India retains fastest-growing economy tag as domestic demand drives growth: Economic Survey; other top highlights

India retained its position as the world’s fastest-growing major economy for the fourth consecutive year, with real GDP growth estimated at 7.4% in FY26, the Economic Survey 2025–26 said, underscoring the economy’s resilience amid a fragile global environment marked by geopolitical tensions and trade fragmentation.

Gross Value Added (GVA) growth for FY26 is placed at 7.3%, while India’s potential growth rate is assessed at around 7%, with real GDP growth for FY27 projected in the 6.8–7.2% range. The Survey noted that India’s performance continues to stand out globally, supported by strong domestic fundamentals and sustained policy reforms.

On the demand side, domestic consumption remained the principal growth anchor. Private Final Consumption Expenditure (PFCE) grew 7% in FY26, rising to 61.5% of GDP, the highest share recorded since 2012. The Survey attributed this momentum to low inflation, stable employment conditions, rising real incomes and income tax rationalisation. Strong agricultural output bolstered rural demand, while urban consumption showed improvement as well.

The investment cycle strengthened further, with Gross Fixed Capital Formation expanding 7.8% in FY26, maintaining its share at 30% of GDP. Sustained public capital expenditure, combined with signs of revival in private investment reflected in corporate announcements, supported the investment momentum.

On the supply side, services remained the dominant growth driver. Services GVA grew 9.3% in the first half of FY26 and is estimated to grow 9.1% for the full year, lifting the sector’s share in GVA to a record 56.4%. The Survey described services as a stable, low-volatility engine of growth that continues to underpin both domestic activity and exports.

The Survey highlighted that the Centre has managed to combine fiscal consolidation with growth support. Revenue receipts rose to 11.6% of GDP in FY25, while expenditure was rationalised to create space for investment. Effective capital expenditure increased to 4% of GDP in FY25, up from 2.7% in the pre-pandemic period, even as India’s general government debt-to-GDP ratio declined by 7.1 percentage points since 2020.

Tax reforms have contributed to stronger compliance and revenue buoyancy. The direct tax base expanded sharply, with income tax return filings increasing from 6.9 crore in FY22 to 9.2 crore in FY25. Gross GST collections during April–December 2025 stood at ₹17.4 lakh crore, growing 6.7% year-on-year, broadly aligned with nominal GDP growth. The transition to GST 2.0’s simplified two-rate structure is expected to reduce compliance costs and encourage further formalisation.

The Survey noted that inflation was tamed without sacrificing growth. Average CPI inflation during April–December 2025 fell to 1.7%, the lowest in the current CPI series. This disinflation occurred alongside robust GDP growth, indicating macroeconomic stability without overheating. Reflecting easing price pressures, the Reserve Bank of India reduced policy rates by 125 basis points since February 2025.

The banking and financial system showed multi-year strength, with Scheduled Commercial Banks recording gross NPAs of 2.2% and net NPAs of 0.5% in September 2025. Bank credit growth accelerated to 14.5% year-on-year by December 2025, while credit to MSMEs rose 21.8%, supported by improved asset quality and strong capital buffers.

Externally, India’s economy remained resilient. Total exports touched a record USD 825.3 billion in FY25, driven primarily by services exports, which rose to an all-time high of USD 387.6 billion, growing 13.6%. Foreign exchange reserves increased to USD 701.4 billion, providing around 11 months of import cover.

The Survey also flagged structural gains in industry and infrastructure, with medium- and high-technology manufacturing accounting for 46.3% of manufacturing value added. Production Linked Incentive schemes attracted over ₹2 lakh crore in investment and generated 12.6 lakh jobs, while government capital expenditure rose 4.2 times since FY18, driving expansion across roads, railways, ports, power and digital infrastructure.

Employment outcomes improved, with job quality strengthening post-pandemic. More than 31 crore unorganised workers have been registered on the e-Shram portal, over half of them women, while social sector spending on education and health continued to grow at a double-digit pace.

The Survey concluded by emphasising the need for strategic resilience, calling for disciplined indigenisation, improved regulatory quality and outcome-oriented governance, with state capacity, private sector competitiveness and citizen responsibility identified as critical pillars for sustaining long-term growth.