI segment coupled with geopolitical tensions, to spill over to global financial markets.

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The Chief Economic Advisor C. Anantha Nageswaran wrote that increasing global uncertainties could play out in three possible ways, the worst case scenario would be a correction in AI-segment occurring along with the geo-political tension.

“The recent phase of highly leveraged AI-infrastructure investment has exposed business models that are dependent on optimistic execution timelines, narrow customer concentration, and long duration capital commitments. A correction in this segment would not end technological adoption, but it could tighten financial conditions, trigger risk aversion and spill over into broader capital markets,” the CEA wrote.

Further, the coincidence of such a risk with geo-political tension would mean “sharper contraction in liquidity, a sudden weakening of capital flows, and a shift toward defensive economic responses across regions,” which would lead to macroeconomic consequences worse than the global financial crisis in 2008, the CEA wrote in the survey. The chance of such a consequential risk unfolding is however just between 10% to 20%, Mr. Nageswaran wrote in the survey report.

The other two scenarios are not extremely optimistic either. The best case scenario he said would be “business as 2025.”