First Advance Estimates (FAE) of GDP for 2025-26
Context:
The Ministry of Statistics and Programme Implementation (MoSPI) has released the First Advance Estimates (FAE) for the financial year 2025-26.
These estimates serve as the essential benchmark for preparing the upcoming Union Budget.
The First Advance Estimates, and the Second Advance Estimates (releasing 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.
This first advance estimate will have a short shelf life because GDP data released February 27 onward will be as per a new series with a base year of 2022-23 as against 2011-12 now.
Key Estimates and Sectoral Trends:
The government has pegged Real GDP growth at 7.4%, up from 6.5% recorded in the previous year but lower than 9.2% in FY24.
Growth in the second half of FY26 is expected to average 6.8%, slower than 8% in the first half.
Nominal GDP is projected to grow at 8% which is significantly softer than previous trends and the lowest since the pandemic slump.
The tertiary sector is expected to quicken to 9.1%, with Financial, Real Estate, and Professional Services and Public Administration both growing at 9.9%.
The Mining and Quarrying sector is estimated to contract by 0.7%, reversing the 2.7% growth seen the previous year.
Gross Fixed Capital Formation (investment) is expected to grow at 7.8%
Demand-side drivers:
Household consumption: 7% growth (slightly lower than 7.2% last year).
Investment (Gross Fixed Capital Formation): Robust 7.8% growth, higher than FY25’s 7.1%
Government expenditure: Expected to grow 5.2%, sharply higher than 2.3% last year.
Private Final Consumption Expenditure (consumer spending) is projected to grow at 7%.
Headwinds and Concerns:
Tariff Impact:
The economy faces severe headwinds from a 50% tariff levied by the U.S. on imports from India.
This has adversely impacted labour-intensive sectors (apparel, textiles, and engineering goods)
Nominal Growth Trap:
The muted 8% nominal growth poses a challenge for fiscal arithmetic.
Since tax collections and deficit ratios are calculated on nominal GDP, a lower base makes meeting fiscal deficit targets harder.
Despite strong growth in the first two quarters (7.8% and 8.2%), the estimates imply a slowdown in the second half of the year to an average of 6.8%.