India’s real GDP growth for FY 2025-26 is estimated at 7.4 per cent, driven by the twin engines of consumption and investment, 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 Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman.
The Survey projects real GDP growth for FY 2026-27 in the range of 6.8 ~ 7.2 per cent, with India’s potential growth estimated at around 7 per cent, supported by strong domestic fundamentals, macroeconomic stability, and sustained policy reforms.
Domestic Demand Anchors Growth
Domestic demand continues to underpin economic growth in FY 2025-26. As per the First Advance Estimates, the share of Private Final Consumption Expenditure (PFCE) in GDP increased to 61.5 per cent, reflecting a supportive macroeconomic environment marked by easing inflation, stable employment conditions, and rising real purchasing power.
Rural consumption remained resilient, supported by favourable agricultural performance, while urban consumption showed gradual improvement, aided by rationalisation of direct and indirect taxes. The Survey notes that consumption momentum is broad-based and inclusive.
Investment has continued to anchor growth alongside consumption. The share of Gross Fixed Capital Formation (GFCF) is estimated at 30.0 per cent of GDP, with GFCF expanding by 7.6 per cent in the first half of FY 2025-26, exceeding both the pace recorded in the corresponding period last year and the pre-pandemic average.
Sectoral Performance: Broad-Based Expansion
Agriculture and Allied Activities
Agriculture and allied services are estimated to grow by 3.1 per cent in FY 2025-26. Agricultural GVA expanded by 3.6 per cent in the first half of FY 2025-26, supported by a favourable monsoon. Allied sectors such as livestock and fisheries continued to grow steadily at 5-6 per cent, providing stability to overall agricultural performance.
Industry
The industrial sector is showing renewed strength, with manufacturing growing by 8.4 per cent in the first half of FY 2025-26, surpassing the annual estimate of 7.0 per cent. Construction activity remained resilient, supported by sustained public capital expenditure and ongoing infrastructure projects.
High-frequency indicators for Q3 FY 2025-26, including PMI manufacturing, IIP manufacturing, and e-way bill generation, signal strengthening momentum. Overall, industrial growth is expected to rise to 6.2 per cent in FY 2025-26, up from 5.9 per cent in FY 2024-25.
Services
Services remain the primary driver of growth. Services GVA increased by 9.3 per cent in the first half of FY 2025-26 and is estimated to grow by 9.1 per cent for the full year. Growth was broad-based across sub-sectors, with trade, hospitality, transport and communication services still marginally below pre-pandemic averages due to lingering pandemic effects.
Inflation Moderates, Supporting Real Incomes
Demand-led growth has unfolded alongside a marked easing of inflation. Headline CPI inflation declined to 1.7 per cent during FY 2025-26 (April~December), driven primarily by disinflation in food prices. Core inflation persistence has largely been influenced by precious metals; excluding these, underlying inflation pressures remain muted.
The inflation outlook remains benign, supported by favourable supply-side conditions and the gradual pass-through of GST rationalisation.
Fiscal and Monetary Policy Support
Fiscal policy remained prudent and growth-supportive in FY 2025-26. Direct tax collections reached nearly 53 per cent of the annual target by November 2025, while GST collections recorded multiple all-time highs. Capital expenditure reached nearly 60 per cent of the budgeted allocation, reinforcing the quality of public spending.
Markets responded positively to fiscal discipline, with sovereign bond yields declining. S&P upgraded India’s sovereign rating from ‘BBB-’ to ‘BBB’, while CareEdge Global assigned a ‘BBB+’ rating, citing strong economic performance and fiscal credibility.
Monetary policy complemented fiscal efforts through a cumulative repo rate cut of 125 basis points since February 2025, along with liquidity infusion via CRR cuts, open market operations, and forex swaps. These measures transmitted effectively, with lending rates declining and bank balance sheets strengthening. Gross NPAs declined to a multi-decade low of 2.2 per cent.
External Sector Remains Resilient
India’s total exports (merchandise and services) reached a record USD 825.3 billion in FY 2024-25, with continued momentum in FY 2025-26. Despite global trade uncertainty, merchandise exports grew by 2.4 per cent, while services exports increased by 6.5 per cent during April-December 2025.
The services trade surplus and strong remittance inflows offset the merchandise trade deficit, keeping the current account deficit at a moderate 0.8 per cent of GDP in H1 FY 2025-26. Foreign exchange reserves provide cover for over 11 months of imports and 94 per cent of external debt.
India’s diversified trade strategy has been strengthened through FTAs with the UK, Oman and New Zealand, and the conclusion of the India-EU Free Trade Agreement, pending ratification.
Outlook
Despite a fragile global environment marked by trade fragmentation and geopolitical tensions, India’s economy remains on a stable footing. Healthier balance sheets, resilient consumption, improving private investment sentiment, and sustained public capital expenditure underpin growth prospects.
Taking these factors together, the Economic Survey projects real GDP growth of 6.8~7.2 per cent in FY 2026-27, signalling steady growth amid global uncertainty. (Source: PIB PR ID 2219912)
Economic Survey of India 2025-26 dated 29/01/2026