FY26 GDP Data Points to Second-Half Slowdown and Softer Growth Next Fiscal

The First Advance Estimates of GDP released by the National Statistics Office indicate a clear moderation in momentum as the year progresses. Real GDP growth is estimated at 7.4%, up from 6.5% in 2024–25, placing India among the fastest-growing major economies. Yet a closer reading of the estimates suggests that this headline strength is front-loaded, with growth expected to slow meaningfully in the second half of the year.

According to CRISIL, the estimated growth rate implies a divergence between the two halves of the fiscal, with GDP growth easing to around 6.8–6.9% in the second half from close to 8% in the April-September. QuantEco Research similarly derives second-half growth of about 6.9%, highlighting the risk of a sharper sequential deceleration once favourable base effects fade and external headwinds intensify.

Madhavi Arora, Chief Economist at Emkay Global Financial Services also flags that the implied slowdown is largely concentrated in industrial activity, particularly manufacturing.

The supply-side composition reinforces this assessment. Services remain the primary driver of growth, with real gross value added in services projected to expand by over 9%. CRISIL notes that financial, real estate and professional services, along with public administration and defence, are seeing broad-based strength, reflecting steady credit expansion, urban demand resilience and government spending. These segments are expected to remain supportive even in the second half, although growth may soften marginally from elevated levels.

Industry, by contrast, presents a more mixed picture. Manufacturing growth is estimated to improve sharply over last year, aided by domestic demand, easing cost pressures and earlier policy support.

Both QuantEco and Emkay caution that manufacturing momentum is likely to slow in the second half as global trade conditions worsen and the impact of US tariff actions becomes more visible. Construction growth is projected to remain stable, though at a lower pace than last year, as government capital expenditure growth slows on a high base.

On the demand side, the First Advance Estimates suggest a gradual rotation in growth drivers. Private consumption is estimated to grow around 7%, remaining above its long-term trend but moderating slightly from last year. QuantEco highlights that this slowdown is notable given supportive factors such as low inflation, tax relief measures and easier financial conditions, and may reflect base effects as well as a pickup in imports weighing on net demand in the second half.

Government consumption and investment provide partial offsets. CRISIL points out that government final consumption is expected to rebound sharply from a low base, while gross fixed capital formation growth is estimated to improve to nearly 8%. Even so, there are downside risks. Emkay notes that with public capex already front-loaded and tax revenue growth moderating, the scope for sustaining high investment growth in the latter part of the year may be limited.

A key macro feature of the estimates is the sharp slowdown in nominal GDP growth to around 8%, the lowest in the post-pandemic period outside the Covid years. CRISIL and QuantEco both attribute this to an exceptionally low GDP deflator, driven by subdued inflation. While lower nominal growth eases inflation concerns, it also underscores the statistical nature of part of the real growth acceleration and could constrain fiscal ratios measured against nominal GDP.

However, most economists emphasise that the First Advance Estimates should be interpreted with caution. The estimates are based on limited data up to November and will be subject to revisions, especially with a new GDP series expected to be released shortly. CRISIL and Emkay project real GDP growth easing toward the mid-6% range in 2026–27 as statistical tailwinds fade, fiscal support moderates and global trade growth slows.