India’s economy expanded at 7.7 per cent in real terms in FY2025-26, according to provisional estimates released by the Ministry of Statistics and Programme Implementation on Friday, showing continued resilience in domestic demand despite persistent global headwinds and Middle East tensions.
Real Gross Domestic Product (GDP), measured at constant 2022-23 prices, stood at Rs 323.12 lakh crore in FY26 compared with Rs 299.89 lakh crore in FY25. Nominal GDP rose 8.9 per cent to Rs 346.36 lakh crore. Growth improved from 7.1 per cent in the previous fiscal year, with Gross Value Added (GVA) rising 7.9 per cent in real terms, led by manufacturing, construction and services.
Secondary and tertiary sectors remained the key drivers of expansion. Manufacturing grew 10.7 per cent, while trade, hotels, transport and communication expanded 11 per cent. Financial, real estate and professional services rose 10.4 per cent. The primary sector recorded a more modest 3.2 per cent growth, reflecting steady but uneven agricultural performance.
On the demand side, private final consumption expenditure (PFCE) rose 7.7 per cent, while gross fixed capital formation (GFCF) increased 8.2 per cent, indicating sustained consumption and investment momentum.
Fourth Quarter Strength Reinforces Momentum
In the January to March quarter, real GDP grew 7.8 per cent year-on-year to Rs 87.77 lakh crore, while nominal GDP rose 9.1 per cent to Rs 94.65 lakh crore. Real GVA increased 7.9 per cent to Rs 80.18 lakh crore, supported by strong services and investment activity. Investment indicators strengthened in the final quarter, with GFCF rising 10.8 per cent, while PFCE grew 7.1 per cent, signalling continued support from domestic consumption.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said that the 4Q GDP came in higher than expected, given the robust private consumption and investment. ‘’We remain wary on the headwinds from the geopolitical and El Niño-led supply-side shocks. Tightening financial conditions, higher inflation and weak monsoons could weigh on urban and rural demand. We expect GDP to hover in the 6-6.3 per cent range, depending on how these risks play out.”
Sectorally, trade, hotels, transport and communication services posted 12.5 per cent growth, financial and real estate services expanded 10.4 per cent, manufacturing rose 7.3 per cent, and construction grew 8.4 per cent. Interestingly, the data points to broad-based expansion even as external volatility intensified during the quarter. Additionally, industry experts said the latest numbers underline structural resilience in the economy despite global uncertainty.
Nirmal Kumar Minda, President, Assocham, said India’s 7.7 per cent growth in FY26 was achieved “on the back of Agriculture growth at 3 per cent, Manufacturing at 10.7 per cent, Construction at 7.4 per cent and Services at 9.3 per cent despite global headwinds.” He added that both PFCE and GFCF grew at more than 7.5 per cent, noting that secondary and tertiary sectors had emerged as the primary growth drivers even in a challenging fourth quarter.
Ajitabh Bharti, Co-founder and Executive Director at CapitalXB, said the latest GDP print pointed to a deeper structural shift in the economy. “The Goldilocks era, where every macro variable aligned favourably, is quietly fading,” he said. “And yet, the economy refuses to buckle. That resilience isn't accidental. It is the compounding dividend of a decade of unglamorous but consequential reforms.”
Bharti pointed to the role of tax formalisation, infrastructure investment, services exports above USD 270 billion, and rising remittances in sustaining demand. “India's growth engine is no longer running on pent-up post-Covid demand. It is running on structural foundations,” he said, adding that the upgrade to 7.7 per cent signals a stable base even as global conditions deteriorate.
RBI Flags Downside Risks, Cuts Growth Outlook
The optimism in headline GDP data contrasts with the cautious tone from the Reserve Bank of India (RBI), which has lowered its FY26 growth projection to 6.6 per cent from 6.9 per cent. The Monetary Policy Committee (MPC) cited elevated energy prices, supply chain disruptions and geopolitical tensions in West Asia as key risks to growth.
“The MPC noted that elevated energy prices, coupled with global supply constraints, are having adverse spillovers on economic activity,” said Governor Sanjay Malhotra. The central bank expects quarterly growth to range between 6.3 per cent and 6.8 per cent over the year, even as domestic demand remains resilient. The MPC unanimously kept the repo rate unchanged at 5.25 per cent, maintaining a neutral stance amid balancing inflation and growth concerns.
Vikram Chhabra, Senior Economist at 360 ONE Asset, said the decision was appropriate in the current environment. “A rate-led defence of the currency would have been an imprecise instrument at this juncture,” he said. “Instead, the RBI addressed the root issue, announcing measures to improve capital flows.”
Ranjeet Mehta, CEO and Secretary General, PHD Chamber of Commerce and Industry, said current pressures largely reflect supply shocks. “While external uncertainties have increased, RBI’s continued focus on preserving financial stability, supporting growth and creating a conducive environment keeps medium to long-term growth prospects intact,” he said.
Inflation and Energy Shocks Complicate Outlook
The MPC also raised its inflation projection for FY27 to 5.1 per cent, citing persistent pressure from energy and commodity prices. It warned that partial pass-through of higher global crude prices to domestic fuel rates had already begun, with further upward pressure expected on input costs.
The central bank flagged risks from a potentially deficient south-west monsoon and El Niño conditions, which could impact agricultural output and rural demand. Dipti Deshpande, Principal Economist at Crisil, said the central bank is likely to prioritise stability over reactive tightening. “If the energy prices normalise in the coming months, we expect the MPC to look through the short-term rise in inflation,” she said, adding that growth risks remain tilted to the downside.
A separate report from Crisil highlighted escalating geopolitical tensions in West Asia as a major downside risk for India’s macroeconomic outlook. The report said the conflict is evolving into one of the largest energy shocks on record, with disruptions to oil supply, LNG flows and shipping routes.
In an alternate scenario, India’s GDP growth could slow to 6.8 per cent in FY27, compared with a base case of 7.1 per cent. In a more severe scenario, growth could fall to 6.5 per cent. Brent crude could average close to USD 100 per barrel under severe disruption conditions, while inflation could rise to 5.4 per cent. The current account deficit could widen to 2 per cent of GDP from 1.5 per cent, driven by higher import costs and weaker export flows.
The report noted that nearly 40–50 per cent of India’s oil imports and a significant share of fertiliser and LPG supply depend on West Asia routes, making the economy vulnerable to supply disruptions. Crisil also warned that sectors such as fertilisers, petrochemicals, manufacturing and transport could face significant cost pressures if energy prices remain elevated.
Structural Resilience vs Cyclical Risks
Despite these risks, multiple analysts argue that India’s growth trajectory remains structurally supported. Remittances from West Asia, strong public capital expenditure, and resilient services exports continue to act as buffers against external shocks. However, the convergence of slowing global trade, volatile energy markets and climate-related risks is creating a more complex macroeconomic environment.
The contrast between robust domestic output data and cautious forward-looking projections highlights a widening policy dilemma for Indian authorities. While headline growth remains strong, both the central bank and independent agencies are signalling that sustaining momentum will depend increasingly on external conditions rather than purely domestic drivers.
The divergence between current performance and forward risks suggests that policymakers may need to balance growth support with inflation control more carefully in the coming quarters. For now, India’s economy continues to outperform many global peers. Yet, as the latest data and forecasts indicate, the durability of this performance will be tested by energy markets, geopolitics and climate variability in the months ahead. |
