India’s economy ended FY26 on a stronger-than-expected note, with GDP growth accelerating to 7.7 per cent, driven by robust services activity, resilient domestic demand and healthy manufacturing growth, according to a report by Elara Securities.
The brokerage noted that India’s GDP expanded 7.8 per cent year-on-year in the fourth quarter of FY26, while Gross Value Added (GVA) grew 7.9 per cent. The stronger performance suggests that the impact of the West Asian crisis on economic activity remained largely negligible through March 2026.
The report highlighted that FY26 GDP growth came in 10 basis points above the Central Statistics Office’s second advance estimates, marking a significant improvement over the 7.1 per cent average growth recorded during the previous two years under the new GDP series.
According to Elara Securities, the growth recovery was led by a rebound in domestic demand. Core GDP, comprising private final consumption expenditure (PFCE) and gross fixed capital formation (GFCF), rose 7.9 per cent in FY26 compared with 6.1 per cent in FY25. Private consumption growth improved to 7.7 per cent from 5.8 per cent in the previous fiscal year, supported by lower inflation, GST rationalisation and government spending measures.
The services sector continued to anchor economic growth throughout FY26. Services GVA expanded 9.9 per cent year-on-year in Q4 FY26, significantly higher than the two-year average of 8.2 per cent for the corresponding quarter.
Elara said strong momentum across freight, digital services, e-commerce, entertainment, IT services and air travel demonstrated that consumption-oriented and service-intensive segments of the economy remained largely insulated from external shocks. International air passenger traffic and cargo handling increased 11.1 per cent year-on-year during the quarter.
Consumption remained supportive in Q4 FY26, with real PFCE rising 7.1 per cent year-on-year and accounting for 56.6 per cent of GDP. Net exports also improved, rising to ₹0.9 trillion from ₹0.6 trillion in the same quarter a year earlier, aided by rupee depreciation and a recovery in exports.
However, the report pointed out that industrial growth moderated during the quarter. Industrial GVA growth slowed to 7.3 per cent from 10 per cent in Q4 FY25, largely due to weaker manufacturing activity caused by supply shortages in March 2026.
Looking ahead, Elara Securities expects India’s GDP growth to moderate to 6.5–6.7 per cent in FY27, broadly in line with the Reserve Bank of India’s projection of 6.6 per cent.
The brokerage warned that elevated energy prices linked to the ongoing West Asia conflict, supply-chain disruptions, tighter financial conditions and lingering trade uncertainties could weigh on economic activity in the coming quarters. It added that risks remain tilted to the downside if geopolitical tensions persist beyond the first quarter of FY27.
The report also flagged emerging El Niño conditions as a potential inflationary risk. While the impact of El Niño on agricultural output has weakened over time due to improved resilience in rural India, higher food and fuel prices could still affect household purchasing power and consumption demand.
Elara further observed that high-frequency indicators at the beginning of FY27 suggest some loss of momentum, with consumption and manufacturing indicators showing signs of softening. Mobility trends have also weakened amid higher fuel costs and reduced travel activity.
Despite the challenges, the brokerage believes the services sector will remain a key driver of growth, although momentum could moderate if higher energy costs and geopolitical uncertainties begin to affect tourism, hospitality, transportation and discretionary spending. |
