India’s GDP Growth Seen at 7.4% in 2025-26, Manufacturing Leads Recovery

The government has released its first advance estimate of India’s economic performance for the financial year 2025–26. According to this estimate, India’s real GDP is expected to grow by 7.4%, which is higher than last year’s growth rate of 6.5%. This suggests that the economy is continuing to expand at a healthy pace despite global economic challenges.

Real GDP shows growth after adjusting for inflation, while nominal GDP measures growth without removing the impact of rising prices.

Real vs Nominal GDP: Why It Matters

While real GDP growth is expected to increase, nominal GDP growth is projected to slow to 8%, which is the lowest level seen in the last five years, except during the pandemic. This indicates that inflation has remained relatively low, reducing the gap between real and nominal growth.

The difference between real and nominal GDP growth is expected to be just 60 basis points, the smallest gap since 2011–12. This is an important indicator for policymakers and economists.

Manufacturing Leads the Growth

A major highlight of the estimate is the strong recovery in the manufacturing sector. Manufacturing is expected to grow by 7%, up from 4.5% last year. This rebound has occurred despite external pressures such as the 50% tariffs imposed by the United States on Indian goods.

The recovery suggests stronger domestic demand and improved production activity within the country.

Performance of Other Key Sectors

Not all sectors are growing at the same pace. Agricultural growth is expected to slow down to 3.1%, compared to 4.6% in the previous year. The construction sector continues to expand but at a slower rate of 7%, compared to 9.4% last year.

The services sector remains the strongest performer, with growth estimated at 9.1%. Growth in services is being driven by strong exports, GST rate cuts implemented in September, and expansion in new-age service industries.

Slowdown in the Second Half of the Year

The data indicates that economic growth is moderating in the second half of the financial year. Growth in the first two quarters was strong at 7.8% and 8.2%, but it is expected to average 6.9% in the last two quarters.

The Reserve Bank of India has also projected a gradual slowdown, reflecting caution about global economic conditions.

Importance of GDP Numbers for the Union Budget

The nominal GDP figure is crucial for Budget calculations. It helps the government estimate tax collections, fiscal deficit targets, and debt-to-GDP ratios. For 2025–26, nominal GDP is estimated at ₹357 lakh crore, which is close to $4 trillion in dollar terms.

Although nominal growth is lower than what was assumed in earlier Budget estimates, revisions to last year’s GDP data have helped meet overall targets.

New GDP Series and Future Revisions

This first advance estimate will be revised soon because GDP data from February 27 onwards will use a new base year of 2022–23 instead of 2011–12. This change aims to present a more accurate picture of the economy using updated data sources and methods.

As a result, GDP figures for this year will be revised multiple times, with the final numbers expected only in 2028.

Overall Economic Outlook

Overall, the estimate shows that India’s economy remains resilient. Strong growth in manufacturing and services, steady consumption, and higher government spending provide support, even as nominal growth slows and global uncertainties continue to pose challenges.