Opinion Economy grows faster than expected, but there are points of concern

The Indian economy is expected to grow at a healthy 7.4 per cent in 2025-26, as per the first advance estimates released by the National Statistics Office. Growth this year is considerably higher than what many analysts, including the RBI, had expected at the beginning of the year. As the economy grew at 8 per cent in the first half of the year, the first advance estimates suggest that the momentum is likely to slow down in the second half, with growth expected at around 6.8 per cent. This could be, in part, due to a likely slowing down of government spending and the impact of US President Donald Trump’s tariffs on merchandise exports.

The disaggregated data shows that the sharpest acceleration is in the services sector. The sector is pegged to grow at 9.1 per cent in 2025-26, up from 7.2 per cent in 2024-25, with all segments — trade, hotels, transport and communication, financial, real estate and professional services and public administration — growing at a faster clip. Within the industrial segment, while manufacturing fares better, construction and utilities are growing at a slower rate. On the other hand, both consumption and investment activity are expected to grow at a healthy pace. But, even as growth this year has accelerated, there are points of concern. Nominal GDP is pegged to grow at just 8 per cent. This is considerably lower than the 10.1 per cent assumed in the Union budget. It would also be the second consecutive year that nominal growth has been less than 10 per cent. Slower nominal growth over time could have implications for the government’s debt/deficit dynamics.

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This GDP estimate is, however, based only on data that is available till November. At the end of next month, the government will release a new series of GDP estimates with 2022-23 as the base year. This revised series will not only involve changes in methodology, but will also incorporate new and updated data sources. A new CPI series with base year 2024 will be released in February, followed by a new series of the index of industrial production. These revised series should address some of the criticism that has been voiced over the estimates.