Economic Survey: India to Grow 7.4% in FY26, Fastest Major Economy for 4th Year

On the supply side, services remain the main growth driver, with Gross Value Added (GVA) rising by 9.3 per cent in the first half of FY26 and projected at 9.1 per cent for the full year.

India’s economy remains on a strong growth trajectory, with GDP growth for FY26 estimated at 7.4 per cent, reaffirming the country’s position as the fastest-growing major economy for the fourth consecutive year, according to the Economic Survey 2025–26 tabled in Parliament by Union Finance and Corporate Affairs Minister Nirmala Sitharaman.

Looking ahead, the Survey projects real GDP growth of 6.8–7.2 per cent in FY27, while estimating India’s medium-term potential growth at around 7 per cent, underscoring the resilience of domestic economic fundamentals amid global uncertainty.

Consumption and investment power growth

The Survey highlights that domestic demand remains the backbone of growth. The share of private final consumption expenditure (PFCE) rose to 61.5 per cent of GDP in FY26, supported by low inflation, stable employment, and rising real purchasing power. Strong rural demand, backed by favourable agricultural performance, and improving urban consumption following tax rationalisation have ensured that consumption momentum is broad-based.

Investment has also continued to anchor growth, with gross fixed capital formation (GFCF) estimated at 30 per cent of GDP. In the first half of FY26, GFCF expanded by 7.6 per cent, exceeding both last year’s pace and the pre-pandemic average.

Sectoral performance: services lead, industry strengthens

On the supply side, services remain the main growth driver, with Gross Value Added (GVA) rising by 9.3 per cent in the first half of FY26 and projected at 9.1 per cent for the full year. Nearly all services sub-sectors recorded growth above 9 per cent, signalling broad-based expansion.

The industrial sector is gaining momentum, with manufacturing growing by 8.4 per cent in the first half of FY26, outperforming the full-year estimate. Construction activity has remained resilient, driven by sustained public capital expenditure and infrastructure momentum. High-frequency indicators, including PMI, IIP manufacturing and e-way bill generation, point to strengthening industrial activity, supported by robust demand and GST rationalisation.

Agriculture and allied activities are estimated to grow by 3.1 per cent in FY26, supported by a favourable monsoon. While crop output remains volatile, stable growth in allied sectors such as livestock and fisheries—at 5–6 per cent—has improved overall agricultural resilience.

Inflation eases, policy support deepens

The Survey notes a marked easing of inflation, with headline CPI inflation declining to 1.7 per cent during FY26 (April–December), driven largely by sharp food price disinflation. This has boosted real purchasing power and supported consumption demand. The inflation outlook remains benign, aided by favourable supply conditions and GST rationalisation.

Fiscal policy has remained prudent, with robust tax collections and disciplined expenditure management. Direct taxes reached nearly 53 per cent of budgeted targets by November 2025, while GST collections recorded multiple all-time highs. Capital expenditure surged, reaching almost 60 per cent of budgeted allocations, reinforcing the quality of public spending.

Markets have rewarded this fiscal discipline through lower sovereign bond yields, while credit rating agencies S&P Ratings and CareEdge Global upgraded India’s sovereign rating outlook, reflecting confidence in the fiscal glide path.

Monetary policy has complemented fiscal support, with a 125 basis-point reduction in the repo rate since February 2025 and significant liquidity infusion. Banking sector health has improved markedly, with gross NPAs falling to multi-decade lows of 2.2 per cent.

External sector stable despite global uncertainty

Despite global trade headwinds, India’s total exports reached a record USD 825.3 billion in FY25, with continued momentum in FY26. Services exports remain a key strength, offsetting merchandise trade deficits, while strong remittances have helped keep the current account deficit moderate at 0.8 per cent of GDP in H1 FY26.

Foreign exchange reserves provide a strong buffer, covering over 11 months of imports. Trade diversification through agreements with the UK, Oman, New Zealand and the European Union, alongside ongoing negotiations with the US, is expected to support export growth.

Outlook: steady growth, cautious optimism

While global growth prospects remain fragile amid geopolitical tensions and trade fragmentation, the Survey concludes that India’s domestic economy is on a stable footing. Healthier balance sheets, resilient consumption, improving private investment intentions and sustained public capex provide buffers against external shocks.

With reforms such as GST rationalisation, labour code implementation and compliance simplification taking effect, the cumulative impact of policy measures has lifted India’s medium-term growth potential closer to 7 per cent.

The overall outlook, the Survey notes, is one of steady growth amid global uncertainty—requiring caution, but not pessimism.