The Indian economy has demonstrated remarkable resilience, with official projections indicating a stronger-than-anticipated performance for the current fiscal year. According to the first advance estimates released by the National Statistics Office (NSO), the economy is expected to expand by 7.4 per cent in 2025-26. This growth rate surpasses the initial forecasts of many analysts and even the Reserve Bank of India (RBI), marking a positive surprise for the nation's economic trajectory.
Services Sector Fuels the Acceleration
A deep dive into the disaggregated data reveals the engine behind this growth. The services sector is set for a sharp acceleration, projected to grow at 9.1 per cent this year, a significant jump from 7.2 per cent in 2024-25. This robust performance is broad-based, with all sub-segments—including trade, hotels, transport, communication, financial, real estate, professional services, and public administration—registering faster growth rates.
Within the industrial segment, the picture is mixed. While manufacturing activity shows relative strength, sectors like construction and utilities are expanding at a more subdued pace. On the demand side, both private consumption and investment activity are expected to maintain a healthy momentum, supporting overall economic expansion.
Points of Concern Amidst the Growth Story
Despite the upbeat headline number, the estimates highlight several areas of concern. The economy witnessed robust growth of 8 per cent in the first half (April-September) of 2025-26. However, the NSO estimates suggest growth is likely to moderate to around 6.8 per cent in the second half (October-March). This anticipated slowdown is attributed partly to a potential tapering of government expenditure and the adverse impact of tariffs imposed by US President Donald Trump on Indian merchandise exports.
A more pressing worry is the performance of nominal GDP, which is estimated to grow at just 8 per cent for the year. This figure is considerably lower than the 10.1 per cent assumption made in the Union Budget. It also marks the second consecutive year where nominal growth has fallen below the 10 per cent threshold. Slower nominal growth over time can pose challenges for government finances, affecting debt and deficit dynamics.
Upcoming Data Revisions
It is important to note that these GDP estimates are based on data available only until November 2025. The government is poised to introduce a significant change by the end of February 2026: a new series of GDP estimates with 2022-23 as the base year. This revision will not only involve methodological updates but will also incorporate newer and more updated data sources.
Furthermore, a new Consumer Price Index (CPI) series with a base year of 2024 will be launched in February, followed by a revised Index of Industrial Production (IIP) series. These comprehensive updates are expected to address some of the methodological criticisms that have been directed at the current set of economic statistics.
In summary, while the Indian economy is on track for a healthy 7.4 per cent growth in FY26, led by a stellar services sector, policymakers must navigate the headwinds of a slowing second half and the implications of subdued nominal GDP growth.
