India’s economy rebounds to 7.4% growth in FY26
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India’s economy is estimated to have staged a strong rebound in FY26, growing 7.4 percent compared with 6.5 percent in the previous fiscal year, according to government data released on January 7. The pickup signals a return to stronger momentum after a year of moderation and comes just ahead of a major overhaul of the country’s national accounts framework.
The recovery was led by a revival in investment and manufacturing activity. Gross fixed capital formation (GFCF), a key indicator of investment demand, grew 7.8 percent in FY26, up from 7.1 percent a year earlier. In real terms, investment rose to 33.8 percent of GDP, the highest level in the current series.
Manufacturing output expanded 7 percent during the year, sharply higher than the 4.5 percent growth recorded in FY25. Services continued to anchor overall economic activity, with the tertiary sector growing 9.1 percent compared with 7.2 percent last year. The services sector now accounts for 51 percent of the economy, its largest share since the start of the series.
Overall gross value added (GVA) at basic prices grew 7.3 percent in FY26, reflecting broad-based strength across manufacturing, services and investment. However, some sectors lagged. Agriculture growth slowed to 3.1 percent from a high base of 4.6 percent in the previous year, while mining and quarrying contracted 0.7 percent. Construction and electricity also recorded slower growth compared with last year.
On the demand side, private consumption growth moderated slightly. Private final consumption expenditure rose 7 percent, marginally lower than the 7.2 percent expansion seen in FY25, despite government efforts to stimulate demand. Still, easing inflation and policy support helped improve household purchasing power through much of the year.
Fiscal measures, including income tax relief and GST rationalisation during FY26, played a key role in supporting domestic demand amid a challenging global environment. Export growth remained subdued due to global trade uncertainty and tariff-related pressures, but strong domestic demand helped offset external headwinds.
Monetary policy also provided support, with the Reserve Bank of India cutting policy rates by a cumulative 125 basis points from 6.5 percent over the year, lowering borrowing costs for households and businesses.
Quarterly data showed particularly strong momentum in the first half of the year, with GDP growth touching 8 percent. The economy expanded 8.2 percent in the second quarter, its fastest pace in six quarters.
The FY26 estimates are significant as they mark the final GDP release under the existing 2011–12 base year. The next advance estimates, based on a revised 2022–23 base, are scheduled for release on February 27 and are expected to incorporate updated data sources and methodologies.
The growth numbers will also feed into the government’s Union Budget next month, as policymakers balance fiscal priorities against global uncertainty. Looking ahead, most forecasters expect growth to moderate slightly, with Goldman Sachs projecting expansion of around 6.8 percent in FY27, in line with domestic rating agencies’ estimates.
