FY26 GDP growth estimated at 7.4% as domestic economy shines

The Indian economy has remained resilient in the face of US tariffs, with strong growth in manufacturing and services keeping the growth engine running.

The economy is expected to grow 7.4% this fiscal year, according to the first preliminary estimates of national income released on Wednesday. Growth in gross value added is estimated at 7.3% in 2026-27. Fixed investment and private consumption in FY26 are estimated to have grown at a robust pace of 7.8% and 7%, respectively.

The strong growth is likely to reassure policymakers and the government about the national economy as they work on the Union Budget 2026-27, with growth appearing to slow but still quite robust at around 7% in FY27 by private agencies.

Nominal GDP growth at 8%

However, nominal GDP growth is estimated at 8%, which is much lower than the budget estimate of 10.1% for FY26, although analysts had reported that it would be lower due to lower inflation.

“Nominal GDP or GDP at current prices is expected to reach a level of ₹357.14 lakh crore in FY 2025-26 from ₹330.68 lakh crore in FY 2024-25, representing a growth rate of 8.0 per cent,” the Ministry of Statistics and Program Implementation release said.

Dharmakirti Joshi, chief economist at Crisil, noted that the gap of 60 basis points between nominal and real GDP this fiscal will be the lowest since 2011-12. “In the next fiscal year, we expect a reversal in nominal and real growth: nominal growth is expected to approach its long-term average at 10.5-11% and real growth to 6.7%,” he said.

Lower-than-estimated nominal GDP growth would impact some fiscal projections for FY26, but the fiscal deficit is expected to reach the target of 4.4 percent of GDP.

DK Srivastava, chief policy advisor, EY India, noted that the surprisingly low implied inflation based on the price deflator, at 0.5 per cent, leading to nominal GDP growth of 8 per cent, has significant implications on the revised estimates of fiscal aggregates 2025-2026. In particular, the budget forecast for this year predicted nominal GDP growth of 10.1%.

“This does not affect the magnitude of the fiscal deficit which, at 4.4 per cent of nominal GDP, has been budgeted at Rs 15.7 lakh crore. Indeed, the magnitude of nominal GDP for 2024-25 has been revised upwards to Rs 330.7 lakh crore from the budgeted amount of Rs 324.1 lakh crore,” he said, noting that the lower nominal GDP growth, however, has implications on the gross tax revenue of the Government of India.

During the first eight months of the current financial year, the realized growth of GTR was 3.34%. The relatively lower nominal growth combined with a relatively lower than budgeted buoyancy of 1.07 compared to the revised estimates of 2024-25 could result in lower revised estimate figures for the Central GTR in 2025-26 compared to the budgeted estimates. “The lower than planned GTR magnitude will provide a lower basis in terms of revised estimates for the GTR budget estimates for 2026-2027,” it said.

Interestingly, the NSO estimates that nominal GDP will grow by 8.0% in FY 2026, which is lower than our estimate of 8.5% for the fiscal year. Notably, the FAE for nominal GDP for FY2026 is set at Rs. 1,999. 357.1 trillion, an amount similar to that planned in the Union Budget for this year. This excludes an overshoot or failure of the budget deficit/GDP ratio due to the denominator. ICRA does not expect a fiscal slippage above the target of 4.4% of GDP, as higher-than-projected non-tax revenues and likely spending savings would provide a buffer against the expected tax shortfall.

Rahul Agrawal, senior economist at ICRA, also said the agency does not expect a fiscal slippage above the target of 4.4% of GDP, as higher-than-expected non-tax revenues and likely spending savings would provide a buffer against the expected tax shortfall.

The first advanced estimates of nominal GDP for FY2026 are pegged at Rs. 357.1 lakh crore, similar to what was forecast in the Union Budget for this year, he said, adding that this rules out an overshoot or miss in the fiscal deficit-to-GDP ratio due to the denominator.

New GDP series

It is important to note that this is the last set of GDP estimates in the current series with the base year 2011-12. The second preliminary GDP estimates, to be released on February 27, will be for a new series and an updated base year, 2022-2023. The change in methodology and base year will have an impact on the first preliminary GDP estimates published on Wednesday.