New GDP series: Consumption demand recovers in FY26, govt spending flat

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

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 consumption 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. 

 

Investment demand as represented by gross fixed capital formation (GFCF) is estimated to accelerate in FY26 to 7.1 per cent from 6.4 per cent in FY25 in real terms.

 

 

Rumki Majumdar, economist, Deloitte India said investment activity seems to have strengthened in FY26. 

 

“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,” she added.

 

“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.

 

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 preceding year. The share of GFCE in nominal GDP is also expected to rise to 10.8 per cent from 10.7 per cent in FY25. 

 

The share of other components in GDP measured from the demand side include change in stocks (1.2 per cent), valuables (1.7 per cent), net exports (1.7 per cent) and discrepancies (-0.3 per cent). 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, growth in government spending and investment demand are expected to decelerate 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.