Consumption demand rises while govt spending stays flat in FY26 data

India's Second Advance GDP Estimates for FY26 signal strengthening private consumption, steady government spending and firmer investment momentum, reflecting shifts under the revised GDP series

In what could be a sign of recovery in consumption demand, growth in private final consumption expenditure (PFCE) is expected to accelerate to 7.7 per cent in 2025-26 (FY26), compared to 5.8 per cent in 2024-25 (FY25), according to the data released by the National Statistics Office (NSO) on Friday.

 

The second advance estimates of gross domestic product (GDP) for FY26, using the revised base year, showed that the share of PFCE, which represents demand in the economy, in nominal gross domestic product (GDP) was expected to rise by 20 basis points to 56.7 per cent in FY26 from 56.5 per cent in FY25.

 

However, in nominal terms, PFCE growth is expected to slow to 8.9 per cent in FY26 compared to 9.7 per cent in FY25, which is a new metric added under the revised series. 

Experts reckon the share of consumption has decreased under the new series, while that of expenditure has increased. 

 

“The new series is different from the earlier one insofar as the gross fixed capital formation (GFCF) rate is higher at 31.7 per cent of GDP while share of consumption is lower at 56.7 per cent,” said Madan Sabnavis, chief economist, Bank of Baroda.

 

Echoing similar views, a report by Bank of America Securities said: “In terms of the overall data, investment share has been lowered marginally in real terms, while private consumption also has lost modestly in its share.”

 

Similarly, government spending, represented by government final consumption expenditure (GFCE), is also expected to rise slightly to 6.6 per cent in FY26 from 6.5 per cent in the previous year. The share of GFCE in nominal GDP is also expected to accelerate to 10.8 per cent from 10.7 per cent in FY25. 

 

The data also showed that GFCF, which is taken as proxy for infrastructure investment in the economy, is pegged to quicken to 7.1 per cent this financial year, compared to 6.4 per cent in 2024-25.

 

GFCF’s share in nominal GDP is expected to rise marginally to 31.7 per cent, up from 31.6 per cent in the preceding year. 

 

“Investment activity seems to have strengthened, with GFCF growing 7.8 per cent. While government capital expenditure remains strong, we are also seeing early signs of a pickup in private investment. With consumption coming in at 8.7 per cent, we expect investment spending to only improve going forward,” said Rumki Majumdar, economist, Deloitte India.

 

Radhika Rao, executive director and senior economist, DBS Bank, said the savings and investment ratios pointed to a stronger beat than what was previously assumed.

 

Additionally, the third quarter (Q3) of FY26 is expected to see recovery in consumption demand with PFCE rising to 8.7 per cent after dipping to 8 per cent in the second quarter (Q2) of FY26. However, both government spending and investment demand are expected to fall in Q3 with GFCE easing to 4.7 per cent from 6.6 per cent in Q2 of FY26, and GFCF slowing to 7.8 per cent from 8.4 per cent previously. 

 

“The new series underlines private consumption as the leading driver of growth this fiscal, while the FAE (first advance estimates) under the older series called out fixed investment. For next financial year, we expect real GDP growth to remain healthy, with support from private consumption and investment, and likely steady global growth,” said Dharmakirti Joshi, chief economist, CRISIL Ltd.