Indian economy projected to grow 6.5% in FY26
What's the story
India's economy is projected to grow by 6.5% in the fiscal year 2025-26, driven by steady domestic momentum, according to a report by Bank of Baroda. The projection matches the Reserve Bank of India (RBI)'s forecast of 6.5%, announced during its latest Monetary Policy Committee (MPC) meeting on August 6, 2025. However, the report warns that rising concerns over ongoing tariff negotiations could pose a downside risk to this positive outlook.
Economic performance
GDP growth accelerated to 7.8% in Q1
The fiscal year kicked off on a strong note with India's GDP growth accelerating to 7.8% in the first quarter of FY25-26, a sharp jump from 6.5% in the same period last year. The report highlighted that festive season spending and a revival of urban consumption are likely to further bolster growth. Anticipations of another RBI rate cut and possible fiscal support could also positively impact the economic trajectory, it added.
Growth drivers
Nominal GDP grew at 8.8% rate
Official data shows India's nominal GDP grew at an 8.8% rate during the April-June quarter. The growth was led by supply-side contributions from manufacturing, construction, and services sectors. On the demand side, strong growth in Private Final Consumption Expenditure (PFCE) at 7% and Gross Fixed Capital Formation (GFCF) at 7.8%, underpinned performance with PFCE's share in GDP rising to a record high of 60.3%.
Investment growth
Report notes rise in private investment sentiment
The report also noted a massive 30.1% jump in central government capital expenditure over the last three years, which has sustained momentum in GFCF growth. Private investment sentiment improved too, with new investment announcements rising 3.3 times on a year-on-year (YoY) basis in Q1. Capacity utilization remained high, indicating further manufacturing growth ahead.