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Executive Summary

Real GDP growth for FY26 estimated at 7.6% y/y as per SAE (new series), above FAE by 20bps (old series)
Sharp revisions were made to real GDP growth in the past years on base change (FY24: 9.2%→7.2%, FY25: 6.5%→ 7.1%). Some of the key improvements made in the new series include segregation of activities in multi-activity enterprises, improved coverage of the unincorporated sector, adoption of double deflation in agriculture and manufacturing sector, and extensive use of GST and new administrative data for quarterly accounts. Annual real GVA expansion was 0.1pp above real GDP to print 7.7% growth. On the nominal front, GDP growth clocked 8.6% y/y for FY26, indicating the deflator remains low. The gap between nominal and real GDP could open up in FY27

Manufacturing emerges as the mainstay of growth in the new series

As was indicated by resplendent manufacturing PMI and buttressed on better usage of data from the informal sector and double deflation, manufacturing became the major driver of growth in FY24, FY25, and FY26 post rebasing, consistently outpacing GVA growth. In real terms, from FY24 to FY26, GVA to output ratio showed a secular uptick while GCF to output ratio showed a steady decline, indicating that both the capital and process efficiency of manufacturing is improving. Strongest growth was seen in the machinery & equipment segment, with fair growth in metals corroborating robust production figures seen.

Lower nominal GDP figure for FY26 may upset the fiscal math for FY27

Annual nominal GDP for FY26 is estimated at Rs. 345 trn, well below Rs. 357 trn as per FAE. Assuming 10% y/y growth over the nominal FY26 GDP as per SAE and similar fiscal deficit in absolute terms at Rs. 16.95 trn, this could push the fiscal deficit up 25bps beyond the target for FY27. Alternatively, to maintain the target fiscal deficit in FY27, nominal growth will have to clock 13.7% y/y, which appears difficult even if we are to assume that the CEA’s assertion that real growth for FY27 would now be 7-7.4% were to hold true. Clearly, the government will have to recalibrate its borrowing to achieve fiscal aims

Quarterly real GDP growth beats estimates as capex and consumption remain the twin drivers

Quarterly real GDP growth in Q3FY26 of 7.8% y/y beat street estimates by ~60bps, though lower than a multi-year high seen in Q2. Services GVA maintained steam clocked 9.5% y/y in Q3FY26. Both trade, hotels etc. and financial, real estate etc. categories showed growth above 11%. PFCE grew faster than overall GDP for the 3rd straight quarter as the benefits of GST rationalisation kicked in. GFCF maintained its pace in Q3FY26 despite lower construction GVA. It is at the second highest level in 9 quarters. Capital expenditure of the Union in 10MFY26 was at 76.9% of FY26RE, better than the attainment in the same period last fiscal

High frequency indicators show continued momentum for Q4FY26

The handsome GDP figure for Q3FY26 could be foretold by momentum of high frequency indicators during the festive season despite the unusually rainy quarter. Q4 is proceeding briskly with key indicators such as vehicle retail sales, port cargo volume, railway freight statistics, and UPI transactions reflecting continued strength. Based on this, one may expect a real GDP growth in excess of 7% in Q4FY26 as well.

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