NEW DELHI — In a resounding display of economic resilience, India’s real GDP is estimated to grow by 7.4% in the current fiscal year (FY26), according to the First Advance Estimates released by the National Statistics Office (NSO). The surge, up from 6.5% last year, places the Indian economy at approximately $3.97 trillion, leaving it just a heartbeat away from the historic $4 trillion milestone.
This acceleration comes despite a punishing global trade environment, most notably the 50% “reciprocal tariffs” imposed by the U.S. administration in August 2025 on key Indian exports like textiles, gems, jewelry, and chemicals.
The Engine Room: What’s Driving the Surge?
While external trade faced headwinds, the domestic “engine” fired on all cylinders. The growth is underpinned by a robust rebound in manufacturing and a near double-digit explosion in the services sector.
Services (Financial, Real Estate)
FY26 Growth Estimate (GVA)- 9.9%
| Status- Leading Driver |
Trade, Hotels, Transport – FY26 Growth Estimate (GVA)- 7.5%
| Status – Robust Rebound |
Manufacturing- FY26 Growth Estimate (GVA) 7.0%
| Status -Resilient |
Construction- FY26 Growth Estimate (GVA) 7.0%
Status-Infrastructure-led|
|Agriculture- FY26 Growth Estimate (GVA) *3.1%
|Status – Normalizing |
Weathering the “Tariff Wall”
The 50% U.S. tariffs, justified by Washington under “national security” and “unfair trade” clauses, initially sent shockwaves through the MSME (Micro, Small, and Medium Enterprises) landscape. However, the impact was softened by two critical factors:
- Strategic Exemptions: Crucial sectors like pharmaceuticals and energy resources remained exempt to protect U.S. supply chains, allowing India’s generic drug exports—which account for nearly 50% of the U.S. market—to flourish.
- Domestic Policy Buffers: A “GST Rationalization 2.0” implemented in late 2025 and aggressive income tax cuts boosted local consumption, effectively replacing lost export demand with domestic appetite.
The Nominal “Squeeze”
While real growth (adjusted for inflation) is high, nominal GDP growth is projected to hit a five-year low of 8%. This narrow gap between real and nominal figures suggests that inflation has been significantly tamed, though it presents a challenge for the Finance Ministry. Lower nominal growth typically means less “tax buoyancy,” requiring tighter expenditure management in the upcoming February 1 Union Budget to meet the 4.4% fiscal deficit target.
Global Context
India continues to outpace its peers by a wide margin. While China’s growth is estimated at 4.4% and Germany teeters near 0.9%, India remains the “bright spot” of the G20. Analysts at Crisil and SBI suggest that if this trajectory holds, India will comfortably surpass Japan and Germany to become the world’s third-largest economy by 2027.
“The NSO estimates show that India has decoupled from global gloom. Even with 50% tariffs, the manufacturing floor hasn’t dropped because we’ve pivoted to domestic infrastructure and high-value services.”
— Dharmakirti Joshi, Chief Economist, Crisil
