India’s economy is expected to grow at a healthy pace of 7.4 percent in the current financial year (FY26), even as global economic uncertainties continue, according to the government’s first advance estimates released on Wednesday.
The growth is being driven by strong manufacturing and services activity, steady household spending and continued investment in factories, machinery and infrastructure.
In nominal terms, which does not adjust for inflation, India’s GDP is expected to grow 8 percent this year. These estimates are important as they form the basis for the Union Budget calculations, including tax revenue projections and fiscal deficit targets.
After the sharp economic contraction during the pandemic year FY21, India has seen a strong recovery. Between FY22 and FY25, the economy grew at an average rate of 8.2 percent, highlighting the strength of domestic demand.
Manufacturing output is expected to grow 7 percent in FY26, a sharp improvement from 4.5 percent last year. The services sector--which includes IT, finance, trade and tourism--is projected to expand 9.1 percent, up from 7.2 percent in FY25.
Agriculture growth is estimated at 3.1 percent, slightly lower than last year’s 4.6 percent, while construction activity is likely to grow 7 percent, compared to 9.4 percent earlier.
Household spending, the backbone of India’s economy, is expected to rise 7 percent, nearly in line with last year’s growth. Investment in fixed assets such as plants, equipment and buildings is projected to increase 7.8 percent, showing continued confidence among businesses.
Government spending is expected to grow 5.2 percent, higher than the 2.3 percent growth recorded last year.
The Reserve Bank of India had earlier projected 7.3 percent GDP growth for the year, supported by strong industrial output, good rural demand and improving urban consumption.
Global agencies are also positive about India’s prospects. The Asian Development Bank has raised India’s FY26 growth forecast to 7.2 percent, while India Ratings expects 7.4 percent growth this year and 6.9 percent in FY27.
• Possible El Niño conditions affecting farm output
• Weak global trade and slower world growth
• Currency pressure due to capital outflows
• Geopolitical tensions and tariff-related uncertainty
Despite these challenges, domestic reforms, tax changes and new trade agreements are expected to help India absorb global shocks, according to the government.
