The Indian economy registered strong growth in 2025-26, putting it on a firm footing to deal with the current headwinds in the external sector due to the war in West Asia. GDP growth reached 7.7% for the full year and 7.8% in the quarter ending March 2026.
“India’s growth momentum remains strong! The GDP growth rate of 7.7% in FY 2025-26 and 7.8% in Q4 FY 2025-26 reflects the underlying strength of our economy, the success of reforms and the hard work of 140 crore Indians. We will leave no stone unturned to enhance ‘Ease of Living’, ‘Doing Business’ and increase opportunities for our youth,” Prime Minister Narendra Modi said in a post on X.
It is certain that next year is expected to be disappointing compared to last year. On Friday, the Reserve Bank of India forecast full-year GDP growth for 2026-27 at 6.6% with downside risks while announcing a series of measures to attract more foreign capital inflows as focus shifts to managing the balance of payments rather than growth and inflation dynamics in the economy and bracing for a weaker than usual monsoon due to El Niño conditions.
The National Statistics Office (NSO) on Friday released provisional estimates of GDP for 2025-26. Annual GDP growth for 2025-2026, the third full year for which data are available in the new 2022-2023 GDP series, was 7.7%, higher than the growth of 7.2% and 7.1% in 2023-2024 and 2024-2025. Gross value added (GVA), which is GDP minus net indirect taxes, grew by 7.9% in 2025-26. The March 2026 quarterly growth figures suggest that the economy has been losing some growth momentum over the past year. GDP growth was 8.4% in the quarter ending September 2025 and declined to 8% and 7.8% in the December 2025 and March 2026 quarters.
On the spending side, both consumption and investment led higher growth in the 2025-2026 period. Private final consumption expenditures increased by 7.7% in the period 2025-2026, compared to 5.8% in the periods 2024-2025 and 2023-2024. Gross fixed capital formation (GFCF) grew by 8.2% in 2025-26 compared to 6.4% and 7.3% in 2024-25 and 2023-24. On the production side, three sub-sectors, manufacturing and trade, hotels and transportation and communications, services related to broadcast storage, real estate financing and information technology, professional services and home ownership, registered double-digit growth in 2025-26.
“It is noteworthy that the sectors of manufacturing, trade, repair, hotels, transport, communication, broadcasting-related services, warehousing, financial, real estate and professional services have achieved double-digit growth at constant and current prices in FY 2025-26,” Union Finance Minister Nirmala Sitharaman said in a post on X. “Global challenges,” she added.
The current economic environment certainly leaves little room for complacency. The economic shock from the ongoing war in West Asia, which came against the backdrop of already tepid capital inflows into the Indian economy, has generated fears of a supply shock turning into a demand shock with price pressures shifting from producers to consumers and negative movements in India’s balance of payments accounts.
Speaking after the release of the GDP figures, Chief Economic Advisor Anantha Nageswaran reiterated these concerns even as he asserted that the government was taking steps to address the challenges.
“However, most high-frequency indicators through April 2026 suggest that domestic demand and overall economic activity in India have remained relatively resilient so far, with signs of stress emerging,” he said, pointing to the onset of supply-side price pressures in wholesale inflation. He added that weak monsoon forecasts also pose upside risks to inflation expectations.
According to him, the country’s trade deficit, which widened in FY26, may continue to do so in FY27 due to global headwinds, putting more pressure on the current account. The global crude oil production outage is expected to continue for a longer period.
However, he said the policy measures taken will help contain supply-side disruptions, create safety nets and maintain macroeconomic stability, referring to diversified crude oil imports, trade promotion mission, ensuring fertilizer supplies, and exemption from customs duties on inputs, $Rs 2.55 lakh crore Emergency Credit Guarantee Scheme (ECLGS 5.0).
“Improving political certainty resulting from successful trade agreements, including progress in India-US and India-EU trade, is expected to support exports and capital flows,” he said.
