Whalesbook
Robust Growth Outlook for FY26
India's economy is set to witness robust expansion, with the government projecting a 7.4% GDP growth rate for fiscal year 2025-26. This forecast represents a notable acceleration from the 6.5% growth recorded in the preceding fiscal year.
Second-Half Slowdown Expected
However, the initial advance estimates suggest a moderation in economic momentum during the latter half of FY26. Growth is anticipated to decelerate to an average of 6.8% in the second half, following strong performances of 7.8% in Q1 and 8.2% in Q2 FY26, which collectively delivered about 8% growth for the first half.
Drivers and Dampeners
This projected tapering is attributed to a likely reduction in government capital expenditure and softer household consumption trends. These factors are expected to temper economic activity, partially counteracting the resilience driven by strong manufacturing and services sectors. Private final consumption expenditure is forecast to grow 7% in FY26, a slight dip from 7.2% in FY25, despite income tax and GST rate reductions. Government final consumption expenditure is slated for a 5.2% increase, up from 2.3% last year.
Expert Views on Growth Trajectory
Economists point to several factors influencing the second-half slowdown. Rahul Agrawal, senior economist at Icra, cited potential contraction in government capex, drag from U.S. tariffs on merchandise exports, and an unfavorable base effect as contributors to moderating growth. Kanika Pasricha, chief economic adviser at Union Bank of India, noted that the implied 6.8% H2 growth might indicate a weaker-than-expected consumption impulse from GST cuts.
GVA and Sectoral Performance
Nominal GDP is estimated at ₹357.14 lakh crore for FY26, an 8% rise from ₹330.68 lakh crore in FY25. Gross value added (GVA) growth is projected at 6.3%, with services leading at 7.3% and manufacturing/construction at 7%. Agriculture, however, is expected to slow to 3.1% growth from 4.6% in FY25.
Revisions and Projections
Economists anticipate potential upward revisions when the second advance estimates are released on February 27. Soumya Kanti Ghosh of State Bank of India views the 7.4% forecast as reasonable, suggesting a potential growth of around 7.5% for FY26. The Reserve Bank of India has projected 7.3% growth for the fiscal year. Morgan Stanley economists expect domestic demand to drive growth amid global uncertainties, projecting 6.5% growth for FY27.