New Delhi: India’s economy is poised for robust growth, with real GDP estimated to expand by 7.4% in FY 2025–26 and nominal GDP growth projected at 8%, Union Finance Minister Nirmala Sitharaman said while presenting the Union Budget 2026-27 in Parliament. Looking ahead, nominal GDP for FY 2026-27 is expected to grow by 10%, underscoring the resilience of the Indian economy amid global uncertainties.
Services Sector Leads Growth
The services sector remains the primary engine of growth, expanding by 9.1%, while manufacturing and construction grew by 7%, and agriculture by 3.1% in FY 2025-26. Strong domestic demand continues to anchor growth, with private final consumption expenditure (PFCE) projected to rise 7%, accounting for 61.5% of GDP, the highest level since FY12. Government expenditure is also expected to rebound with a 5.2% year-on-year growth.
Investment and Capital Formation
Investment activity remains robust, with gross fixed capital formation (GFCF) rising 7.8% in FY26. The Union Government’s effective capital expenditure for FY 2026-27 is projected at ₹17.15 lakh crore (4.4% of GDP), comprising capital spending by the Centre (₹12.22 lakh crore) and grants-in-aid to states (₹4.93 lakh crore) for creation of capital assets.
Fiscal and Debt Indicators
The fiscal deficit is estimated at 4.3% of GDP in BE 2026-27, while the revenue deficit is projected at 1.5%, with an effective revenue deficit of 0.3%. The Central Government debt-to-GDP ratio is expected to decline to 55.6%, from 56.1% in FY 2025-26, as part of a medium-term target to reach 50±1% by 2030-31.
Tax Revenue and State Devolution
Gross tax revenue is projected at ₹44.04 lakh crore, with direct taxes contributing ₹26.97 lakh crore and indirect taxes ₹17.07 lakh crore. Net tax revenues for the Centre are estimated at ₹28.67 lakh crore, while total resources shared with states via the Finance Commission, including tax devolution and grants, are projected at ₹16.56 lakh crore.
External Sector Performance
India’s external sector remains strong, with total exports reaching USD 825.3 billion in FY25 despite global tariff challenges. Gross FDI inflows stood at USD 81 billion, and the current account deficit fell to 0.8% of GDP in H1 FY26, down from 1.3% in H1 FY25, reflecting healthy external balances.
Outlook
Sitharaman highlighted that India’s growth momentum is supported by structural reforms, strong domestic demand, digitalisation, tax and labor reforms, and private-sector investment. With continued fiscal prudence and targeted capital expenditure, the government aims to maintain stability while driving inclusive and sustainable growth towards a Viksit Bharat.
