Govt. pegs real GDP growth at 7.4% amid concerns over tariffs

Govt. pegs real GDP growth at 7.4% amid concerns over tariffs

Estimate for next fiscal comes with uncertainties and 50% U.S. tariffs hitting labour-intensive sectors; with Q1 and Q2 growing at 7.8% and 8.2%, second half will see growth slow to 6.8%; consumer spending to grow at 7% slower than last year

The Union government has estimated that real growth in the Gross Domestic Product (GDP) of the country will stand at 7.4% in the current financial year 2025-26, up from 6.5% recorded the previous year.

In the First Advance Estimates (FAE) of GDP for 2025-26, released by the Ministry of Statistics and Programme Implementation on Wednesday, the government said that nominal growth for the year would be 8%.

The FAE for any year is important as it forms the basis for various calculations and ratios used in preparing the Union Budget.

The First Advance Estimates, and the Second Advance Estimates, which will be released on February 27, are forecasts of the full year’s growth based on data available up to that point. The Provisional Estimates for 2025-26, based on the full-year’s data, will be released on May 30.

Based on the Centre’s assessment that the full year’s growth would be 7.4%, and the fact that Q1 and Q2 saw 7.8% and 8.2% growth respectively, the second half of the year would see average growth slow to 6.8%.

Braving headwinds

In December, the Reserve Bank of India had said that GDP growth in 2025-26 would be 7.3%, with Q3 growing at 7% and Q4 at 6.5%.

These projections come at a time when India’s economy is facing several headwinds. The 50% tariff levied by the U.S. on imports from India has hit several labour-intensive sectors such as apparel, textiles, and engineering goods. The government has tried to boost consumer demand through both direct tax and indirect tax rate cuts, but the data shows it nevertheless expects Private Final Consumption Expenditure, a metric that captures consumer spending, to grow at 7% in 2025-26, marginally slower than the 7.2% recorded last year.

The mining and quarrying sector is estimated to contract in 2025-26 by 0.7%, as compared to a growth of 2.7% the previous year.

The tertiary sector, which comprises the services sectors, is expected to see growth quicken to 9.1% in 2025-26 from 7.2% in 2024-25. Within this, the ‘financial, real estate and profession services’, and the ‘public administration, defence, and other services’ sub-groupings are both expected to grow at 9.9% in 2025-26.

The ‘trade, hotels, transport and communication’ category is expected to grow at a relatively slower 7.5% in 2025-26, although this is faster than the 6.1% seen in 2024-25.

Gross Fixed Capital Formation, on the other hand, is expected to grow at 7.8% in 2025-26, faster than the 7.1% seen in 2024-25.