Backdrop for Budget: 7.4% growth estimated for FY26

The Indian economy is expected to grow at 7.4% in the ongoing fiscal year, the National Statistical Office (NSO) said in its first advance estimates of gross domestic product released on Wednesday, with manufacturing, services, and government expenditure spurring growth.

- Roshan Kishore

And the small print of the numbers released suggest that despite low inflation pushing nominal growth, in percentage terms, lower than that assumed in the budget, there is unlikely to be any adverse impact on tax collections and the fiscal deficit - good news from the perspective of both the macroeconomy and the forthcoming Union Budget.

The projected growth rate - there are still three months left for 2025-26 to finish - is not very different from what has been projected by the Reserve Bank of India or private forecasters, and they reiterate the resilience and strength of the Indian economy amidst global headwinds. RBI's December Monetary Policy Committee (MPC) resolution had projected an annual growth of 7.3% in 2025-26.

The predictability of real growth aside, the latest numbers will assure both the finance ministry and fiscal watchers with less than a month to go for the union budget. This is because the nominal GDP value (in absolute terms) has ended up above and not below what was assumed in the 2025-26 Union Budget despite an underwhelming nominal GDP growth because of low inflation. A large shortfall in nominal GDP would have complicated the fiscal math of the government .

The headline growth number compares with 6.5% in 2024-25, and is primarily a result of improvement in growth in manufacturing and services. On the expenditure side, the increased growth is on account of a rise in government expenditure and capital formation despite a marginal slowdown in private consumption.