FY26 GDP: Forget the Numbers, the Real Story Lies in the Future Outlook

When the First Advance Estimates (FAE) of India’s FY26 GDP growth came in at 7.4%, reactions were mixed. On the surface, the number looked reassuring. It was better than the previous year and also higher than the RBI’s estimates. For many, this suggested that India’s growth engine was still running strong.

But economists were not fully convinced. The concerns were not about the headline growth number. They were about what sat beneath it. To understand FY26 GDP properly, it is important to look beyond the headline and focus on the trajectory and the underlying drivers.

That is where the real story lies.

What the FY26 First Advance Estimates Actually Tell Us

It is important to start with context.

The 7.4% real GDP growth number for FY26 comes from the First Advance Estimates, which are preliminary in nature. This is not the final word on growth.

• The second estimate will be released on 27 February.
• The final FY26 GDP growth will be published on the last working day of May 2026.

So, revisions are not only possible, they are expected.

Even within this early estimate, there are some clear signals. The 7.4% growth figure already factors in a sharp slowdown in the second half of FY26. That means the growth number is not front-loaded optimism. It assumes moderation ahead.

However, another detail stands out. While real GDP growth appears strong, nominal GDP growth for FY26 is 180 basis points lower than FY25. This divergence is central to the debate.

Why the Headline GDP Number Can Be Misleading

Real GDP measures growth after adjusting for inflation. Nominal GDP captures growth in actual rupee terms. While both matter, they tell very different stories.

In FY26, low inflation has played an outsized role in boosting real GDP growth. This creates a situation where real growth looks healthy, but nominal growth does not keep pace.

This matters because:

• Nominal GDP determines income growth.
• It influences consumption and spending power.
• It impacts job creation and corporate revenues.

A slowdown of 180 bps in nominal growth compared to FY25 raises valid concerns, even if real GDP growth looks robust.

Sectoral trends also add nuance:

• Farm output has lagged after a long period of resilience.
• This weakness has been offset by buoyancy in manufacturing and services, which continue to support overall growth.

The message is clear. The growth number alone does not capture the full picture. The composition and momentum matter just as much.

Why Economists Are Concerned Despite Strong Real Growth

At first glance, a 7.4% growth rate does not appear worrying. So why are economists uneasy?

There are three broad concerns.

1. Weak Nominal Growth

Economists worry that slower nominal growth could:

• Limit income expansion
• Affect consumption demand
• Slow job creation

Without strong nominal growth, economic momentum becomes harder to sustain over time.

2. Global Risks Are Not Fully Priced In

Many economists believe that external risks are not fully reflected in the estimates. These include:

• Rising tariff risks
• Ongoing global geopolitical unrest
• Uncertainty in global trade flows

These factors could weigh on growth as FY26 progresses.

3. Signs of Stress in Certain Sectors

The slowdown in:

• Agriculture
• Utilities
• Construction

is seen by some as an early signal of deeper macro stress. While not alarming yet, these trends warrant close monitoring.

The Good News Lies in the Underlying Data

Focusing only on nominal versus real growth risks missing the more constructive signals in the data.

Two factors stand out.

Capital Formation Is Improving

Capital formation in FY26 has risen by 70 basis points to 7.8%. This is an important development.

Higher capital formation:

• Signals renewed investment intent
• Supports future productivity
• Has a lag effect on growth over the next few years

This is not a short-term boost, but a foundation for sustained expansion.

Consumption Is Picking Up

There is also a visible pick-up in consumption, especially government consumption.

Government spending tends to:

• Support demand during uncertain phases
• Crowd in private investment
• Stabilise growth during slowdowns

When capital formation and consumption improve together, they create a much stronger future growth setup than current GDP optics may suggest.

Why the Future Outlook Matters More Than Today’s Debate

GDP debates often focus excessively on one year’s number. That approach can be misleading.

Growth driven by:

• Investment
• Capital expenditure
• Demand revival

plays out over time. These are not instant results. They build gradually and reflect in earnings, jobs, and income growth with a lag.

In that context, the FY26 GDP discussion should be less about whether growth is 7.2% or 7.4%, and more about whether the growth engine is structurally strengthening. On that front, the signals are more encouraging than the narrative suggests.

The Bigger Story: India’s Economic Resilience

Beyond numbers and ratios, FY26 has highlighted one critical theme - resilience.

Consider what India has faced recently.

• The US imposed 50% penal tariffs on India. The impact on GDP has been limited, with only marginal pressure on exports.
• Despite pressure to stop buying Russian oil, policymakers stayed aligned with national interest, ensuring energy security.
• In 2025, FPIs sold $19 billion worth of Indian equities. At the same time, domestic institutional investors bought $73 billion, more than offsetting the outflows.

These are not cosmetic achievements. They reflect:

• Policy stability
• Depth of domestic capital
• Confidence in long-term growth

This resilience is not accidental. It is structural.

Key Takeaways

• FY26 real GDP growth of 7.4% is only a first advance estimate and will be revised.
• The real concern lies in nominal GDP growth being 180 bps lower than FY25.
• Low inflation has boosted real growth, masking nominal weakness.
• Rising capital formation and improving consumption point to stronger future growth.
• India has shown resilience despite tariffs, geopolitical pressure, and FPI outflows.
• The long-term growth trajectory matters more than short-term GDP optics.

Disclaimer: This article is for general information and educational purposes only and should not be treated as financial, legal, tax, or investment advice. Economic data and interpretations may change as revised estimates are released. Please consult a qualified professional before making any financial decision.