India’s economy is projected to grow at 7.4% in FY25-26, driven by robust domestic consumption and sustained investment activity, reaffirming the country’s position as the world’s fastest-growing major economy for the fourth consecutive year, according to the Economic Survey 2025–26 tabled in Parliament on Wednesday.
The Survey, presented by Union minister for finance and corporate affairs Nirmala Sitharaman, says real GDP growth for FY26-27 is expected to moderate slightly to a range of 6.8%–7.2%, with India’s potential growth estimated at around 7%, reflecting a structurally resilient economy anchored by domestic demand.
The Survey highlighted that domestic demand continues to underpin economic expansion in FY25-26. As per the first advance estimates, the share of private final consumption expenditure (PFCE) in gross domestic product (GDP) rose to 61.5%, underscoring the central role of household spending in sustaining growth.
This strength in consumption, the Survey noted, is supported by low inflation, stable employment conditions and rising real purchasing power. Rural demand remained steady, aided by favourable agricultural performance, while urban consumption showed signs of gradual improvement following the rationalisation of direct and indirect taxes.
The government says this indicates that consumption-led growth is broad-based rather than concentrated in a few sectors or income groups.
Alongside consumption, investment activity continued to anchor growth in FY25-26. Gross fixed capital formation (GFCF) is estimated to account for 30.0% of GDP, with investment growth strengthening in the first half of the year.
GFCF expanded by 7.6% in H1FY25-26, exceeding growth recorded during the same period last year and remaining above the pre-pandemic average of 7.1%. The Survey attributed this momentum to higher public capital expenditure, improving private investment sentiment and supportive financial conditions.
Agriculture and allied activities are estimated to grow by 3.1% in FY25-26, supported by a favourable monsoon in the first half of the year. Agricultural gross value added (GVA) grew by 3.6% during the first half of FY25-26, higher than the 2.7% growth recorded in the corresponding period of FY24-25, though still below the long-term average of 4.5%.
The Survey pointed out that allied sectors such as livestock and fisheries continue to grow at stable rates of around 5%–6%. As their share in agricultural GVA has increased, overall agricultural growth now reflects a combination of volatile crop output and relatively stable allied sector performance.
The industrial sector showed clear signs of recovery, with manufacturing growing by 8.4% in the first half of FY25-26, surpassing the full-year growth estimate of 7.0%. Construction activity remained resilient, supported by sustained public capital expenditure and ongoing infrastructure projects.
The Survey says the industrial sector is expected to grow by 6.2% in FY25-26, up from 5.9% in FY24-25. High-frequency indicators for the third quarter (Q3) of FY25-26, including PMI manufacturing, IIP manufacturing and e-way bill generation, signal strengthening demand. Construction indicators such as steel consumption and cement production also recorded steady growth.
Looking ahead, industrial momentum is expected to remain buoyant, aided by GST rationalisation and a favourable demand outlook, the Survey says.
On the supply side, services remained the main driver of growth. Services GVA rose by 9.3% in H1FY25-26 and is estimated to grow by 9.1% for the full year, reflecting broad-based expansion across the sector.
All major sub-segments recorded growth above 9%, except trade, hospitality, transport, communication and related services, which remain marginally below their pre-pandemic average due to the lingering impact of COVID-19-era disruptions.
The Survey says demand-led growth in FY25-26 has unfolded alongside a marked easing of inflation. Headline CPI (consumer price index) inflation declined to 1.7% during April–December FY25-26, driven primarily by lower food prices, particularly vegetables and pulses, supported by favourable farm conditions and supply-side interventions.
While core inflation showed some persistence due to price spikes in precious metals, underlying inflation pressures remain subdued, indicating limited demand-side overheating. The inflation outlook, the Survey says, remains benign.
According to the Survey, the momentum in growth and capital formation has been underpinned by a prudent fiscal strategy, characterised by resilient revenue mobilisation and calibrated expenditure management. Direct tax collections reached nearly 53% of the budgeted annual target by November 2025, while gross GST collections recorded multiple all-time highs during the year.
Capital expenditure reached nearly 60% of the budgeted allocation by November 2025, while growth in revenue expenditure remained contained, improving the quality of public spending.
Markets responded positively to fiscal discipline, with sovereign bond yields declining and spreads over US bonds narrowing sharply, the Survey says, adding, that credit rating agency S&P upgraded India’s sovereign rating from ‘BBB-’ to ‘BBB’, while CareEdge Global assigned India a ‘BBB+’ rating, citing strong growth prospects and fiscal credibility.
Monetary policy complemented fiscal measures, with a cumulative reduction of 125bps (basis points) in the repo rate since February 2025. This was supported by liquidity injections through cash reserve ratio (CRR) cuts of ₹2.5 lakh crore, open market operations (OMO) of ₹6.95 lakh crore and a forex swap of about US$25bn (billion).
These measures are effectively transmitted, with lending rates declining and banking sector balance sheets strengthening further, the Survey says. "Gross non-performing asset ratios fell to a multi-decade low of 2.2%, while profitability improved on the back of strong net interest margins."
Amid global trade uncertainty, India’s total exports of goods and services reached a record US$825.3bn in FY24-25, with momentum continuing in FY25-26. Merchandise exports grew by 2.4% during April–December 2025, while services exports rose by 6.5%.
The current account deficit remained moderate at 0.8% of GDP in H1FY25-26, supported by a strong services surplus and rising remittances.
Forex reserves remained comfortable, covering more than 11 months of imports and about 94% of external debt as of January 2026.
The Survey flagged the notification of labour codes as a landmark reform aimed at simplifying compliance and enhancing labour market flexibility. It also highlighted progress on trade agreements, including the conclusion of a free trade agreement with the European Union after three years of negotiations, which now awaits ratification.
While acknowledging persistent global uncertainties, the Survey says India’s economy remains on a stable footing, supported by healthy balance sheets, resilient consumption, improving private investment and strong policy credibility.
Taking these factors into account, the economic Survey projected real GDP growth for FY26-27 in the range of 6.8%–7.2%, signalling steady expansion amid global volatility, requiring caution but not pessimism.
