India’s economy is projected to expand at a better-than-expected 7.4% in FY26, compared with a 6.5% rise in FY25, powered by rising investment and a manufacturing surge, data released on Wednesday showed.
The world’s fourth-biggest economy gained pace as the year progressed — despite steep 50% US tariffs — as the government launched a series of reforms and pared GST to support demand. The first advance estimates show the economy will cross the $4- trillion mark in FY26. Nominal growth is seen at 8%, well below 10.1% estimated in last year’s budget.
“India’s growth momentum has sustained despite elevated global uncertainty due to tariff tensions, riding on accommodative monetary and fiscal policies, robust corporate balance sheets, and favourable developments such as above-normal monsoons and low crude oil prices,” said DK Joshi, chief economist, Crisil.
Low inflation has allowed the central bank to cut rates by 1.25% in 2025, which helped revive credit and power demand.
The estimates place FY26 growth slightly above the Reserve Bank of India’s projection of 7.3%. The World Bank and the International Monetary Fund have forecast that India will remain the world’s fastest-growing major economy, but their projections are lower — 6.5% and 6.6%, respectively.
The economy expanded 8% in the first half of the current financial year. Based on the first advance estimates, growth in the second half is estimated at 6.9%.
Growth in gross value added is expected to accelerate to 7.3% in FY26 from 6.4% a year earlier.
Farm growth is expected to moderate to 3.1% in FY26 from 4.6% in the preceding year but manufacturing is seen growing at a faster 7% pace against 4.5% a year earlier.
Services growth is set to breach 9% after a gap of two years. It’s seen surging 9.1% in the year, compared with a tepid 7.2% in the last fiscal.
“Growth in manufacturing assumes that corporate profits would continue to be stable, which will set a foundation for higher growth next year,” said Bank of Baroda chief economist Madan Sabnavis.
The high US tariffs have not impacted exports to the extent feared. Exports growth is estimated at 6.4%, slightly higher than 6.3% in FY25. The statistics ministry is set to release a revised GDP series with 2022-23 as the new base year in February, replacing the current 2011-12 series. “This may impact the level and growth of GDP due to a more updated base and methodological improvements,” Joshi said.
Investment boost
The high growth is seen powered by an acceleration in investment, riding on high public capital expenditure. Gross fixed capital formation, a measure of investment, which accounts for 30% of GDP, is estimated to increase to 7.8% in FY26, up from 7.1% in FY25.
Private final consumption expenditure, which accounts for nearly 60% share in GDP, is expected to grow 7% in FY26, marginally lower than 7.2% in FY25.
“We expect the government to maintain capital expenditure growth at a moderate pace in the forthcoming budget,” Joshi said.
The marginally slower private consumption is compensated by high government spending--government final consumption expenditure is projected to rise 5.2%, significantly higher than the 2.3% growth recorded a year earlier.
“Key factors leading to strong consumption demand are strong services growth, low inflation, income tax cut announced in FY26 budget, and GST rationalisation,” said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra). Sabnavis said private investment will pick up in FY27, adding to the overall total. Early signs of this are being seen.
$4-Trillion club
At the current exchange rate, India’s economy will cross the $4 trillion mark in the year, making the journey from $3 trillion in four years. “If the rupee averages 89.28 per dollar in FY26, then based on the NSO's first advance estimate of nominal GDP, India is on course to touch $4 trillion,” said Devendra Kumar Pant, chief economist at Ind-Ra.
India is now the fourth largest economy, behind the US, China and Germany. The government said last month that India had overtaken Japan to get to number four.
Slow nominal growth
Nominal growth, however, is seen at 8%, well short of the budgetary 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 at current prices and include the effect of inflation.
The gross national income is estimated to increase 7.3% to Rs 198.7 lakh crore, compared with 6.4% growth in the previous year. These advance estimates will be used in preparations for the Union budget to be presented by finance minister Nirmala Sitharaman on February 1.
The world’s fourth-biggest economy gained pace as the year progressed — despite steep 50% US tariffs — as the government launched a series of reforms and pared GST to support demand. The first advance estimates show the economy will cross the $4- trillion mark in FY26. Nominal growth is seen at 8%, well below 10.1% estimated in last year’s budget.
“India’s growth momentum has sustained despite elevated global uncertainty due to tariff tensions, riding on accommodative monetary and fiscal policies, robust corporate balance sheets, and favourable developments such as above-normal monsoons and low crude oil prices,” said DK Joshi, chief economist, Crisil.
Low inflation has allowed the central bank to cut rates by 1.25% in 2025, which helped revive credit and power demand.
The estimates place FY26 growth slightly above the Reserve Bank of India’s projection of 7.3%. The World Bank and the International Monetary Fund have forecast that India will remain the world’s fastest-growing major economy, but their projections are lower — 6.5% and 6.6%, respectively.
The economy expanded 8% in the first half of the current financial year. Based on the first advance estimates, growth in the second half is estimated at 6.9%.
Growth in gross value added is expected to accelerate to 7.3% in FY26 from 6.4% a year earlier.
Farm growth is expected to moderate to 3.1% in FY26 from 4.6% in the preceding year but manufacturing is seen growing at a faster 7% pace against 4.5% a year earlier.
Services growth is set to breach 9% after a gap of two years. It’s seen surging 9.1% in the year, compared with a tepid 7.2% in the last fiscal.
“Growth in manufacturing assumes that corporate profits would continue to be stable, which will set a foundation for higher growth next year,” said Bank of Baroda chief economist Madan Sabnavis.
The high US tariffs have not impacted exports to the extent feared. Exports growth is estimated at 6.4%, slightly higher than 6.3% in FY25. The statistics ministry is set to release a revised GDP series with 2022-23 as the new base year in February, replacing the current 2011-12 series. “This may impact the level and growth of GDP due to a more updated base and methodological improvements,” Joshi said.
Investment boost
The high growth is seen powered by an acceleration in investment, riding on high public capital expenditure. Gross fixed capital formation, a measure of investment, which accounts for 30% of GDP, is estimated to increase to 7.8% in FY26, up from 7.1% in FY25.
Private final consumption expenditure, which accounts for nearly 60% share in GDP, is expected to grow 7% in FY26, marginally lower than 7.2% in FY25.
“We expect the government to maintain capital expenditure growth at a moderate pace in the forthcoming budget,” Joshi said.
The marginally slower private consumption is compensated by high government spending--government final consumption expenditure is projected to rise 5.2%, significantly higher than the 2.3% growth recorded a year earlier.
“Key factors leading to strong consumption demand are strong services growth, low inflation, income tax cut announced in FY26 budget, and GST rationalisation,” said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra). Sabnavis said private investment will pick up in FY27, adding to the overall total. Early signs of this are being seen.
$4-Trillion club
At the current exchange rate, India’s economy will cross the $4 trillion mark in the year, making the journey from $3 trillion in four years. “If the rupee averages 89.28 per dollar in FY26, then based on the NSO's first advance estimate of nominal GDP, India is on course to touch $4 trillion,” said Devendra Kumar Pant, chief economist at Ind-Ra.
India is now the fourth largest economy, behind the US, China and Germany. The government said last month that India had overtaken Japan to get to number four.
Slow nominal growth
Nominal growth, however, is seen at 8%, well short of the budgetary 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 at current prices and include the effect of inflation.
The gross national income is estimated to increase 7.3% to Rs 198.7 lakh crore, compared with 6.4% growth in the previous year. These advance estimates will be used in preparations for the Union budget to be presented by finance minister Nirmala Sitharaman on February 1.
