Trends in the Domestic Economy: An Analytical Study of India’s Growth Momentum Based on FY26 First Advance Estimates

 Trends in the Domestic Economy: An Analytical Study of India’s Growth Momentum Based on FY26 First Advance Estimates

Abstract

The domestic economy of India continues to demonstrate resilience and sustained growth despite global economic volatility. The First Advance Estimates (FAE) for FY26 released by Ministry of Statistics and Programme Implementation project real GDP growth at 7.4% and Gross Value Added (GVA) growth at 7.3%, reaffirming the country’s position as one of the fastest-growing major economies. This research paper analyses sectoral performance, demand and supply dynamics, structural drivers, policy implications, and future outlook based on the FY26 estimates. The study finds that domestic demand, manufacturing expansion, and services sector strength remain primary drivers of growth, while capital formation and financial services are emerging as key contributors to economic resilience.

Keywords

Domestic Economy; GDP Growth; Gross Value Added (GVA); First Advance Estimates (FAE); Demand-Side Drivers; Supply-Side Drivers; Private Final Consumption Expenditure (PFCE); Government Final Consumption Expenditure (GFCE); Gross Fixed Capital Formation (GFCF); Manufacturing Growth; Services Sector Expansion; Agricultural Performance; Industrial Growth; Infrastructure Development; Capital Formation; Domestic Demand; Investment-Led Growth; Sectoral Contribution to GDP; Structural Transformation; Economic Resilience; Public Expenditure; Financial Services Growth; Digital Economy; Economic Survey Analysis; Macroeconomic Trends; Emerging Economy Growth; Growth Momentum Analysis; Sectoral Decomposition; Fiscal Policy Impact; Economic Forecasting.

1. Introduction

The domestic economic landscape in FY26 reflects a strong recovery trajectory supported by structural reforms, public investment, and robust domestic consumption. The First Advance Estimates offer an early macroeconomic assessment of the economy’s trajectory. Despite uncertainties such as global supply chain disruptions, geopolitical tensions, and inflationary pressures, the domestic economy continues to expand at a healthy pace.

This research aims to:

Analyse growth trends using FY26 advance estimates.

Examine demand and supply drivers of growth.

Evaluate sectoral contributions to GDP.

Assess policy and structural implications for future growth.

 

2. Methodology and Data Sources

The study relies primarily on:

First Advance Estimates (FAE) FY26.

Provisional Estimates FY25.

Sectoral growth rates and expenditure components from official macroeconomic data.

Analytical methods include:

Comparative growth analysis (H1 FY25 vs H1 FY26).

Sectoral decomposition.

Demand-side macroeconomic evaluation.

Trend projection and structural analysis.

 

3. Overview of Macroeconomic Growth Trends

The FY26 estimates indicate:

Real GDP Growth: 7.4%.

GVA Growth: 7.3%.

GDP Growth in H1 FY26: 8.0%, reflecting accelerated economic activity.

Key Observations:

Growth exceeded earlier forecasts.

Domestic demand continues to anchor expansion.

Capital formation shows steady improvement.

Services sector remains dominant in value addition.

The growth trajectory highlights a transition toward investment-led expansion rather than solely consumption-driven growth.

 

4. Supply-Side Analysis: Sectoral Growth Dynamics

4.1 Agriculture and Allied Activities

Growth slowed slightly to 3.1% annually.

Improvement in H1 FY26 indicates favourable monsoon and rural recovery.

However, structural issues such as fragmented landholdings and price volatility persist.

4.2 Industrial Sector

Industry expanded by 6.2%, driven primarily by manufacturing.

Manufacturing

Growth surged to 8.4% in H1 FY26.

Benefited from production-linked incentives and domestic demand recovery.

Export diversification also contributed.

Mining and Quarrying

Contraction in H1 FY26 reflects commodity market fluctuations and regulatory challenges.

Utilities

Electricity and utilities experienced slower growth due to demand normalization after earlier expansion phases.

Construction

Remained strong due to infrastructure investment and urban housing demand.

4.3 Services Sector

Services recorded 9.1% growth, emerging as the primary growth engine.

Key contributors:

Financial and professional services (9.9% growth).

Trade, hotels, transport and communication sectors.

Public administration and defence spending.

The services boom reflects digital transformation, financial inclusion, and expanding formal sector employment.

 

5. Demand-Side Analysis: Drivers of Economic Expansion

5.1 Private Final Consumption Expenditure (PFCE)

Stable at around 7%.

Reflects steady household consumption and urban demand recovery.

5.2 Government Final Consumption Expenditure (GFCE)

Increased to 5.2%.

Driven by infrastructure spending and social welfare initiatives.

5.3 Gross Fixed Capital Formation (GFCF)

Expanded to 7.8%.

Indicates rising private and public investment activity.

5.4 Exports

Moderate growth at 6.4%.

Services exports contributed significantly amid global trade challenges.

 

6. Structural Drivers of Growth

6.1 Domestic Demand Resilience

India’s large internal market reduces dependence on external shocks.

6.2 Manufacturing Push

Policy initiatives and supply chain diversification boosted industrial output.

6.3 Digital and Financial Ecosystem

Growth in fintech, digital payments, and professional services strengthened the service sector.

6.4 Public Investment

Infrastructure expansion in transport, logistics, and urban development catalysed private investment.

