First Advance Estimate (FAE) of Fy26 GDP: A Mixed Bag

On the face of it, the first advance estimate (FAE) of FY26 GDP growth does look very impressive at 7.4%, compared to 6.5% last year. However, while the real GDP growth was 90 bps higher this year, the nominal GDP growth (before inflation adjustment) was actually down by 180 bps compared to FY25. Most of the GDP gains in FY26 appear to have come from inordinately low inflation. There are other key data points too. Agriculture growth was lower in FY26 in real terms, and in nominal terms, it is actually flat. Secondary sector growth came from manufacturing, while utilities and construction sector lagged. However, there are positive tidings too; as we shall see later.

Understanding The Real Versus Nominal Growth Puzzle

• Primary sector is slated to grow at 2.6% in FY26 compared to 4.4% in FY25. Nominal growth for FY26 is pegged at just 0.2% versus 9.5% in the previous year.

• Secondary sector is slated to grow at 6.6% in FY26 compared to 6.1% in FY25. Nominal growth for FY26 is pegged at 7.5% versus 7.2% in the previous year.

• Tertiary sector is slated to grow at 9.1% in FY26 compared to 7.2% in FY25. Nominal growth for FY26 is pegged at just 7.7% versus 9.5% in the previous year.

• Overall GDP is slated to grow at 7.4% in FY26 compared to 6.5% in FY25. Nominal growth for FY26 is pegged at just 8.0% versus 9.8% in the previous year.

What We Read From The GDP Data For Fy26 (FAE)

One apparent conclusion is that the real GDP growth for FY26 is likely to be driven more by low inflation even as top line growth is under pressure. Here are key takeaways.

• The real versus nominal dichotomy is the maximum in agriculture and that is because most of the agricultural products faced negative inflation in the last 7-8 months.

• The second advance estimate for GDP will be out on 27-February, but that will be based on 2022-23 base year and not the 2011-12 base year, used currently.

• The change in base year is likely to add about 10 bps to real GDP growth to 7.5%, so despite a rupee spillage in fiscal deficit, it could still be 4.4% of GDP only.

• In the primary sector, both agriculture and mining activity got hit badly by the delayed monsoons, which has impacted the output meaningfully in FY26.

• If you use nominal GDP as the benchmark, only manufacturing has expanded in the secondary sector, while utilities and construction have grown at a slower rate.

• The good news is that green-shoots of recovery are visible. Capital formation has grown 70 bps to 7.8%. Government consumption is growing. Effectively, the next few quarters could be the quarters when nominal growth could reflate to double digits.

Based on the rupee nominal GDP estimates provided by MOSPI, India could see GDP touching $4 trillion level this year, still leaving a long gap to $5 trillion GDP target. Of course, that is assuming that the rupee does not weaken further against the dollar!