India's economy has demonstrated remarkable resilience and strength in the post-pandemic era, with recent data revealing a powerful growth trajectory. The first half of the fiscal year 2025-26 has set a promising tone, signaling a sustained recovery that outpaces global peers.
Robust GDP Expansion and Upward Revision
The latest figures show India's real GDP grew by a robust 7.8% in the first quarter of 2025-26, accelerating further to an impressive 8.2% in the second quarter. This performance has prompted the Reserve Bank of India (RBI) to revise its full-year growth estimate upwards to 7.3%, with expectations that the annual figure will comfortably exceed 7%.
Excluding the high-base effect year of 2021-22, the average real GDP growth from 2022-23 to 2024-25 stands at a stellar 7.8%. This is more than double the global average growth of 3.5% recorded from 2022 to 2024, cementing India's position as having the strongest post-Covid economic recovery among major world economies.
Looking ahead, the RBI assesses growth for the first half of 2026-27 at 6.8%, with the full year likely in the 6.5-6.8% range. The International Monetary Fund (IMF) aligns with this optimistic medium-term view, projecting a 6.5% growth for India from 2027-28 to 2030-31.
Benign Inflation and Supportive Monetary Policy
A key enabler of this growth story has been contained inflation. Consumer Price Index (CPI) inflation has remained benign throughout 2025-26. The RBI has assessed CPI inflation for this fiscal at 2%, which is the lower bound of the Monetary Policy Committee's tolerance band.
This favorable inflation environment has allowed the central bank to adopt an accommodative stance. In 2025-26, the RBI reduced the repo rate by a total of 100 basis points, from 6.25% to 5.25%. This was executed in three installments: cuts of 25 basis points in April, 50 basis points in June, and another 25 basis points in December 2025.
Fiscal Dynamics and Consumption Growth
On the fiscal front, the Government of India (GoI) has aggressively frontloaded capital expenditure. In the first seven months of 2025-26, capital expenditure grew by 32.4%, significantly higher than the budgeted growth of 10.1% over the revised estimates of 2024-25.
This policy push has been complemented by strong private consumption. Private Final Consumption Expenditure (PFCE) recorded a robust growth of 7.5% in the first half of 2025-26. This surge is attributed to lower inflation and interest rates, along with higher household disposable income resulting from personal income tax (PIT) rationalization. The upcoming GST 2.0 reforms, with extensive rate reductions, are expected to further support this consumption momentum.
Revenue Challenges and the Path Forward
However, the fiscal picture presents some challenges. GST collections have shown a dip. November 2025 data reveals a reduction of Rs 11,993 crore in gross collections and Rs 10,931 crore in net collections compared to November 2024. For the first seven months of the fiscal year, the growth in GoI's GST revenues (CGST, UTGST, and IGST) was a modest 2.6%.
When juxtaposed with a nominal GDP growth of 8.8% for the first half, the implied GST buoyancy for the government is only 0.3, far below the budgeted buoyancy of 1.1. Similarly, Gross Tax Revenue (GTR) growth for April-October 2025-26 was 4%, against a budgeted annual growth of 10.8%.
This suggests a potential shortfall in tax collections. To avoid impacting the fiscal deficit, a corresponding reduction in the government's budgeted revenue expenditures may be necessary. Some revenue support is expected from higher-than-budgeted RBI dividends and new excise duties on tobacco, pan masala, and other specified goods.
Overall, the domestic economy in 2025-26, bolstered by adept monetary and fiscal policies, has successfully neutralized adverse global impacts. Maintaining the momentum in capital expenditure growth and adhering to the fiscal consolidation path will be critical to sustaining this growth story into 2026-27 and beyond.
