India’s first advance estimates for FY2025–26 show a clear improvement in economic growth. Real GDP is expected to grow by 7.4%, compared with 6.5% in FY2024–25. At constant prices (2011–12 base), real GDP stands at ₹201.90 lakh crore. Nominal GDP, measured at current prices, is estimated at ₹357.14 lakh crore, reflecting a growth rate of 8.0%.
This gap between real and nominal growth stands out. Real activity shows strong momentum, while lower inflation keeps nominal growth modest. Low inflation helps households maintain purchasing power, but it limits growth in nominal revenues for businesses and the government. The estimates still signal solid economic strength, supported by demand and broad sectoral participation.
The services sector continues to lead India’s growth story. Real gross value added (GVA) for the economy is estimated to grow by 7.3%, while nominal GVA growth stands at 7.7%. Within this, services post the strongest numbers.
Financial services, real estate, and professional services are projected to grow by 9.9% in real terms. Public administration, defence, and other services also show real growth of 9.9%. Trade, hotels, transport, communication, and broadcasting-related services are expected to expand by 7.5%.
These numbers reflect strong activity across both consumer-facing and formal sectors. Transport and trade growth signals sustained travel, logistics movement, and consumer spending. Financial and professional services growth reflects healthy corporate activity, lending, and business confidence. Together, these segments keep the economy on a stable growth path.
The secondary sector shows improvement, led by manufacturing and construction. Manufacturing output is projected to grow by 7.0% in real terms, while construction also records 7.0% growth. These numbers indicate stronger industrial activity, helped by infrastructure spending, better capacity use, and investment demand.
Agriculture and allied activities, however, show slower growth of 3.1%. This moderate pace limits income growth in rural areas, where a large share of the population depends on farming. Rural consumption often follows farm income trends, so this sector’s performance remains critical for balanced demand.
Electricity, gas, water supply, and other utility services show weaker growth of 2.1%. Slower growth in utilities may point to uneven industrial energy demand and softer expansion in some energy-intensive industries.
On the demand side, consumption and investment continue to support economic growth. Private final consumption expenditure is estimated to grow by 7.0% in real terms. This growth reflects steady household spending, supported by low inflation and improving urban demand.
Investment shows stronger momentum. Gross fixed capital formation is projected to rise by 7.8% at constant prices. Both public and private sectors contribute to this trend. Government spending grows by around 5.2%, while capital expenditure remains a key focus area. Infrastructure projects, roads, railways, and urban development continue to attract investment.
The upcoming Union Budget gains importance in this context. Continued emphasis on capital spending can sustain investment-led growth. Additional support for rural incomes could help offset slower agricultural expansion.
Quarterly data supports the annual growth estimate. Real GDP grew by 8.2% in the second quarter of FY2025–26, covering July to September 2025. Growth for the first half of the fiscal year reached 8.0%. Industry and services drove this acceleration, while agriculture played a smaller role.
Strong performance in the first half provides confidence in the annual estimate. However, the second half of the year may face different challenges. Global demand conditions, commodity prices, and financial market movements can affect growth momentum as the year progresses.
Inflation trends provide a major boost to the growth outlook. Retail inflation fell to a record low of 0.25% in October 2025. This sharp decline created room for monetary support. In December 2025, the central bank reduced the policy repo rate by 25 basis points to 5.25%.
Lower interest rates reduce borrowing costs for households and businesses. Easier credit conditions encourage consumption and investment. Combined with public spending, these factors strengthen near-term growth prospects. However, inflation may rise again if food prices increase or global energy prices move higher.
Despite strong real growth, several risks remain. External trade conditions show rising uncertainty. India faces pressure from higher U.S. tariffs linked to geopolitical issues around energy imports. Export-oriented industries remain vulnerable to such policy actions, even if immediate damage appears limited.
The trade balance also shows volatility. The merchandise trade deficit narrowed to about $24.5 billion in November 2025 after widening sharply to about $41.7 billion in October 2025. Large swings in imports, especially crude oil and other commodities, can quickly strain the current account.