FY26 GDP growth seen at 7.4% as domestic economy shines

The Indian economy has remained resilient in the face of the US tariffs with strong growth in manufacturing and services sector keeping the growth engine running.

The economy is seen to grow by 7.4% this fiscal, as per the first advance estimates of national income released on Wednesday. Growth in gross value added is estimated at 7.3% in 2026-27. Fixed investments and private consumption in FY26 are estimated to have grown at a robust pace of 7.8% and 7%, respectively.

The strong growth is likely to provide policymakers and the government comfort on the domestic economy as they work on the Union Budget 2026-27 with growth seen to soften but remain fairly robust at about 7% in FY27 by private agencies.

Nominal GDP growth at 8%

However, nominal GDP growth is estimated at 8%, which is much below the Budget estimate of 10.1% for FY26, although analysts had flagged that it would be lower due to falling inflation.

“Nominal GDP or GDP at Current Prices is estimated to attain a level of ₹ 357.14 lakh crore in the FY 2025-26, against ₹ 330.68 lakh crore in FY 2024-25, showing a growth rate of 8.0%,” said the statement by the ministry of statistics and programme implementation.

Dharmakirti Joshi, Chief Economist, Crisil noted that the 60-basis point gap between nominal and real GDP this fiscal will be the lowest since 2011-12. “Next fiscal, we expect the nominal and real growth to flip – nominal growth is expected to rise to close to its long-term average at 10.5-11% and real growth to be at 6.7%,” he said.

The lower than estimated nominal GDP growth would impact some of the Budget projections for FY26 but expectations are that the fiscal deficit will meet the target of 4.4% of the GDP.

DK Srivastava, Chief Policy Advisor, EY India noted that the unexpectedly low implicit price deflator-based inflation at 0.5%, leading to a nominal GDP growth of 8% has significant implications for the revised estimates of the 2025-26 budget aggregates. In particular, the budget estimates for this year had assumed a nominal GDP growth of 10.1%.

“This does not affect the magnitude of fiscal deficit which at 4.4% of nominal GDP was budgeted at Rs 15.7 lakh crore. This is because, the nominal GDP magnitude of 2024-25 has been revised upwards to Rs 330.7 lakh crore as compared to the budgeted amount of Rs 324.1 lakh crore,” he said, noting that the lower nominal GDP growth has, however, implications for GoI’s gross tax revenues.

In the first eight months of the current fiscal year, the realised growth of GTR was 3.34%. The relatively lower nominal growth combined with a relatively lower than budgeted buoyancy of 1.07 over the revised estimates of 2024-25 may result in lower Revised estimate numbers for the Centre’s GTR in 2025-26 as compared to the budget estimates. “The lower than budgeted GTR magnitude will provide a lower base in terms of revised estimates for the GTR budget estimates for 2026-27,” he said.

Interestingly, the NSO estimates the nominal GDP to expand by 8.0% in FY2026, lower than our estimate of 8.5% for the fiscal. Notably, the FAE for the nominal GDP for FY2026 is pegged at Rs. 357.1 trillion, similar to what was assumed in the Union Budget for this year. This rules out a beat or a miss in the fiscal deficit to GDP ratio on account of the denominator. ICRA does not expect a fiscal slippage over the targeted 4.4% of GDP, as higher-than-budgeted non-tax revenues and likely expenditure savings would provide a buffer against the expected miss on taxes."

Rahul Agrawal, Senior Economist, ICRA also said that the agency does not expect a fiscal slippage over the targeted 4.4% of GDP, as higher-than-budgeted non-tax revenues and likely expenditure savings would provide a buffer against the expected miss on taxes.

The first advance estimates for the nominal GDP for FY2026 is pegged at Rs. 357.1 lakh crore, similar to what was assumed in the Union Budget for this year, he said, adding that this rules out a beat or a miss in the fiscal deficit to GDP ratio on account of the denominator.

New GDP series

Significantly, this is the last set of GDP estimates in the current series with a base year of 2011-12. The second advance estimates of GDP, which will be released on February 27, will be of a new series and an updated base year of 2022-23. The change in methodology and base year will impact the first advance estimates of GDP that have been released on Wednesday.