India’s GDP growth for FY26 is estimated at 7.4 per cent driven by the double engine of consumption and investment. It reaffirms India’s status as the fastest-growing major economy for the fourth consecutive year. This was highlight of the Economic Survey 2025-26 tabled by the Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman in Parliament today.
The Survey says the real GDP growth for FY27 is projected at 6.8-7.2 per cent, while the potential growth for India is estimated at around 7 per cent.
The Survey points out that the domestic demand continues to underpin economic growth in FY26. According to the First Advanced Estimate, the share of final private consumption expenditure (PFCE) in GDP rose to 61.5 per cent in FY26. This strength in consumption reflects a supportive macroeconomic environment, characterised by low inflation, stable employment conditions, and rising real purchasing power. Moreover, steady rural consumption, bolstered by strong agricultural performance, and the gradual improvement in urban consumption, aided by the rationalisation of direct and indirect taxes, reaffirm that the momentum in consumption demand is broad-based.
Along with consumption, investment has continued to anchor growth in FY26, with the share of gross fixed capital formation (GFCF) estimated at 30.0 per cent. Investment activity strengthened in the first half of the year, with, GFCF expanding by 7.6 per cent, exceeding the pace recorded in the corresponding period last year and remaining above the pre-pandemic average of 7.1 per cent.
The Survey highlightsthat Agriculture and allied services are estimated to grow by 3.1 per cent in FY26. Agricultural activity in first half of FY26 was supported by a favourable monsoon. Agricultural GVA grew by 3.6 per cent, higher than the 2.7 per cent growth recorded in first half of FY25, but remained below the long-term average of 4.5 per cent. Allied activities, particularly livestock and fisheries, have grown at relatively stable rates of around 5-6 per cent. As their share in agricultural GVA has increased, aggregate agricultural growth has increasingly reflected a weighted outcome of volatile crop performance and a relatively stable expansion in allied sectors.
The Economic Survey mentions that the industrial sector is showing signs of strength, with manufacturing growing by 8.4 per cent in the first half of FY26, surpassing the FY26 estimate of 7.0 per cent. Additionally, the construction industry has remained resilient, underpinned by sustained public capital expenditure and ongoing momentum in infrastructure projects. The manufacturing sector share has remained steady at around 17-18 per cent in real (constant) price terms. Manufacturing’s gross value of output (GVO) has remained broadly stable at around 38 per cent, comparable to services, indicating that output has been sustained. Moreover, in FY26, the industrial sector is expected to gain momentum, growing at 6.2 per cent, up from 5.9 per cent in FY25. The high-frequency indicators for Q3 of FY26, including the PMI manufacturing, IIP manufacturing, and e-way bill generation, signal a strengthening of manufacturing activity underpinned by robust demand. Construction indicators, such as steel consumption and cement production, have witnessed a steady growth. Looking ahead, momentum in industrial activity is expected to remain buoyant, boosted by the rationalisation of GST and a favourable demand outlook.
The Economic Survey highlights that on the supply side, services remain the main driver of growth. In the first half of FY26, the Gross Value Added (GVA) for services increased by 9.3 per cent, with an estimated 9.1 per cent growth for the entire fiscal year. This trend indicates a broad-based expansion across the sector. Within the service sector, all sub-segments have grown past 9 per cent, save for the heavily Covid-impacted ‘trade, hospitality, transport, communication and related services, which is still 50 basis points away from the pre-pandemic average.
The Economic Survey mentions demand-led growth in the economy has unfolded alongside a marked easing of inflation, which has improved real purchasing power and supported consumption. Domestic inflation dynamics in FY26 (April-December) reflect a broad-based easing in price pressures, led by a sharp disinflation in food prices. Headline CPI inflation declined to 1.7 per cent, driven primarily by corrections in vegetable and pulse prices, supported by favourable farm conditions, supply-side interventions, and a strong base effect. While core inflation has exhibited persistence, this has been largely influenced by price spikes in precious metals; adjusting for these, underlying inflation pressures appear materially softer, indicating limited demand-side overheating. Looking ahead, the inflation outlook remains benign, supported by favourable supply side conditions and the gradual pass-through of GST rate rationalisation.
