India’s economic growth story for FY26 looks reassuring on the surface, but economists are urging caution beneath the headline numbers.
The Ministry of Statistics and Programme Implementation (MoSPI), in its first advance estimates, has projected India’s real GDP growth at 7.4% for FY26, driven by steady momentum in services and manufacturing. However, nominal GDP growth has been pegged at just 8%, a sharp slowdown from 9.8% last year, raising concerns around earnings growth, fiscal arithmetic and the durability of the expansion.
Speaking to CNBC-TV18, economists said that while the real GDP number broadly meets expectations, the softer nominal growth could have far-reaching implications for markets and macro variables.
Real growth meets expectations, nominal growth disappoints
Kaushik Das, Chief Economist at Deutsche Bank, said the real GDP estimate was largely in line with consensus, but the nominal number was weaker than anticipated.
“Most people were expecting around 7.5%. Our own forecast was 7.2%, so 7.4% is broadly in line. What surprised me was nominal GDP at 8%. We were closer to 8.3%,” Das said.
He pointed out that while real GDP growth has accelerated by nearly 90 basis points year-on-year, nominal growth has fallen by almost 180 basis points, reviving questions around inflation assumptions and GDP deflators.
“This again brings back the debate on whether we are calculating the deflator properly. If the deflator was different, real GDP growth may not have looked as strong,” Das said.
Lower nominal GDP growth, he added, is already reflected in muted corporate earnings and continued foreign investor outflows, making the growth picture less comforting for markets.
Why nominal GDP matters for markets and policy
Madhavi Arora, Chief Economist at Emkay Global, said the 8% nominal GDP estimate was not a major surprise, as expectations had already been reset lower following data revisions earlier in the year.
“Compared to the revised assumptions, this is broadly in line. But it is significantly lower than the 10-year average of around 10% and far below the 15–20-year average of 14–15%,” Arora said.
That slowdown, she warned, requires recalibration across macro and market variables.
“When nominal GDP growth slows, everything from fiscal deficit ratios and debt-to-GDP to credit growth and corporate earnings needs to be adjusted. Any slippage in nominal GDP does matter,” she said.
However, Arora noted that in absolute terms, nominal GDP is still likely to be close to Budget estimates, easing immediate concerns around fiscal math.
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Growth likely to slow in the second half
A key takeaway from MoSPI’s estimates is the implied slowdown in the second half of FY26, with growth averaging 6.8%, compared with around 8% in the first half.
Economists attributed this to normalising base effects and moderation in government spending.
“The data suggests growth will decelerate in H2 as the low-base effect fades,” Das said. “Government capex was strong in the first half as spending was constrained last year due to elections. That boost will naturally taper off.”
Consumption boost narrows
Private consumption growth is estimated at 7%, slightly lower than last year’s 7.2%, despite strong high-frequency indicators such as automobile sales.
Kanika Pasricha, Chief Economic Advisor at Union Bank of India, said the consumption-led boost seen earlier in the year has not been as strong or broad-based as expected.
“We initially thought consumption would surprise on the upside, including in the December quarter. But the 6.8% H2 growth suggests the GST-led boost has not sustained at the pace indicated by early data,” Pasricha said.
She added that consumption remains crucial in a global environment marked by uncertainty, particularly as private investment continues to lag.
Autos strong, broader demand still weak
Arora echoed this view, noting that consumption gains have been concentrated in select pockets.
“The post-GST cut consumption boost has largely been limited to autos. Consumer staples and durables have not shown the kind of traction one would expect,” she said.
Urban income growth remains subdued, she added, limiting the scope for a broad-based consumption revival even as tax incidence eases marginally.
Investment driven by government spending
On investment, economists said the improvement remains largely government-led.
Gross fixed capital formation is estimated to grow 7.8%, up from around 7% last year, supported by higher government capital expenditure on a low base.
“The broad-based private capex recovery we talk about at the start of every year has still not materialised,” Das said. “Uncertainty continues to keep the private sector on hold.”
The bottom line
Economists agree that 7.4% growth is a strong outcome, particularly compared with sub-6.5% expectations at the start of the year. But they caution against reading the headline number in isolation.
“The glass can look half-full or half-empty, depending on whether you focus on real or nominal GDP,” Das said. “On the surface, it looks strong. But once you drill down, there are nuances that markets and policymakers cannot ignore.”
For investors and policymakers alike, the message is clear: India’s growth story remains intact, but weaker nominal momentum could cap earnings, strain fiscal ratios and temper market optimism in the months ahead.
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