“Strong balance sheets in the corporate and financial sectors are also expected to drive a virtuous cycle of growth, fuelled by increased private-sector investment.”
India’s growth outlook remains positive, supported by strong domestic demand, structural reforms, and a stable macroeconomic environment. The country received three sovereign rating upgrades during the year. Inflation outlook remains benign, as per Macroeconomic Framework Statement and Medium-term Fiscal Policy cum Fiscal Policy Strategy Statement laid by Union Minister for Finance and Corporate Affairs Nirmala Sitharaman on the table of the Parliament along with Budget for FY 2026-27. The document further adds that public investment, deregulation, labour market reforms, human capital investments, tax reforms, digital transformation, and the formalization of the economy are expected to drive the economy into a higher growth trajectory. Strong balance sheets in the corporate and financial sectors are also expected to drive a virtuous cycle of growth, fuelled by increased private-sector investment.
Economic growth: As per the first advance estimates published by the National Statistics Office, India’s real GDP is estimated to grow by 7.4 per cent in FY 2025–26, with nominal GDP growth at 8 per cent. The services sector remains the primary growth driver, expanding by 9.1 per cent. Manufacturing and construction have grown by 7 per cent. Agriculture is estimated to grow at 3.1 per cent. In the Budget for FY 2026-27, nominal GDP is projected to grow by 10.0 per cent over the First Advance Estimates of FY 2025-26.
Consumption and Investment: Domestic demand continues to anchor growth. Private final consumption expenditure (PFCE) is projected to grow by 7 per cent, accounting for 61.5 per cent of GDP – the highest level since FY12. Government final consumption expenditure is also estimated to strongly rebound with a YoY growth of 5.2 per cent in FY26 as against 2.3 per cent in FY25. High-frequency indicators, such as UPI transactions, air and rail traffic, e-way bills, etc., reflect sustained momentum in both urban and rural consumption. Investment activity remains strong, with gross fixed capital formation (GFCF) rising by 7.8 per cent in FY26, higher than the previous year. Further, the share of GFCF has remained stable at around 30 per cent of GDP for the past three years.
External sector: India’s total exports (merchandise and services) reached US$ 825.3 billion in FY25, with continued momentum in FY26. Despite tariffs imposed by the United States, merchandise exports grew by 2.4 per cent (April–December 2025), while services exports increased by 6.5 per cent. Merchandise imports for April-December 2025 increased by 5.9 per cent. Gross Foreign Direct Investment (FDI) inflows were recorded at US$ 81.0 billion in FY25, and the momentum strengthened in FY26 with the highest inflow recorded in the first seven months of any financial year. The current account deficit declined to 0.8 per cent of GDP in H1 FY26 from 1.3 per cent in H1 FY25.
Source: PIB