 

7. Sectoral Contribution to GDP: Emerging Trends

Although services remain the dominant contributor:

Manufacturing’s share is gradually increasing.

Agriculture’s relative contribution continues to decline despite absolute growth.

Construction and infrastructure are emerging as strong intermediate drivers linking industry and services.

 

8. Challenges and Risks

Global economic slowdown and geopolitical uncertainties.

Commodity price volatility.

Employment generation in labour-intensive sectors.

Agricultural productivity constraints.

Fiscal sustainability concerns due to public spending expansion.

 

9. Policy Implications

Strengthen manufacturing competitiveness through innovation and export diversification.

Invest in agricultural modernization and supply chain infrastructure.

Enhance skill development aligned with services and digital sectors.

Encourage private investment through regulatory simplification.

Focus on inclusive growth to balance urban–rural disparities.

 

10. Future Outlook (FY27–FY30)

Sustained growth between 6.5–7.5% expected if investment momentum continues.

Services will remain dominant but manufacturing will gain share.

Digital economy and financial services will shape structural transformation.

Infrastructure-led growth will strengthen long-term productivity.

Econometric / Analytical Tests Applied in the Study

Test / Analytical Method	Purpose in Research	Interpretation in FY26 Analysis
Year-on-Year Growth Comparison	Measure annual growth changes	Identified acceleration in manufacturing & services
Sectoral Decomposition Analysis	Evaluate sector contribution to GDP	Highlighted dominance of services sector
Demand–Supply Growth Mapping	Examine macroeconomic drivers	Confirmed domestic demand as growth anchor
Trend Analysis	Identify structural growth patterns	Showed investment-led economic expansion
Comparative Period Analysis (H1 FY25 vs H1 FY26)	Evaluate short-term momentum	Revealed strong H1 FY26 GDP growth
Structural Growth Assessment	Identify long-term transformation	Observed shift toward manufacturing & digital services

(Note: Since the study uses official macroeconomic estimates, descriptive and structural analysis methods are more appropriate than inferential econometric testing unless raw time-series datasets are added.)

Table: Demand and Supply-Side Drivers of Growth with Analytical Tests Applied (FY26 FAE – India)

Sector / Component	Type	FY26 Growth (%)	Observed Trend	Analytical Test Applied	Key Interpretation
Agriculture, Livestock, Forestry & Fishing	Supply	3.1	Moderate growth, rural stability	Year-on-Year Growth Analysis	Stable but slowing long-term contribution
Mining & Quarrying	Supply	-0.7	Contraction	Comparative Period Analysis	Commodity & regulatory pressures
Manufacturing	Supply	7.0	Strong expansion	Trend Analysis	Industrial revival & policy support
Electricity, Gas & Utilities	Supply	2.1	Growth moderation	Structural Assessment	Demand normalization post-expansion
Construction	Supply	7.0	Sustained infrastructure growth	Sectoral Decomposition	Public investment driven
Trade, Hotels, Transport & Communication	Supply	7.5	Service sector recovery	Growth Momentum Analysis	Tourism & logistics recovery
Financial, Real Estate & Professional Services	Supply	9.9	Highest growth segment	Structural Transformation Test	Digital economy & financial expansion
Public Administration & Defence	Supply	9.9	Strong government spending	Fiscal Impact Analysis	Public expenditure boost
GVA at Basic Prices	Supply Aggregate	7.3	Broad-based growth	Aggregate Growth Model	Balanced sectoral expansion
Private Final Consumption Expenditure (PFCE)	Demand	7.0	Stable domestic demand	Consumption Trend Analysis	Household spending resilience
Government Final Consumption Expenditure (GFCE)	Demand	5.2	Rising fiscal spending	Fiscal Stimulus Analysis	Welfare & infrastructure support
Gross Fixed Capital Formation (GFCF)	Demand	7.8	Investment-led growth	Capital Formation Analysis	Rising private & public investment
Exports	Demand	6.4	Moderate growth	External Sector Analysis	Services exports support economy
GDP Growth	Overall	7.4	Strong macro performance	Composite Growth Analysis	Domestic demand-led expansion

 

Research Insight

Supply Side: Services + Manufacturing are the primary growth engines.

Demand Side: Capital formation and consumption remain dominant drivers.

Tests Applied: Mainly descriptive macroeconomic tools — YoY comparison, structural analysis, sectoral decomposition, and growth momentum evaluation — suitable for advance estimate datasets.

 

 

 

11. Conclusion

The FY26 First Advance Estimates confirm that India’s domestic economy remains resilient and growth-oriented despite global uncertainties. Robust domestic demand, manufacturing acceleration, and strong service sector expansion form the backbone of the current growth trajectory. Sustained reforms, technological adoption, and inclusive policy design will be essential to maintain momentum and ensure long-term structural transformation.

References

Government of India. (2026). Economic Survey 2025–26. Ministry of Finance.

Ministry of Statistics and Programme Implementation. (2026). First Advance Estimates of National Income 2025–26. Government of India.

Reserve Bank of India. (2025). Handbook of Statistics on Indian Economy. RBI Publications.

International Monetary Fund. (2025). World Economic Outlook: Global Growth Trends and Emerging Economies. IMF Publications.

World Bank. (2025). Global Economic Prospects Report. World Bank Publications.

OECD. (2025). Economic Outlook for Emerging Markets. OECD Publishing.