GDP growth in FY26 expected at 7.4% despite US tariff troubles, show First Advanced Estimates

The nominal GDP number will be a key input in calculations for the upcoming Budget for 2026-27, especially for tabulating the growth in tax collections. While broadly in line with expectations, MoSPI’s first advance estimate confirms the view among economists that growth is set to slow down in the second half of the fiscal year.

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The last time India’s nominal GDP growth was lower was in the pandemic year of 2020-21, when the economy had contracted by 1.2 per cent. In rupee terms, the nominal GDP in 2025-26 is seen at Rs 357 lakh crore. Using the exchange rate of 89.89 per US dollar that the rupee closed Wednesday, the GDP amounts to $3.97 trillion, just short of the $4-trillion mark.

According to Dharmakirti Joshi, Chief Economist of rating agency Crisil, the 60-basis-point (bps) gap between nominal and real GDP growth in 2025-26 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 per cent and real growth to be at 6.7 per cent,” Joshi said.

The first advance estimate of GDP for the year is used by the Ministry of Finance for its Budget calculations. The Union Budget, usually presented in Parliament on February 1, assumes a nominal GDP growth rate for the next fiscal year on top of the current year’s first advance estimate. This assumed nominal GDP growth rate guides the Ministry’s expectations of key metrics such as growth in tax collections.

Further, the assumed nominal GDP for 2026-27 will also be used to set the fiscal deficit and debt-to-GDP targets in percentage terms. For instance, the 2025-26 Union Budget assumed a nominal GDP growth rate of 10.1 per cent over the first advance estimate for 2024-25 that was published by MoSPI in January 2025 to fix the fiscal deficit target at 4.4 per cent of GDP. And while the nominal GDP growth of 8 per cent in 2025-26 as per the first advance estimate has fallen short of the Budget assumption of 10.1 per cent, the absolute number in rupee terms – at Rs 357 lakh crore – has been met on account of upward revisions made to last year’s GDP.

The first advance estimate of GDP for 2025-26 will have an unusually short shelf life as all subsequent GDP data released by MoSPI, starting February 27, will be as per a new series. This upcoming series will have a new base year of 2022-23 compared to 2011-12 for the present one and will also incorporate several methodological changes, including new sources of data. Updating the base year and improving data coverage and methodologies are crucial to presenting the correct picture of the economy which changed over the years.

“Therefore, the advance and quarterly estimates will undergo revisions due to changes in the methodology of estimation at current and constant prices, incorporation of updated and new data sources, the updation of annual benchmark etc. Users should consider these factors while interpreting the subsequent revised estimates,” the MoSPI said in its statement Wednesday.

On February 27, MoSPI will release GDP data for October-December 2025 as per the new series, as well as the second advance estimate for 2025-26. It will also publish GDP data as per the new series for the last three years. As per the current series with 2011-12 as the base year, GDP growth stands at 7.6 per cent in 2022-23, 9.2 per cent in 2023-24, and 6.5 per cent in 2024-25.

The GDP growth figure for 2025-26 will continue to undergo revisions after the second advance estimate is published on February 27, with the final number available only in February 2028.

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Second-half slowdown

The first advance estimate implies that GDP growth in October-December 2025 and January-March 2026 will average 6.9 per cent, sharply down from the 7.8 per cent and 8.2 per cent growth rates recorded in the first two quarters.

The Reserve Bank of India (RBI), which raised its GDP growth forecast for the year by 50 bps last month to 7.3 per cent, expects the economy to grow by 7 per cent in October-December 2025 and 6.5 per cent in January-March 2026.

The government’s top economist, Chief Economic Advisor V Anantha Nageswaran, had initially forecast a growth rate of 6.3-6.8 per cent for 2025-26, before saying on November 29 – after second quarter growth came in far higher than expected at 8.2 per cent – that the full-year figure would be “north of 7 per cent”.

As per the first advance estimate released Wednesday, while manufacturing sector growth is set to rebound strongly this year, agricultural growth is seen cooling to 3.1 per cent from 4.6 per cent in 2024-25. The construction sector is seen expanding robustly again, with growth seen at 7 per cent compared to 9.4 per cent last year. The services sector, meanwhile, is projected to expand by 9.1 per cent, with the impact of new-age services, boost from Goods and Services Tax (GST) rate cuts that came into effect in September, and robust services exports being key factors, according to Paras Jasrai, Associate Director and Economist at India Ratings & Research.

The overall growth in gross value added, or GVA, is seen rising to 7.3 per cent from 6.4 per cent in 2024-25. The GVA is arrived at by subtracting indirect taxes such as GST and adding subsidies to the GDP.

On the expenditure side, growth in private consumption is seen broadly steady at 7 per cent in 2025-26 as against 7.2 per cent in 2024-25, while gross fixed capital formation – a proxy for investments – is expected to rise 7.8 per cent, up from 7.1 per cent growth seen last year.

The government’s consumption expenditure, which makes up less than a tenth of India’s GDP, is expected to see its growth rate more than double to 5.2 per cent this year from 2.3 per cent in 2024-25. This, Jasrai of India Ratings said, will be “broadly” led by expenditure by state governments.

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“Overall, while the latest numbers were as per our expectations, the caution is emanating from the slowing nominal GDP growth… Nevertheless, the resilient growth of the Indian economy at a time of volatile global economic situation is indeed noteworthy. This coupled with the renewed reform momentum will help navigate the treacherous waters in 2026-27,” Jasrai said.