India’s GDP Pegged To Grow At 7.4% In FY26; What’s Fueling The Economy Despite Tariffs, Global Headwinds

India's GDP Growth In FY25-26: The Indian economy is likely to grow at 7.4 per cent in the current financial year (FY2025-26) as compared to 6.5 per cent in the previous fiscal (FY24- 25), the government data showed on Wednesday. 

The government prediction shows the glimpse of a resilient Indian economy days after Asia’s third-largest economy surpassed Japan to become the world's fourth-largest economy. The nation's economy is growing at a robust pace despite larger global economies are facing tight financial situations amid US tariff concerns and uncertain geopolitical conditions. 

Govt Estimates Beats RBI's Prediction

This government GDP growth estimate is higher than the Reserve Bank of India's earlier prediction of 7.3 per cent, and it will be a significant jump compared to last year's growth rate of 6.5 per cent.

As per the data, the resilient performance of the manufacturing and services sectors played a big role during the financial year so far. The sectors are expected to perform well in the remaining period of the fiscal year as well. 

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Key Reasons Behind Robust FY25-26 GDP Growth Rate

Manufacturing and construction sectors are expected to grow at 7% 

According to the preliminary estimates of national income released by the Ministry of Statistics and Programme Implementation (MoSPI), the manufacturing and construction sector is expected to achieve a growth rate of 7 per cent.

"Buoyant growth in the services sector is a major driver in the estimated real GVA (gross value added) growth rate of 7.3 per cent in FY 2025-26," MoSPI said.

GST Rationalisation and Ease In Income Tax Fuel Demand

Key decisions like rolling out income tax relief for the middle class by exempting tax burdens on earnings up to 12 lakhs and rationalisation of GST rates by scraping 12 per cent and 28 per cent slabs across a wide range of products from September 22, boosted the consumption cycles.

Particularly, the GST cuts improved price visibility and affordability for the masses. GST reforms and income tax cuts have together provided a timely boost to spur consumption, supporting sales volume growth, especially in fast-moving consumer goods, services, durable goods, and automobile sectors.

Improved Credit Flow and market reform

During the fiscal year, the union government focused on improving credit flows, and some deeper market reforms helped the country sustain the growth momentum. It is helping the nation to be among Asia’s fastest-growing major economies even as immense external pressure.

Also read: Union Budget 2026: Is Budget 2026 To Be Tabled On Sunday, February 1? Govt Likely To Decide Date Today

Strong GDP Growth In Q1, Q2

The Indian economy saw strong momentum in the second quarter of FY2026, with GDP growth reaching a six-quarter high of 8.2 per cent, exceeding expectations. The second quarter FY26 GDP growth rate significantly improved from the 7.8 per cent growth rate in the first quarter of the current fiscal year.