Government Estimates India’s GDP Growth at 7.4% for FY 2025–26 Amid Global Trade Pressures

 

The Union government has projected India’s real GDP growth at 7.4% for the financial year 2025–26, marking an improvement over the 6.5% growth recorded in the previous year. The estimate, released as part of the First Advance Estimates (FAE) by the Ministry of Statistics and Programme Implementation, comes at a time when the economy is navigating global uncertainties and rising trade pressures.

Alongside real growth, the government has pegged nominal GDP growth at 8% for the year. These advance estimates carry particular significance, as they form the statistical foundation for key fiscal calculations used in the preparation of the Union Budget.

Advance estimates are essentially forecasts based on data available up to a certain point in the year. While the First Advance Estimates provide an early picture, a Second Advance Estimate will be released on February 27, offering a clearer assessment as more data becomes available. The Provisional Estimates, based on full-year data, are scheduled for release on May 30.

According to the government’s assessment, economic momentum was strong in the first half of the year, with GDP expanding by 7.8% in the first quarter and 8.2% in the second quarter. However, growth is expected to moderate in the latter half, with the average pace for the third and fourth quarters estimated at 6.8%. This suggests a gradual slowdown as external and domestic challenges begin to weigh on activity.

The Reserve Bank of India had earlier projected GDP growth at 7.3% for 2025–26, with growth expected to ease from 7% in the third quarter to 6.5% in the fourth. Both the government and the central bank’s projections reflect a cautious optimism amid mounting global headwinds.

One of the most pressing challenges facing the economy is the 50% tariff imposed by the United States on Indian imports. This has disproportionately affected labour-intensive industries such as textiles, apparel, and engineering goods, raising concerns over exports and employment. While the government has attempted to stimulate domestic demand through cuts in both direct and indirect taxes, consumption growth appears to be softening.

Data from the advance estimates shows that Private Final Consumption Expenditure, a key indicator of household spending, is expected to grow by 7%, slightly slower than the 7.2% growth recorded last year. This suggests that consumer confidence, while stable, has not strengthened significantly despite policy support.

Sector-wise, performance remains uneven. The mining and quarrying sector is projected to contract by 0.7%, a sharp reversal from the 2.7% growth seen in the previous year. In contrast, the services sector is expected to emerge as the main growth driver, with overall expansion accelerating to 9.1%, compared to 7.2% last year.

Within services, strong growth is anticipated in financial services, real estate, and professional services, as well as public administration and defence, both expected to grow at nearly 10%. The trade, hotels, transport, and communication segment is also set to improve, with growth rising to 7.5%, up from 6.1% in the previous year.

Investment activity shows signs of resilience, with Gross Fixed Capital Formation projected to grow by 7.8%, higher than last year’s 7.1%, indicating continued momentum in capital spending despite broader economic uncertainties.