India’s economy is projected to grow at 7.4 per cent in 2025-26, accelerating from 6.5 per cent in the previous fiscal, according to the government’s first advance estimates released on Wednesday. The headline number however, point to moderation in the latter half of the financial year.

The estimates imply a deceleration in growth to an average of 6.8 per cent in the second half, after real GDP rose 7.8 per cent and 8.2 per cent in the first and second quarters respectively, yielding about 8 per cent growth for H1 FY26.

A tapering of government capital expenditure and softer consumption trends are expected to weigh on activity, partially offsetting the resilient momentum driven by manufacturing and services strength in key sectors.

Private final consumption expenditure is seen slowing to 7 per cent growth in FY26 from 7.2 per cent in FY25, despite reductions in income tax and GST rates aimed at stimulating household spending during the year. Government final consumption expenditure is estimated to grow 5.2 per cent in FY26, sharply higher than 2.3 per cent in FY25, while gross fixed capital formation is projected to rise 7.8 per cent versus 7.1 per cent last year, supported by front-loaded public capex in the first half.

Rahul Agrawal, senior economist at Icra, said a likely contraction in government capex combined with the drag from US tariffs on merchandise exports across several sectors, and an unfavourable base, could moderate growth in the second half relative to the first.

Kanika Pasricha, chief economic adviser at Union Bank of India, told CNBC-TV18 that the 6.8 per cent implied H2 growth suggests the consumption impulse from GST cuts may be weaker than initially expected, though consumption remains a key pillar of economic growth.

Nominal GDP is estimated at ₹357.14 lakh crore in FY26, up from ₹330.68 lakh crore in FY25, reflecting an 8 per cent increase that factors in inflation. Gross value added is expected to rise 6.3 per cent, led by robust services and manufacturing performance. The government noted that buoyant services activity has emerged as a major driver of real GVA growth, pegged at 7.3 per cent in FY26, while manufacturing and construction in the secondary sector are estimated to deliver 7 per cent growth at constant prices.

Agriculture, however, is likely to lose some steam, with growth projected at 3.1 per cent in FY26 compared with 4.6 per cent in FY25. Agrawal said Icra expects industrial and agricultural growth to fare somewhat better than the National Statistical Office’s implicit projections for H2 FY26, while services may trail the estimates.

Economists anticipate potential upward revisions when the second advance estimates are published on February 27. Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, said the gap between RBI’s and NSO’s projections typically ranges from 20–30 basis points, making the 7.4 per cent forecast reasonable.

“We, however, believe that GDP growth for FY26 would be around 7.5 per cent with an upward bias. The second advance estimates, incorporating additional data and revisions, are scheduled to be released on February 27, 2026. So, all these numbers are expected to change with the base revision to 2022-23,” said he said.

The Reserve Bank of India has projected a growth of 7.3 per cent for FY26.

Upasana Chachra, chief India economist and Bani Gambhir, economist, Morgan Stanley India, said: “The combined impetus from fiscal and monetary policy support, improved purchasing power and labour market outlook is likely to ensure consumption recovery gains more breadth.

“We anticipate a more broad-based pickup in capex, as improving investor sentiment encourages private investment activity. As such, domestic demand is likely to drive growth, amidst continued tariff and geopolitics-related global uncertainty weighing on external demand. We expect growth at 6.5 per cent in FY27.

“We remain watchful of the upcoming change in the base year for the GDP series, along with the second advance estimate for FY26 as well as Q326 estimates will be released in end February.”