India's economy is projected to expand at a robust pace of 7.4% in the current financial year 2025-26, according to the first advance estimates released by the statistics ministry on Wednesday. This strong performance is fuelled by vigorous growth in the manufacturing and services sectors, consistent household expenditure, and significant investments in fixed assets.
Key Drivers and Fiscal Projections
The official data, which forms the basis for the upcoming Union Budget for FY27, also indicates that India's nominal GDP is expected to grow by 8% this year. The government utilizes these projections to estimate tax revenue collection growth and crucial macro ratios, including the fiscal deficit, tax buoyancy, and the Centre's debt relative to the nominal GDP.
This follows a real GDP growth of 6.5% in FY25 and a significant 9.2% expansion in FY24. Since the economic contraction during the pandemic year FY21, the Indian economy has grown at an average rate of 8.2% up to FY25, showcasing a remarkable recovery trajectory.
Institutional Forecasts and Expert Analysis
The Reserve Bank of India (RBI) had earlier forecast a 7.3% growth for the current year, citing strong industrial growth, healthy farm output, and recovering urban consumption. The central bank projected a 7% growth for the December quarter and 6.5% for the March quarter.
Chief Economic Advisor V. Anantha Nageswaran, encouraged by the 8% growth in the first half of the year, revised his expectations upward in late November, stating the economy is likely to expand at 7% or more this financial year, aided by structural reforms.
Other major institutions have also revised their forecasts upwards:
- Asian Development Bank (ADB): Raised its FY26 forecast to 7.2% from 6.5%, citing robust domestic demand and solid exports.
- India Ratings and Research (Fitch Group): Expects growth of 7.4% this fiscal and 6.9% in FY27. The agency's chief economist, Devendra Kumar Pant, credited domestic reforms like the income tax cut, GST rationalization, and new foreign trade agreements with Oman, the UK, and New Zealand for helping the economy navigate global uncertainties, including US tariffs.
Pant also highlighted potential headwinds for FY27, including the El Niño pattern from mid-2026, a weak currency due to poor capital flows, sluggish global trade, the impact of artificial intelligence, and a high base effect from FY26's strong growth.
Transition to a New GDP Series
The first advance estimate for FY26 marks the final GDP data release based on the 2011-12 base year. A new national accounts series with a base year of 2022-23 will be rolled out on February 27, coinciding with the release of the second advance estimate for the current fiscal.
Experts do not anticipate a dramatic shift in growth rates with the new series. D.K. Srivastava, Chief Policy Advisor at EY India, explained that while the basket of goods and services and their weights will be updated, any change in the growth estimate would be marginal at best. Srivastava expects the economy to grow between 7.4-7.6% in FY26 and 6.5-6.8% in the next year.
The current base year recently became a point of political discussion. Following an 8.2% growth report for the September quarter, the opposition Congress party referenced an IMF assessment that gave India's national accounts a 'C' rating on data adequacy. Finance Minister Nirmala Sitharaman clarified in Parliament on December 3 that this rating reflected the use of the outdated 2011-12 base year, which is slated for replacement.
The statistics ministry will also release the quarterly GDP estimates for the December quarter of FY26 on February 27, providing the next snapshot of economic momentum.
