India's FY26 GDP data: Resilience amid global turbulence, concerns remain

Strong services and manufacturing growth supported India's FY26 performance, but challenges around employment, inequality and regional disparities continue to weigh

India’s FY26 gross domestic product (GDP) data offers a reassuring picture of economic resilience at a time when much of the global economy continues to grapple with geopolitical and trade-related disruptions. Despite challenges ranging from United States (US) tariff actions to the ongoing Gulf crisis, India’s real GDP growth rate accelerated from 7.2 per cent in FY24 to 7.7 per cent in FY26.

 

Part of this improvement reflects easing inflationary pressures, as evidenced by the moderation in nominal growth over the past three years. Nevertheless, the data underscores the Indian economy’s ability to absorb external shocks while maintaining a healthy growth trajectory. A closer look at the composition of growth reveals both encouraging trends and emerging structural concerns.

 

Services continue to power growth

 

A significant share of India’s economic expansion continues to be driven by a select group of services industries, including financial services, real estate, information technology, trade and hospitality. Together, these sectors account for nearly 43 per cent of the country’s GDP.

 

These are among the most productive segments of the economy, despite employing only about 15 per cent of the workforce. Their continued strength has provided a crucial buffer against both domestic and global challenges over the past few years. In many ways, the services sector has been the primary driver of economic transformation, increasing the share of high-value-added activities in national output and enhancing the sophistication of the economy.

 

Manufacturing defies external headwinds

 

Perhaps the most encouraging feature of the FY26 data is the performance of manufacturing. Despite exporters facing considerable pressure from global trade disruptions and tariff-related uncertainties, manufacturing output expanded by an impressive 10.7 per cent, exceeding the previous year’s growth rate.

 

This is particularly important because manufacturing remains one of India’s largest potential mass employment generators. Sustained expansion in the sector can help absorb the country’s growing workforce, create semi-skilled jobs and unlock the benefits of demographic dividend.

 

The importance of manufacturing extends beyond production alone. Rising employment in the sector has a multiplier effect on the broader economy. As household incomes increase, consumption rises, creating a larger domestic consumer base that can support sustainable long-term growth.

 

However, a key impediment remains the inadequate flow of capital to MSMEs (micro, small and medium enterprises) engaged in manufacturing activities. MSMEs contribute over 45 per cent to India’s exports and generate employment for a substantial share of the workforce. Yet, their share of formal bank credit remains disproportionately low. Improving access to finance for these enterprises could significantly strengthen India’s manufacturing ecosystem and employment-generation capacity.

 

Construction activity loses momentum

 

Construction emerged as a relative drag on economic activity during FY26. While the sector remains critical for employment generation and infrastructure development, the slowdown may signal the beginning of a broader moderation in activity. Looking ahead, construction growth could soften further as public capital expenditure gradually normalises and commercial real estate development pauses after the rapid inventory additions seen during the post-pandemic real estate upcycle.

 

A moderation in construction activity is not necessarily alarming in the short term. However, given the sector’s importance for semi-skilled employment, a prolonged slowdown could have implications for job creation and income growth.

 

Inequality challenge beneath the numbers

 

While aggregate GDP growth remains impressive, one of India’s enduring challenges has been ensuring the benefits of growth are distributed broadly across regions and income groups.

 

The extent of regional disparities is evident in the six eastern states collectively accounting for under 10 per cent of India’s GDP, while just three western states contribute nearly 28 per cent. Such imbalances inevitably reflect in household-level economic outcomes, even when national growth figures appear robust.

 

For instance, while real GDP grew 7.7 per cent in FY26, per-capita GDP growth rate was lower at 6.8 per cent. Similarly, per capita private final consumption expenditure (PFCE), a proxy for individual consumption, grew 6.8 per cent, compared with overall PFCE growth of 7.7 per cent.

 

The divergence is even more pronounced in nominal terms. Nominal per-capita GDP growth slowed from 10 per cent in FY24 to 7.9 per cent in FY26. Similarly, nominal per-capita PFCE growth moderated from 8.8 per cent to 8.4 per cent over the same period.

 

These trends suggest growth in economic output is not translating into income gains and consumption growth for individuals at the same pace as before.

 

The concern becomes more pronounced when viewed alongside the slowdown in several labour-intensive sectors. Mining, construction, and public administration and related services all witnessed weaker growth during FY26. Since these sectors are important employment sources for semi-skilled workers, slower expansion could limit job creation for a large section of the population.

 

Without adequate growth in such sectors, India may find it challenging to efficiently utilise its demographic dividend and expand its consumer base — a critical prerequisite for sustaining high economic growth over the long run.

 

The road ahead

 

India’s FY26 GDP data reinforces the narrative of an economy capable of navigating global uncertainty. Strong services growth and robust manufacturing performance provide reasons for optimism, particularly given the challenging external environment.

 

However, sustaining high growth over the long term will require more than strong headline numbers. The quality and inclusiveness of growth will matter equally.

 

A growing middle class supported by productive employment opportunities remains the foundation of sustainable economic growth. India adds nearly eight million workers to its workforce every year. Generating productive employment opportunities for this expanding labour force will be critical if the country is to fully harness its demographic advantage.

 

With private consumption accounting for over 55 per cent of GDP, the linkage between broadbased growth, employment creation, rising incomes and consumption demand becomes more important than ever. Strengthening this virtuous cycle will be essential for India to achieve its long-term aspirations of becoming a developed and self-reliant economy by 2047.

 

Ultimately, India’s growth story will be most successful not when GDP rises alone, but when rising output translates into rising incomes, broader consumption and greater economic participation across all sections of society.

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The author is chief economist, Piramal Enterprises Limited