India’s economy is projected to grow at a robust 7.4% in 2025-26, in line with market expectations, but economists cautioned about moderation in the second half of the fiscal year amid global headwinds, softer nominal growth and an uneven sectoral outlook.
The National Statistical Office’s (NSO) First Advance Estimate (FAE) pegs real GDP growth at 7.4% and gross value added (GVA) at 7.3% for FY26. Rating agency ICRA noted that the estimates implicitly place second-half growth at 6.9% for GDP and 6.8% for GVA, marking a slowdown from the 7.9–8.0% expansion recorded in the first half.
The rating agency attributed the moderation to a potential contraction in central government capital expenditure, the adverse impact of US tariffs on merchandise exports across sectors, and an unfavourable base effect.
ICRA, however, expects industrial and agricultural growth to fare better than the NSO’s H2 assumptions, while services may trail. Of particular concern is nominal growth: the NSO estimates nominal GDP to rise by just 8% in FY26—lower than ICRA’s 8.5% forecast. With nominal GDP pegged at Rs 357.1 lakh crore, close to the Union Budget assumption, ICRA said this removes the risk of a fiscal deficit “denominator effect” and does not expect a slippage from the 4.4% of GDP target, helped by higher non-tax revenues and likely expenditure savings.
Nominal Growth Paradox and Fiscal Math
Bank of Baroda chief economist Madan Sabnavis said the 7.4% growth print is in line with expectations and leaves room for upside. He pointed to maintained investment levels, with gross fixed capital formation at 30%, and a services-led expansion powered by financial services and public administration. Manufacturing growth assumes stable corporate profits, while agriculture’s 3.1% growth on a high base and construction’s 7% rise reflect strength in housing and roads. Sabnavis expects growth above 7% to be sustained in FY27, contingent on a normal monsoon.
Emkay Global’s Madhavi Arora attributed the strong FY26 outcome to favourable deflator effects, the lagged impact of monetary and regulatory easing, improved real purchasing power, and a limited hit so far to exports—supporting steady manufacturing.
India Ratings and Research’s Paras Jasrai highlighted the resilience of the economy despite a turbulent global backdrop. On the demand side, public sector capex remains the mainstay, with gross fixed capital formation projected to grow 7.8%, supported by a nearly 30% year-on-year rise in public capex in the first half. While a broad-based private capex cycle is yet to take hold, investments continue in power, logistics, warehousing, and commercial real estate. Consumption is expected to remain firm, aided by narrowing rural-urban gaps, low inflation, tax cuts, and GST rationalisation, while services exports help keep overall exports stable.
Services Outpace Agri and Industry
On the supply side, services lead with 9.1% growth—the fastest since FY23—driven by public administration, financial and professional services, and trade and transport. Manufacturing is expected to improve to 7% on steady exports and lower input costs, while agriculture is projected to moderate to 3.1% due to climate volatility.
Yet, Jasrai warned that nominal GDP growth at 8%—the slowest since FY21—reflects a very low deflator, tempering headline optimism. QuantEco’s Vivek Kumar echoed the outlook, noting that government consumption and investment, alongside manufacturing and services, are driving growth, but global conditions and a likely uptick in inflation could slow activity in the second half.
Economists agreed that the FY26 estimate underscored India’s growth resilience, even as risks from global trade, fiscal tightening and subdued nominal expansion warrant caution heading into FY27.