India’s economy is expected to 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 data showed on Wednesday.
The statistics ministry’s first advance estimates, which come ahead of the Union budget for FY27 and will be the basis for budget calculations, showed that in nominal terms, India’s GDP is expected to grow 8% in the current year.
The government makes projections about tax revenue collection growth as well as macro ratios of fiscal deficit, tax buoyancy and the Centre’s debt in terms of nominal GDP.
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.
The latest data showed that manufacturing output is projected to grow at 7% in FY26, up from 4.5% a year ago, while farm output may expand 3.1% this fiscal from the 4.6% growth last fiscal.
Construction is likely to grow at 7% this year, compared to 9.4% a year ago. The services sector is estimated to expand 9.1% against a 7.2% growth in FY25, the 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.
Government spending is expected to grow 5.2% compared to 2.3% growth in the year before.
The Reserve Bank of India had last month 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 projected 7% growth in the December quarter and 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 raised his expectations on 28 November and said the Indian economy is likely to expand 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) raised its FY26 growth forecast for India last month 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, the 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 from mid-2026, a weak currency due to poor capital flows, sluggish global trade growth, artificial intelligence and the base effect from 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 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’s 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 the subject of political debate.
After an 8.2% real GDP growth was reported in the September quarter, the opposition Congress party flagged the International Monetary Fund’s data adequacy assessment of India’s national accounts that was 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.