India's GDP forecast to grow 7.4% in FY26 amid global uncertainties

The Indian economy may grow 7.4% in the current financial year, powered by strong manufacturing and services growth, healthy household spending and strong investments in fixed assets, official projections showed.

While this pace eclipses the performance of FY25, it arrives alongside a cooling in nominal growth to 8%, the softest since the pandemic slump of 2021. For context, the Union budget had forecast 10.1% growth in nominal GDP for the year.

The statistics ministry’s first advance estimates released on Wednesday come ahead of the Union budget for FY27 likely at the end of this month. The estimates will form the basis for budget projections on tax revenue as well as macro ratios of fiscal deficit, tax buoyancy and the Centre’s debt in terms of nominal GDP.

In spite of the slower-than expected growth rate, nominal GDP works out to ₹357.1 trillion in FY26, a tad above the budget projection, as the previous year’s nominal GDP base was revised up from ₹324.1 trillion to ₹330.7 trillion.

“The 8% nominal GDP growth forecast for FY26 in the advanced estimate, therefore, is not a surprise,” said Sachchidanand Shukla, group chief economist at Larsen & Toubro Ltd. In fact, the absolute nominal GDP figure projected for FY26 has turned out to be around ₹16,000 crore higher than the earlier projection even at 8% growth, explained Shukla.

Experts do not expect any fiscal slippage over the budgeted 4.4% fiscal deficit, as higher-than-budgeted non-tax revenues and likely expenditure savings are likely to provide a buffer against any shortfall in tax collection.

The projected 7.4% real GDP growth in FY26 follows a 6.5% growth in FY25 and a 9.2% expansion in FY24. Since the pandemic year economic contraction in FY21, India’s economy has grown 8.2% on an average up to FY25.

Latest data showed that manufacturing output is projected to grow at 7% in FY26, up from 4.5% a year ago in spite of the tariff-related uncertainties, while farm output is expected to expand 3.1% this fiscal, slower than the 4.6% growth seen last fiscal, as robust output amid above normal monsoon showers depressed prices.

Construction output is projected to grow at 7% this year, compared to 9.4% a year ago. Services sector is projected to grow at 9.1% this fiscal, against a 7.2% expansion seen in FY25, data showed.

Household spending, the biggest driver of India’s economy, is expected to expand 7% this fiscal, against a 7.2% growth a year ago.

Investment in fixed assets such as machinery, factories and buildings is projected to grow at 7.8% in FY26, against a 7.1% growth in the year-ago period.

“What stands out from the current year’s growth forecast is the robust 7.8% growth in investments. On the other hand, the consumption boost from GST and income tax rate relief is likely to be spread over multiple quarters spilling into the next fiscal than getting extinguished entirely in the December quarter,” Shukla said.

Government spending in the meantime, is expected to grow at 5.2% this year, more than twice as fast as the 2.3% growth seen in the year before, when national polls slowed down public spending.

A 7.4% growth for the current fiscal implies that the second half of FY26 would grow at 6.8% on an average, slower than the 8% expansion in the first half.

Experts said that easing interest rates, the consumption boost given by income tax and GST rate cuts and the benign inflation scenario are supporting growth. Lagged transmission of the central bank's monetary easing and the government’s reform measures are expected to further support growth, they said. The Reserve Bank of India (RBI) had cut the repo rate by a cumulative 125 basis points and lowered the cash reserve ratio by 100 basis points in 2025.

Last month, the central bank forecast that India’s GDP in real terms is expected to expand 7.3% in the current year, taking confidence from strong industrial growth, healthy farm output, robust rural demand and recovering urban consumption. The RBI has projected a 7% growth in the December quarter and a 6.5% growth in the March quarter.

The strong September quarter performance has raised optimism about strong growth in the current year. Chief economic advisor V. Anantha Nageswaran on 28 November raised his expectations, stating the Indian economy is likely to grow at 7% or more this financial year, aided by the strong 8% growth in the first half of the year and the cumulative effect of structural reforms.

The Asian Development Bank (ADB) last month raised its FY26 growth forecast for India to 7.2%, up from the 6.5% it had projected in September citing robust domestic consumption and solid export performance.

India Ratings and Research, a Fitch group company, said on Tuesday it expects the Indian economy to grow at 7.4% this fiscal and at 6.9% in FY27. Domestic reforms, including the income tax cut in the FY26 budget, GST rationalization, and three foreign trade agreements -- with Oman, UK, and New Zealand -- will help the economy withstand global uncertainties caused mainly by the US tariffs, the company said, quoting its chief economist and head of public finance Devendra Kumar Pant.

The headwinds for the next fiscal include the El Niño pattern expected from mid-2026, a weak currency due to weak capital flows, sluggish global trade growth, artificial intelligence and the base effect from the strong growth in FY26, according to Pant.

New base year

The first advance estimate for FY26 would be the final GDP-related data release based on the 2011-12 base year, ahead of the rollout of a new national accounts series on 27 February, when the second advance estimate for the current fiscal year will be released.

Experts do not expect a dramatic shift in the growth rates once the new series comes.

“In the new GDP estimation based on 2022-23 as the base year, the basket of goods and services and their weights will be updated. There could be a change in the growth estimate, but it would at best be marginal,” explained D.K. Srivastava, EY India chief policy advisor.

Srivastava expects the economy to expand at 7.4-7.6% in the current fiscal and at 6.5-6.8% in the next.

The current GDP base-year recently became a subject of political debate.

After an 8.2% real GDP growth was reported in the September quarter, Opposition Congress party flagged the International Monetary Fund (IMF)’s data adequacy assessment of India’s national accounts that assigned a ‘C’ rating. Finance minister Nirmala Sitharaman subsequently informed the Parliament on 3 December that this assignment reflected the use of the 2011-12 base year for GDP estimation, which will anyway be replaced with a new GDP series with base-year 2022-23.

The statistics ministry will also release the quarterly GDP estimates for the December quarter of FY26 on 27 February.

Data released by GSTN, the company that processes GST returns showed on Wednesday that in December, businesses raised 138.3 million electronic permits for goods transportation across the country (e-way bills), the highest in the GST regime, showing hectic movement of goods in the supply chain.