Last Updated on February 27, 2026 8:36 pm by INDIAN AWAAZ
R. Suryamurthy
India’s economy expanded by a robust 7.6 per cent in real terms in FY26, according to the Second Advance Estimates released under the rebased national accounts with 2022–23 as the base year, reaffirming the country’s position as the fastest-growing major economy. However, economists caution that the headline strength masks significant divergences across sectors, particularly the continued weakness in agriculture and employment-intensive activities, even as manufacturing and services power overall growth.
The estimates were released by the Government of India through the Ministry of Statistics and Programme Implementation (MoSPI) and the National Statistics Office (NSO).
Rebased data reshapes growth composition
The rebasing of GDP to 2022–23 has led to a meaningful reworking of India’s growth structure. Under the new series, Gross Fixed Capital Formation (GFCF) is estimated at 31.7 per cent of GDP, while Private Final Consumption Expenditure (PFCE) accounts for 56.7 per cent, signalling a more investment-led growth profile compared with the earlier 2011–12 series.
“The new series is quite different from the earlier one, with the investment rate much higher and the share of consumption lower,” said Madan Sabnavis, Chief Economist at Bank of Baroda. “GDP growth at 7.6 per cent is broadly in line with our expectations, but the composition of growth has clearly shifted.”
Another notable feature of the revised data is that Gross Value Added (GVA) growth exceeded GDP growth for the second consecutive year. While real GDP grew 7.6 per cent in FY26, real GVA expanded 7.7 per cent, implying a negative contribution from net indirect taxes.
“This indicates that growth in net indirect taxes has been weak,” Sabnavis said, adding that nominal GDP growth of 8.6 per cent suggests limited revenue buoyancy despite strong real activity.
Agriculture continues to lag
Agriculture remained the weakest link in the growth profile. Agriculture and allied activities grew just 2.4 per cent in FY26, significantly below overall GDP growth. The divergence was sharper in the October–December quarter (Q3 FY26), when agricultural growth slowed to around 1.4 per cent, while GDP expanded 7.8 per cent.
“The moderation in Q3 growth was expectedly driven by agriculture and non-manufacturing industrial sectors, including mining, electricity and construction,” said Aditi Nayar, Chief Economist at ICRA Ltd..
Sabnavis noted that agricultural growth could see upward revisions once rabi output estimates are finalised, but economists broadly agree that farm-sector growth remains structurally weak. With over 40 per cent of the workforce dependent on agriculture, the low growth rates imply limited income gains in rural areas.
Manufacturing leads, construction slows
Manufacturing emerged as the strongest growth driver in FY26, expanding by 11.5 per cent. Manufacturing GVA has now recorded double-digit growth for nearly three years, supported by infrastructure spending, improved capacity utilisation and corporate balance-sheet repair.
“The surprise element is manufacturing, which has spearheaded overall GDP growth,” Sabnavis said, adding that the strong performance suggests the upcoming new series of the Index of Industrial Production (IIP) is likely to show higher readings.
However, construction growth slowed to 7.1 per cent, down from near double-digit levels seen in the immediate post-pandemic period. Sabnavis attributed this partly to slower growth in affordable housing, even as mid-range and premium housing segments performed better.
The slowdown in construction is significant because the sector employs over 13 per cent of India’s workforce, making it a key channel for job creation and income growth.
Services remain resilient
Services continued to provide stability, with services GVA growing 9 per cent in FY26. Trade, transport, hospitality, finance and real estate all expanded at close to or above 10 per cent, reflecting resilient urban demand and steady credit growth.
However, growth in public administration and defence was slower, which economists partly attribute to lower growth in state government spending.
Inflation, fiscal and monetary implications
One of the positive macro signals from the data is the narrowing of the gap between real and nominal GDP growth to about 1 percentage point in FY26, indicating easing inflation pressures.
However, economists expect this wedge to widen again to around 3 percentage points in FY27. “Based on nominal GDP growth, we don’t expect fiscal numbers to change significantly in FY27,” Sabnavis said, adding that growth is likely to remain in the 7–7.5 per cent range.
Nayar pointed out that revisions under the new series have also reduced the estimated size of the economy, implying a slightly higher fiscal deficit-to-GDP ratio and a steeper debt consolidation path than earlier assumed.
From a monetary policy perspective, Shilan Shah, Deputy Chief Emerging Markets Economist at Capital Economics, said the new data confirm the economy is performing strongly and do not warrant further rate cuts. “There is nothing in the GDP numbers that will worry the RBI. We expect a prolonged pause after last year’s cumulative rate cuts,” he said.
Outlook for FY27
Most economists expect GDP growth to remain close to 7 per cent in FY27, supported by manufacturing momentum, resilient services and public capital spending. However, the sustainability of growth will depend on a pickup in agriculture and employment-intensive sectors.
“The growth narrative remains intact, but the challenge is broadening it,” said Sujan Hajra, Chief Economist at Anand Rathi Group. “Strong manufacturing and services growth are reassuring, but agriculture and construction need to improve for demand to become more broad-based.”
The bottom line
India’s FY26 growth numbers underline an economy that is expanding rapidly but unevenly. While manufacturing and services are driving output, agriculture and construction remain laggards, limiting income growth for a large section of the workforce. As the economy moves into FY27, economists say the focus will shift from sustaining high growth to making that growth more inclusive and demand-driven.