After stellar Q2 GDP data, CEA says FY26 growth could be ‘north of 7%’

The comments represent an upward revision FY26 growth projection from the 6.3-6.8 per cent forecast in the Economic Survey for 2024-25 authored by the CEA and tabled in Parliament on January 31.

The Reserve Bank of India (RBI) in October raised its own FY26 growth forecast to 6.8 per cent from 6.5 per cent earlier after the economy had grown by a higher-than-expected 7.8 per cent in Q1.

With Q2 growth also exceeding expectations by a wide margin — the RBI had predicted a growth rate of 7 per cent for July-September — the central bank could raise its projection again next week after the Monetary Policy Committee’s (MPC) meeting.

When asked whether the GDP of the Indian economy would cross the $4-trillion-mark this year, Nageswaran said, “We were $3.93 trillion at the end of March 2025… So we will definitely be crossing the $4-trillion mark.”

The CEA also said the Indian economy has shown dynamism and there is cumulative positive impact of the last 10-11 years of investments in physical and digital infrastructure, the exporters’ resilience to the tariff shock, the policy actions taken since June 2024, in terms of direct and indirect tax reliefs, along with continued thrust on public investment, deregulation, employment-linked incentive schemes and continued credit support to nano, micro, small and medium enterprises. “I think all of these things are supporting the economy, undertaken amidst macrostability, fiscal prudence and overall financial market and banking sector health,” he said. This has reflected in upward revisions to FY26 GDP growth projections by various agencies, he added.

On the current low inflation scenario, Nageswaran said it was not indicative of weak aggregate demand. “There is good deflation and there is bad deflation. Low inflation situations arising out of weak domestic demand will be a concern. But low inflation or deflation arising out of bountiful production or excess supply and, etc., will be something that we should be okay with. So this is not a situation that the low inflation rates are reflective of weak aggregate demand, that is not the situation,” he said. The headline retail inflation rate fell to a record low of 0.25 per cent in October and is seen averaging below 2 per cent in FY26, according to some economists.

Nageswaran further said the rural demand remains resilient while urban demand is gaining traction after rate cuts under the GST regime. “Growth momentum is firming, driven by robust expansion in manufacturing and services, supported by festive demand and GST-led gains… the cumulative GST collection growth of 9 per cent for April-October 2025 indicates that the underlying revenue stream has remained resilient, aided by firm consumption and improved compliance. Improving price dynamics and tax reforms are expected to boost household disposable incomes, strength­ening the near-term consumption outlook. Healthy corporate sector balance sheets augur well for sustained private investments in H2 of FY26,” he said in his presentation.

Overall, the economy is expected to withstand the risks due to stable inflation, sustained public capex and reform momentum, the CEA said. He, however, listed some risks to growth from global stock markets, tariffs and geopolitical risks. “One is the global stock markets, they are ebullient, euphoric and that is something to watch out for; and of course we need to continue to look at the trade impact of the tariffs on Indian exports and continue the diversification efforts alongside the fact that conversations are ongoing between India and the United States. And, geopolitical risks will also continue to cast a shadow on big-ticket, cross-border capital flows and domestic investment. So all these will remain risk factors,” he said.