India’s GDP growth estimated at 7.4% in FY26: Government data
The world’s fourth-largest economy gained momentum as the year progressed despite high US tariffs of 50%, as the government launched a series of reforms and cut GST to support demand. Early preliminary estimates suggest the economy will surpass $4 trillion in FY26. Nominal growth is seen at 8%, well below the 10.1% predicted in last year’s budget.
“India’s growth momentum has continued despite rising global uncertainty due to tariff tensions, accommodative monetary and fiscal policies, strong corporate balance sheets and positive developments such as above-normal monsoon rains and low crude oil prices,” said DK Joshi, chief economist at Crisil.
Low inflation allowed the central bank to cut interest rates by 1.25% in 2025, helping stimulate demand for credit and energy.
Estimates show FY26 growth to be slightly above the Reserve Bank of India’s forecast of 7.3%. The World Bank and the International Monetary Fund predict that India will remain the world’s fastest-growing major economy, but their estimates are lower at 6.5% and 6.6% respectively.
The economy grew by 8% in the first half of this fiscal year. According to preliminary estimates, growth in the second half is estimated to be 6.9%. Growth in gross value added is expected to accelerate to 7.3% in FY26 from 6.4% in the previous year.
Farm growth is expected to slow to 3.1% in FY26 from 4.6% in the previous year, but production is likely to grow 7% faster compared to 4.5% in the previous year.
Growth in services is expected to exceed 9% after a two-year gap. It appears to have increased by 9.1% this year, compared to a weak rate of 7.2% in the last financial year.
“Manufacturing growth assumes corporate profits will continue to be stable, which will lay the foundation for higher growth next year,” said Madan Sabnavis, chief economist at Bank of Baroda.
Higher US tariffs did not impact exports as much as feared. Export growth is estimated at 6.4%, slightly above 6.3% in FY25. The statistics ministry will publish a revised GDP series in February, with 2022-23 as the new base year, replacing the current 2011-12 series. “This could impact the level and growth of GDP due to a more updated baseline and methodological improvements,” Joshi said.
Investment increase
High growth appears to be due to the acceleration in investments due to high public capital expenditures. Gross fixed capital formation, a measure of investment accounting for 30% of GDP, is estimated to rise to 7.8% in FY26 from 7.1% in FY25.
Private final consumption expenditure, which accounts for nearly 60% of GDP, is expected to grow by 7% in FY26, marginally below the 7.2% in FY25.
“We expect the government to maintain capital expenditure growth at a moderate pace in the upcoming budget,” Joshi said.
The marginal slowdown in private consumption is offset by higher government spending; The government’s final consumption expenditure is expected to increase by 5.2%, significantly above the 2.3% growth recorded in the previous year.
“The key factors leading to strong consumption demand are strong services growth, low inflation, income tax reduction announced in the FY26 budget and GST rationalization,” said Paras Jasrai, deputy director, India Ratings and Research (Ind-Ra). Private investment will increase in FY27, increasing the overall total, Sabnavis said. The first signs of this are visible.
4 trillion dollar club
At the current exchange rate, the Indian economy will cross $4 trillion within the year and will embark on this journey from $3 trillion within four years. “If Rupee averages 89.28 per dollar in FY26, India will be on track to hit $4 trillion, according to NSO’s first preliminary estimate of nominal GDP,” said Devendra Kumar Pant, chief economist at Ind-Ra.
India is currently the fourth largest economy after the USA, China and Germany. The government had announced last month that India had surpassed Japan to rank fourth.
Slow nominal growth
Nominal growth is seen as 8%, well below the budget assumption of 10.1%. The 60 basis point gap between nominal and real GDP in FY26 will be the lowest since 2011-12. Nominal estimates measure GDP in current prices and include the impact of inflation.
Gross national income is estimated to reach 198.7 lakh crore rupees, up 7.3% compared to 6.4% growth in the previous year. These preliminary estimates will be used in the preparations of the Union budget to be presented by finance minister Nirmala Sitharaman on February 1.
