India’s economy expanded at a stronger-than-expected rate of 7.8% in the fourth quarter of FY26, riding on the momentum of service and construction sectors, and defying the late-quarter external headwinds from the West Asia conflict, according to provisional data released by the National Statistics Office (NSO) on Friday.
With this and marginal revisions of growth figures for first three quarters, the gross domestic product (GDP) clocked a creditable 7.7% growth in FY26, the highest in the new series using 2022-23 as the base year. The NSO’s second advance estimates had put FY26 growth at 7.6%, just ahead of the release of the Union Budget for FY27.
Risks cloud growth outlook
The latest set of data signals that economic activity was gathering some steam, before the West Asia war began to stifle it in multiple ways. Citing elevated energy prices, below-normal monsoon and supply disruptions, the Reserve Bank of India on Friday revised its GDP growth forecast for the current fiscal to 6.6% from 6.9% earlier.
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According to the NSO, the last financial year witnessed manufacturing and “trade hotels, transport etc.” and “financial, real estate, IT etc.” to register strong growth rates of 10.7%, 11% and 10.4%, respectively. Agriculture and allied sectors also held up (3%). Manufacturing, however, slowed sharply to 7.3% in Q4 from an average 12% growth in the previous three quarters.
Another positive feature is a steady rise in gross fixed capital formation (GFCF), a close proxy of investments, in the four quarters through Q4FY26. GFCF grew a healthy 10.8% in the March quarter, reflecting a strong mix of government and private investments; in the year as a whole, it rose 8.2%, a significantly higher rate compared to the previous year’s 6.4%.
Private final consumption expenditure, the largest GDP component, expanded at the same rate as the overall economy in the year.
However, the nominal GDP growth fell to 8.9% in FY26, the lowest level in the current series. This was also the lowest nominal growth since FY21 when the economy shrank owing to the Covid pandemic, if cross-series comparisons are plausible. Chief Economic Adviser V Anantha Nageswaran said: “The good news is that it (higher inflation) will mean that the nominal GDP growth for FY27 will be significantly higher than the number which the budget estimates used (which is) 10.1%.” The RBI on Friday projected average consumer price index-based (CPI) inflation of 5.1% in FY27, up from the 4.6% forecast earlier.
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Nageswaran, however, added that high-frequency indicators through April and early May suggest resilient domestic demand and economic activity, even despite emerging stress signs.
Crisil Chief Economist Dharmakirti Joshi noted that GDP growth in Q4FY26 was above the he average growth of 7.4% in the previous 10 quarters and was driven by healthy private consumption and fixed investments. “We maintain our GDP growth forecast for FY27 at 6.6%, with risks tilted to the downside. Despite the slowdown in real GDP, the nominal GDP growth is set to be higher due to higher inflation based on both the Wholesale Price Index and the Consumer Price Index,” he said.
Gaura Sengupta, chief economist at IDFC First Bank, said the growth in consumption was led by the pick-up in both rural and urban demand.
Capex drives investment growth
Devendra Pant, Chief Economist at India Ratings & Research noted that fixed capital formation growth in the new series was highest, both on a quarterly as well as an annual basis. “This is achieved despite the Union government cutting capex in FY26 to limit its fiscal deficit to 4.4% of GDP.”
He added that net exports (exports of goods and services minus imports of goods and services divided by GDP) improved in Q4 FY26 to -1.4% from -2.7% in Q3 FY26. This suggests strong growth in the services trade surplus has limited the adverse impact of a weaker currency and increased energy prices. On an annualised basis, net exports deteriorated to (-) 2.2% of GDP in FY26 from (-)1.8% of GDP in FY25 and thus pulled down GDP growth, Pant said.
Aditi Nayar, Chief Economist at ICRA, warned that elevated energy prices for an extended period pose a downside risk to growth in the near term, including muted prospects for investment demand, negative impact on corporate profitability and dampening consumer sentiments. “Besides, the potential development of El Nino conditions and a weak monsoon forecast for 2026 have dulled the agricultural outlook and rural demand prospects for H2 FY2027,” she said.
TOPICSEl NinoGDPGDP growthIndian EconomyThis article was first uploaded on June six, twenty twenty-six, at nineteen minutes past six in the morning. © The Indian Express (P) Ltd