Last Updated on February 27, 2026 7:53 pm by BIZNAMA NEWS
R. Suryamurthy
India’s economy grew a strong 7.6 per cent in real terms in FY26, according to the Second Advance Estimates released under the rebased national accounts series with 2022–23 as the base year. The numbers reaffirm India’s status as the fastest-growing major economy.
However, economists caution that the headline growth figure conceals sharp divergences across sectors. While manufacturing and services continue to power expansion, agriculture and other employment-intensive segments remain subdued, raising concerns about the inclusiveness of growth.
The estimates were released by the Ministry of Statistics and Programme Implementation (MoSPI) through the National Statistics Office (NSO).
Rebased GDP Alters Growth Composition
The shift in base year to 2022–23 has significantly reshaped the structure of GDP. Under the new series, Gross Fixed Capital Formation (GFCF) stands at 31.7 per cent of GDP, while Private Final Consumption Expenditure (PFCE) accounts for 56.7 per cent — pointing to a more investment-driven growth model compared to the earlier 2011–12 base.
“The revised series marks a structural change. The investment rate appears higher, while consumption’s share has moderated,” said Madan Sabnavis, Chief Economist at Bank of Baroda. “The 7.6 per cent growth is broadly expected, but the composition tells a different story.”
For the second straight year, Gross Value Added (GVA) growth has outpaced GDP growth. Real GVA expanded 7.7 per cent in FY26 compared to 7.6 per cent GDP growth, implying a negative contribution from net indirect taxes.
“This suggests relatively weak growth in net indirect taxes,” Sabnavis noted. Nominal GDP growth at 8.6 per cent also signals limited revenue buoyancy despite solid real expansion.
Agriculture Remains the Weak Link
Agriculture and allied activities grew just 2.4 per cent in FY26 — far below overall GDP growth. The divergence was even sharper in Q3 (October–December), when farm-sector growth slowed to around 1.4 per cent while GDP expanded 7.8 per cent.
Aditi Nayar, Chief Economist at ICRA Ltd., said the moderation in Q3 was driven largely by agriculture and non-manufacturing industrial sectors such as mining, electricity and construction.
Although rabi output revisions could marginally lift the final numbers, economists agree that agriculture continues to face structural constraints. With more than 40 per cent of India’s workforce dependent on farming, subdued growth implies weak rural income gains.
Manufacturing Surges, Construction Loses Momentum
Manufacturing emerged as the standout performer in FY26, expanding 11.5 per cent. The sector has now recorded double-digit GVA growth for nearly three years, supported by sustained infrastructure spending, higher capacity utilisation and healthier corporate balance sheets.
“Manufacturing has clearly spearheaded overall GDP growth,” Sabnavis said, adding that the upcoming new Index of Industrial Production (IIP) series could reflect stronger industrial momentum.
In contrast, construction growth slowed to 7.1 per cent from near double-digit levels in the immediate post-pandemic years. Sabnavis attributed this partly to a slowdown in affordable housing, even as mid-range and premium housing segments held up.
The slowdown is significant because construction employs over 13 per cent of India’s workforce, making it crucial for job creation and income support.
Services Provide Stability
Services remained a pillar of strength, with GVA expanding 9 per cent in FY26. Trade, transport, hospitality, finance and real estate grew at close to or above 10 per cent, reflecting resilient urban demand and sustained credit expansion.
However, growth in public administration and defence was relatively softer, partly due to moderation in state government spending.
Inflation, Fiscal and Policy Signals
One encouraging macro signal is the narrowing gap between real and nominal GDP growth to about 1 percentage point in FY26, suggesting easing inflation pressures.
Economists, however, expect this wedge to widen again to around 3 percentage points in FY27. Sabnavis expects growth to moderate to the 7–7.5 per cent range, with limited implications for fiscal projections based on nominal GDP.
Nayar observed that revisions under the new base year have slightly reduced the estimated size of the economy, implying a somewhat higher fiscal deficit-to-GDP ratio and a steeper debt consolidation path than earlier assumed.
From a monetary policy perspective, Shilan Shah of Capital Economics said the GDP data show no signs of weakness that would warrant additional rate cuts. The numbers support expectations of an extended pause by the RBI following last year’s cumulative easing.
FY27 Outlook: Growth Needs Broader Base
Most economists expect GDP growth to remain close to 7 per cent in FY27, supported by manufacturing strength, resilient services and continued public capital expenditure.
However, sustainability will depend on improvement in agriculture and employment-intensive sectors.
“The headline growth story remains intact, but the challenge is widening its base,” said Sujan Hajra of Anand Rathi Group. “Manufacturing and services are reassuring, yet agriculture and construction must accelerate for growth to translate into broader income gains.”
The Bottom Line
India’s FY26 data portray an economy expanding rapidly but unevenly. Manufacturing and services are driving output, while agriculture and construction lag behind, limiting income growth for large segments of the workforce.
As FY27 unfolds, the policy focus is likely to shift from sustaining high growth to ensuring that growth becomes more inclusive, job-rich and demand-driven.
